BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1236|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: SB 1236
Author: Hernandez (D)
Amended: 3/28/16
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 5-0, 4/13/16
AYES: Hertzberg, Beall, Hernandez, Lara, Pavley
NO VOTE RECORDED: Nguyen, Moorlach
SENATE APPROPRIATIONS COMMITTEE: 5-1, 5/27/16
AYES: Lara, Beall, Hill, McGuire, Mendoza
NOES: Bates
NO VOTE RECORDED: Nielsen
SUBJECT: Local government
SOURCE: Author
DIGEST: This bill enacts statutes governing the City of
Industrys city-owned housing occupancy, annual audits, city
councilmembers compensation, and contracting practices.
ANALYSIS:
Existing law:
1)Allows cities that adopt charters to control their own
"municipal affairs." In all other matters, charter cities
must follow the general, statewide laws.
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2)Imposes requirements, pursuant to the Public Contract Code, on
contracts between cities and their contractors or
subcontractors.
3)Specifies that the Public Contract Code's provisions apply to
charter cities unless there is an express exemption or a
charter city ordinance or regulation that is in direct
conflict with the code.
This bill:
1)Imposes the following requirements on a city that is
incorporated to promote commerce and industry, is located
wholly within the County of Los Angeles, and had no
residentially zoned land within its boundaries as of January
1, 1992:
a) No more than 5 percent of the city's total city-owned
housing may be occupied by:
i) Employees or officers of the city, including the
family of employees or officers of the city.
ii) Persons that contract with the city, including
employees of persons or companies that contract with the
city, and including the family of persons who contract
with the city and the family of employees of persons or
companies that contract with the city.
b) The city must make an annual disclosure of all property
owned by the city, wherever that property is situated.
c) The city must conduct an annual audit that utilizes
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internal control components and elements based on the
guidelines established by the Government Accountability
Office's Internal Control Management and Evaluation Tool.
The city must substantially comply with those guidelines.
d) Compensation for service on the city council must not
exceed $1,000 per month.
e) The California Public Contract Code must apply to
contracts entered into by the city, including contracts for
the provision of waste collection and management services,
notwithstanding existing law that applies the Public
Contract Code's provisions to charter cities only in the
absence of an express exemption or a city charter provision
or ordinance that conflicts with the relevant provision of
the Public Contract Code.
2)Specifies that the above requirements remain in effect only
until January 1, 2028.
3)Contains legislative findings and declarations relating to
concerns about corruption in small charter cities.
Background
Encompassing an area of nearly 12 square miles in southeastern
Los Angeles County, the City of Industry is a charter city which
incorporated in 1957 for the purpose of promoting commerce and
industry. The City is governed by a city council comprised of
five members who serve four year terms. Councilmembers are
subject to at-large elections, although the City has rarely had
to hold competitive elections. With approximately 440
residents, the City accommodates very little residential housing
within its boundaries.
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For many years, the City of Industry's government has attracted
attention over allegations of corruption, misspending, and
mismanagement. Just last year, an internal city audit
reportedly found that the city had paid more than $300 million
to companies owned by the city's former mayor and his relatives
and that the payments were often not supported by accurate
invoices or other documentation. In response, the Los Angeles
County Board of Supervisors unanimously approved a resolution
calling upon for the District Attorney to investigate possible
fraud, corruption and illegal activity by Industry's former
Mayor and City Council. The Board's resolution also requested
the State Controller to conduct an audit of the city's
government transactions and contracts. In January, 2016, after
conducting a review in the City of Industry, the Controller's
Office released a report on its findings, which included
widespread deficiencies in the city's internal controls,
questionable expenditures, inadequate oversight of financial and
operational activities, and irregular compensation and personnel
practices.
These reports raise concerns about a lack of honesty, fairness,
and accountability in how the City of Industry is governed. In
response, some state elected officials want to impose limits on
city officials' discretion over matters that include city
council compensation, city contracting procedures, and the use
of city owned housing by city officials and their relatives.
Comments
Purpose of the bill. After auditing the City of Industry's
administrative and internal controls last year, the State
Controller reported finding pervasive deficiencies in the City's
accounting practices. The Controller's staff found that 67 the
79 control elements evaluated pertaining to the City of
Industry's internal controls were considered inadequate. None
of the City's 16 evaluated control elements relating to
integrity and ethical value, commitment to competence, and
management oversight and control were found to be adequate. The
Controller's review "identified numerous contracts and
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transactions that, at least in appearance, raised questions
about City Council's lack of due diligence, including potential
conflicts of interest and favoritism." Although City officials
are working to correct many of the problems identified in the
Controller's report, other concerns about the City's governance
remain unresolved. The District Attorney's office is reportedly
investigating the City's contracting practices. A June 2, 2015
city council election also generated controversy by placing
three new members on the council who immediately replaced the
city manager and city attorney who had worked for the previous
council. Ongoing uncertainty about the integrity, stability,
and honesty of the City of Industry's government is not good for
city residents or for the businesses located within the City.
The questions raised about the City's government also cast a
broader shadow of mistrust over municipal government in general.
This bill is a reasonable and targeted response to these
problems. This bill imposes a few common-sense restrictions on
City of Industry practices that are raising concerns among
auditors, law enforcement professionals, and members of the
general public.
Charter city. The California Constitution allows cities that
adopt charters to control their own "municipal affairs." In all
other matters, charter cities must follow the general, statewide
laws. Because the Constitution doesn't define "municipal
affairs," the courts determine whether a topic is a municipal
affair or whether it's an issue of statewide concern. Despite
the fact that the City of Industry is a charter city, this bill
says that its statutory provisions apply to the City. To
support this assertion, this bill includes a legislative finding
and declaration that having an open, honest, and transparent
government is a matter of statewide concern, and not a municipal
affair. Ultimately, the courts may decide whether this bill's
provisions can apply to a charter city. To avoid any
uncertainty about whether City of Industry can be subject to
general law restrictions, it would be necessary to amend the
California Constitution. For example, until voters approved a
1970 constitutional amendment proposed by the California
Constitution Revision Commission (Proposition 2), the
Constitution did not allow cities with a population of less than
3,500 residents to become charter cities. Restoring this
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population threshold in the Constitution would guarantee that
the City of Industry could be subjected to greater regulation
under state law.
Impairment of contract. This bill caps, at five percent, the
share of City owned housing that can be occupied by city
employees, city officers, or their relatives. It is unclear
whether, if the bill becomes law, the City would be required to
evict current occupants of city owned housing in order to comply
with the new cap. Article I, Section 9 of the California
Constitution prohibits the Legislature from passing laws that
impair obligation of contracts. To the extent that current
occupants of city-owned housing entered into lease agreements
with the City, state law may not be able to force the city to
break the terms of those leases. To clarify the intended effect
of the 5% cap, the Legislature could consider specifying that
the cap will apply to city owned housing only after current
leases on those houses expire.
Mandate. The California Constitution requires the state to
reimburse local governments for the costs of new or expanded
state mandated local programs. Because SB 1236 imposes new
duties on City of Industry officials, Legislative Counsel says
that it imposes a new state mandate. SB 1236 requires the state
to reimburse local agencies if the Commission on State Mandates
determines that the bill imposes a reimbursable mandate.
Special legislation. The California Constitution prohibits
special legislation when a general law can apply (Article IV,
§16). SB 1236 contains findings and declarations explaining the
need for legislation that applies only to the City of Industry.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
According to the Senate Appropriations Committee, unknown
mandate costs, potentially in the range of $50,000 to $150,000
annually until 2028, related to requirements to conduct annual
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audits and provide annual disclosures of city-owned property
(General Fund). Actual state-reimbursable costs would be
contingent upon the filing of a successful mandate claim with
the Commission on State Mandates, and a determination by the
Commission that specific duties constitute a new program or
higher level of service that warrants state reimbursement.
SUPPORT: (Verified5/26/16)
None received
OPPOSITION: (Verified5/26/16)
City of Industry
ARGUMENTS IN SUPPORT: This bill's proponents argue that a
pattern of mismanagement, ethically questionable
decision-making, and possible corruption in the City of Industry
violates the trust residents place in city officials, leads to
wasteful misuse of public funds, and generally undermines public
confidence in government. Proponents argue that protecting
open, honest, and transparent government is a matter of
statewide concern which justifies placing statutory restrictions
on the City of Industry's housing, compensation, and contracting
practices.
ARGUMENTS IN OPPOSITION: Opponents of this bill argue that
the issues addressed by the bill are municipal affairs which
cannot be regulated through state statutes because the City of
Industry is governed by a voter-approved charter. Opponents
argue that correcting problems related to management of public
funds, city-owned housing, and city council compensation is the
responsibility of local elected officials who can be held
directly accountable by city voters.
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Prepared by:Brian Weinberger / GOV. & F. / (916) 651-4119
5/28/16 17:15:10
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