BILL ANALYSIS
Bill No: AB
480
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
AB 480 Author: Tran
As Amended: June 1, 2009
Hearing Date: July 8, 2009
Consultant: Art Terzakis
SUBJECT
Bond Acts: auditing
DESCRIPTION
AB 480 requires all statewide bond measures approved by the
voters to include auditing provisions relative to the use
of any bond moneys to ensure that the money is spent only
for the purposes of the bond measure. Specifically, AB
480:
1.Requires any state bond measure approved by the voters
after January 1, 2010 to include provisions requiring
audits of bond expenditures.
2.Authorizes the Bureau of State Audits (BSA) to conduct
periodic audits to ensure that bond proceeds are awarded
in a timely manner and that recipients use bond moneys in
compliance with applicable provisions of law.
3.Requires audit-related costs to be reimbursed by bond
proceeds.
EXISTING LAW
The State General Obligation Bond Law (GOBL) sets forth the
procedures for the issuance and sale of bonds governed by
its provisions and for the disbursal of the proceeds of the
sale of those bonds. The law provides for various
oversight and reporting requirements for the expenditure of
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state funds, including the proceeds of bonds.
Under current law, the State General Obligation Bond Law
specifies procedures for use in authorizing the issuance
and sale and providing for the repayment of state general
obligation bonds. Any state general obligation bond measure
is required to be subject to the making, at least annual,
of a specified report, by the head of the lead state agency
administering the bond proceeds, to the Legislature and the
Department of Finance.
Current law requires that, with regard to a resolution
specifying that the bonds may pay a variable interest rate,
that the aggregate principal amount of all state general
obligations bonds bearing variable interest rates do not
exceed 20 percent of the aggregate principal amount of all
outstanding general obligation bonds.
Existing law requires, for bonds approved by the voters
after January 1, 2006, that the payment of interest include
the payment of any amounts owed by a counter-party after
any offset for payments owed to the state on a hedging
contract, and prohibits the total payments of stated
interest on the bonds and payments owed by the state from
exceeding a specified maximum rate after a specified
offset.
BACKGROUND
General obligation bonds are a type of municipal
government bond, which is government debt issued to raise
money to finance public improvements. A general
obligation bond is backed by the credit and "taxing
power" of the issuing jurisdiction, rather than the
revenue from a given project. No assets are used as
collateral for the bond and the bond is not dependent on
revenue of any particular project for repayment. The
cost of bonds depends on the interest rates at which they
are sold and the length of time until they are paid off.
In November 2006, California voters approved five
propositions which authorized $42.7 billion in general
obligation bonds. The bonds cover a range of purposes,
including transportation, education, resources, and
housing. Including principal and interest payments, the
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long-term costs of the bond package will be about $84
billion. As such, the bond package represented a major
commitment by the Legislature, Governor, and the voters
to improve the state's infrastructure.
In January 2007, the Governor issued Executive Order
S-02-07 which directs government agencies that spend bond
funds to institute a three part accountability structure
that includes:
Front-End Accountability - creating a strategic
plan with performance standards for projects prior
to the expenditure of funds.
In-Progress Accountability - Documenting
ongoing actions to ensure that the projects or other
activities funded from bond proceeds remain within
the identified scope and cost. Additionally, each
department must make semi-annual reports to the
Department of Finance (DOF) to ensure that
bond-funded projects and activities are being
executed in a timely fashion and achieving their
intended purposes.
Follow-up Accountability - Auditing completed
projects to determine whether the expenditures are
in line with the goals laid out in the strategic
plan.
To enforce these requirements, the Executive Order requires
each department to submit this three-part accountability
structure to the DOF for review, which in turn is required
to approve the accountability structure prior to the
expenditure of bond proceeds. The Executive Order requires
DOF to establish a website to provide the public with
readily accessible information on how the proceeds of state
general obligation bonds and lease-revenue bonds are being
utilized.
State Treasurer Bill Lockyer and State Controller John
Chiang responded to the Governor's Executive Order on Bond
Accountability by stating, "The Governor has taken an
important first step toward providing the accountability we
must have to keep faith with the people's trust. To finish
the job, we need independent oversight and robust citizen
participation for Californians to be certain their money is
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spent with maximum efficiency and effectiveness." The
Treasurer and Controller proposed the creation of an
11-member Citizens' Bond Oversight Commission, with a
minimum of eight qualified public citizens to review and
report on all aspects of the bond expenditures and provide
independent oversight. However, no such bill was
introduced during the 2007-08 legislative Session.
The Governor's Strategic Growth Plan also has a section on
accountability which notes:
"To assure that public funds are utilized as efficiently as
possible and in a manner consistent with the stated intent
of already authorized and proposed future bond measures,
firm accountability requirements will govern the
expenditure of funds. Prior to any funding being expended
from existing or future bonds, the responsible state
agencies must develop performance and outcome measures for
each program and project that would be funded from the
bonds. Regular audits will be conducted to ensure that
funds are being allocated according to those outcome
criteria and that the implemented programs and projects did
in fact achieve the intended outcomes. It is imperative
that the public be able to access this information. The
voters have an absolute right to know how the bonds they
authorized are being spent. Therefore, outcome and
performance criteria, as well as audit results, will be
made readily available to the public."
Purpose of AB 480: According to the author's office, this
is a simple measure stating that any state bond placed on a
ballot must include auditing provisions. It is intended to
ensure that California voters can remain confident that the
bonds they are authorizing the state to sell to generate
revenue for a specific project, are utilized for that
project. The author's office emphasizes that AB 480 is a
common sense measure that will ensure the use of bond
monies is transparent and as intended.
Writing in support, the California Taxpayers' Association
believes AB 480 would provide greater accountability in how
taxpayer money is spent and give Californians more
confidence that authorized bonds are going to their
intended use. Also writing in support, the Howard Jarvis
Taxpayers Association claims that this measure will help
ensure that bond funds are not wasted. Additionally, the
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Association states that "with $100 billion worth of General
Obligation bonds passed in the last decade alone, we owe it
to our kids to ensure that this money is spent
responsibly."
PRIOR/RELATED LEGISLATION
SB 826 (Governmental Organization) 2009-10 Session. Would
make a number of technical changes to the General
Obligation Bond Law to clarify the way the law applies to
negotiated sales of bonds. (Pending in Assembly
Appropriations Committee)
SB 503 (Kehoe) 2009-10 Session. Would require the State
Controller, annually, on or before April 30 to audit
certain bond projects and examine any record that relates
to the use of bond proceeds. (Pending in Senate
Appropriations Committee)
SB 784 (Torlakson) 2007-08 Session. Would have established
new reporting and audit provisions applicable to general
obligation bonds authorized on or after November 7, 2006,
in order to ensure maximum transparency and accountability
regarding the expenditure of bond funds. (Died on Assembly
Appropriations Suspense File)
AB 1544 (McCarthy) 2005-06 Session. Would have declared
intent to enact legislation that would require that any
state or local bond measure in this state that is placed on
the ballot for approval by the voters contain auditing
provisions with respect to the use of any bond money that
would be spent for the purposes of the bond measure.
(Never referred to policy committee - Died at Desk)
SB 28 (Brulte) Chapter 97, Statutes of 2001. Made numerous
substantive changes to the General Obligation
Bond Law to modernize and update the law.
SUPPORT: As of July 3, 2009:
California Taxpayers' Association
Howard Jarvis Taxpayers Association
OPPOSE: None on file as of July 3, 2009.
FISCAL COMMITTEE: Senate Appropriations Committee
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