BILL ANALYSIS
AB 2082
Page 1
Date of Hearing: May 19, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2082 (Committee on Education) - As Amended: April 14, 2010
Policy Committee: EducationVote:6-3
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill makes changes to the state mandate reimbursement
process for K-12 local education agencies (LEAs). Specifically,
this bill:
1)Authorizes an LEA to file an incorrect reduction claim as an
appeal with the Education Audit Appeals Panel (EAAP) within 60
days of the date on which the state controller (SC) notifies
the LEA its mandate reimbursement claim has been adjusted to
reduce the overall reimbursement. This measure also requires
the EAAP to conduct a hearing within 90 days of receiving the
appeal.
2)Authorizes an LEA to present evidence at the hearing, if it
asserts the SC notice contains any finding that was based on
factual errors or interpretation of law, or if the LEA asserts
in good faith it was in substantial compliance with all legal
requirements. This bill also requires the EAAP, if it
determines the LEA is correct, to inform the SC of its
determination and requires the SC to adjust the LEA's claim
accordingly.
3)Defines "substantial compliance" as nearly complete adherence
to all elements of the parameters and guidelines (Ps & Gs)
adopted for that mandate claim by the Commission on State
Mandates (CSM) and to all elements of the claiming
instructions for the claim issued by the SC.
4)Authorizes an LEA filing as an appeal with the EAAP for an
incorrect reduction claim (specified above) to consolidate the
appeal on behalf of other LEAs who have claims for the same
mandate. This measure further establishes a process for LEAs
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to consolidate their appeals, as specified.
5)Requires the CSM, by July 1, 2011, to transfer all pending
incorrect reduction claims filed on or before June 30, 2011 by
an LEA, including all related documentation and CSM working
papers, to the EAAP. This bill also establishes a timeline
for the EAAP to hear these claims.
FISCAL EFFECT
1)GF administrative costs to the SC, of approximately $200,000,
in the first year to implement the requirements of this
measure. According to the SC, approximately $180,000 of this
cost would be on-going.
2)Potential GF administrative costs, likely between $250,000 and
$600,000, to the EAAP to review incorrect reduction claim
appeals made by LEAs pursuant to the bill. The governor's
proposed 2010-11 budget provides $1.15 million GF and 3.8
positions for the EAAP. Actual costs will depend on the
number of additional personnel needed to review LEA claims.
3)This bill requires the EAAP to review incorrect reduction
claims appeals. These reviews are currently conducted by the
CSM. To the extent this requirement reduces the CSM's
workload, there is a potential GF administrative cost savings
of at least $250,000 to the CSM. According to the CSM, there
are currently 157 pending incorrect reduction claims for a
total of $83.7 million. The governor's proposed 2010-11
budget provides $84.2 million for 11 positions for the CSM.
Of this amount, $81.5 million is GF and $2.7 million is
special fund.
4)GF/98 cost pressure, likely in the hundreds of thousands of
dollars, to the extent the EAAP rules in favor of LEAs with
respect to their appeals regarding incorrect reductions, as
specified.
SUMMARY CONTINUED
6)Expresses legislative intent that statues creating a
reimbursable state mandate for LEAs be periodically reviewed
and the Legislature consider recommendations on whether these
statutes be amended, repealed, or unchanged.
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7)Requires the Legislative Analyst's Office (LAO), at least once
in each regular session of the Legislature, to report on each
LEA reimbursable state mandate that meets the following
criteria: (a) the CSM has determined the existence of a state
reimbursable mandate; (b) a claim for reimbursement has been
filed with the SC by a school district, county office of
education, or other eligible LEA; and (c) the Legislature has
not provided an appropriation to fully fund current and
pending claims for reimbursement filed with the SC.
8)Requires the LAO to include specified information in the
report, including recommendations as to whether the mandate
should be amended, repealed or remain unchanged, and provide
it to the Legislature on or before January 1 following the
adjournment of regular session for which the review was made.
9)Requires a bill (introduced or amended) that would impose a
state mandated local program on an LEA, as determined by
legislative counsel, to include a provision that repeals the
local program or make the requirement inoperative no later
than five years following the enactment of the bill. This
measure further requires legislative counsel to implement this
provision as well.
COMMENTS
1)Background . The California Constitution requires the state to
reimburse local governments, including LEAs, for certain state
mandates. Section 6 of Article XIII B of the Constitution
provides that, with certain exceptions, whenever the
Legislature or any state agency mandates a new program or
higher level of service on any local government, the state
shall reimburse the local government for the costs of the new
state-mandated activity.
For K-14 education, the mandate process begins when an LEA,
including a community college district, files a test claim
with the CSM. LEAs are required to submit claims within one
year of the effective date of the statute. The CSM hears the
test case and issues a "statement of decision," which
determines whether a claim is a reimbursable state mandate. If
a state mandate is determined, the CSM begins the process
establishing costs based upon mandate claims. In so doing,
claimants propose Ps and Gs for determining the costs. Ps and
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Gs identify the mandated program, eligible claimants, period
of reimbursement, reimbursable activities, and other necessary
claiming information. The CSM then adopts the Ps and Gs, which
are sent to the SC in order to develop claiming instructions
for LEAs. At this point, LEAs may file claims. In the end,
the CSM estimates the costs of paying claims and reports the
amount to the Legislature as the "statewide cost estimate,"
for inclusion in the annual budget.
2)Purpose . In 2009, the State Auditor (SA) issued a report
entitled State Mandates: Operational and Structural Changes
Have Yielded Limited Improvements in Expediting Processes and
in Controlling Costs and Liabilities. This report states:
"Over the last six years, since we issued our last report on
state mandates, operational and structural changes have
marginally improved the way state mandates are determined and
subsequently managed in California."
According to the author, this bill proposes to address
recommendations made in the SA report as it relates to the
following three issues: (a) addressing the backlog of pending
incorrect reduction claims; (b) providing information to the
Legislature in order for it make informed decisions regarding
the consequences of establishing a state reimbursable mandate;
and (c) establishing sunsets for each new mandate in order to
assess the impact of the mandate, as specified.
3)CSM concerns with the bill . The CSM has expressed concerns
with the bill's provisions related to LEAs demonstrating
"substantial compliance" in their appeals of incorrect audit
reductions to the EAAP. According to the CSM, "mandates law
requires reimbursement for 'costs actually incurred' for the
reimbursable activities identified in the P's and G's and
claiming instructions and not for costs that 'substantially
comply' with the P's and G's and claiming instructions. Thus,
depending on how the 'substantial compliance' standard is
applied, it may conflict with existing mandates law."
The CSM further contends that because the term "substantial
compliance" is not identified as an acceptable audit standard
in the state constitution, statute, or case law, LEAs
demonstrating compliance may not adhere to audit standards.
According to the CSM, this "may result in an invalid
retroactive application of the law. If a new statute, such as
[this bill], affects substantive rights or liabilities of the
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parties that changes the legal consequences of past events,
then the application of the statute may be considered
retroactive and invalid."
The author has informed the committee that she is working to
address these issues.
4)The EAAP adopts as regulations the annual guide for audits of
K-12 education entities and independently resolves disputes
arising from audits of those entities. These activities set
clear standards for compliance with education funding
requirements and allow both the state and local schools to
avoid lengthy and expensive litigation over disputed funding.
5)Outstanding K-14 mandate obligations . The following chart
illustrates the state's outstanding education mandate
obligations.
-----------------------------------------------------------------
| |
|Outstanding K-14 Mandate Obligations Total $3.6 Billiona |
| |
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|---------------------------------+----------+----------+----------|
| | | | |
|(In Millions) | 2007-08 | 2008-09 | 2009-10 |
| | | | |
|---------------------------------+----------+----------+----------|
|Outstanding K-12 claims | $2,141| $2,501| $2,867|
|---------------------------------+----------+----------+----------|
|Ongoing cost of K-12 claims | 360| 366| 373|
|---------------------------------+----------+----------+----------|
|Outstanding CCC claims | 260| 299| 340|
|---------------------------------+----------+----------+----------|
|Ongoing cost of CCC claims | 39| 41| 43|
|---------------------------------+----------+----------+----------|
| | | | |
|Total Outstanding Obligations | $2,800| $3,207| $3,623|
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| |
|a Excludes mandates still in the mandate determination process. |
|Includes mandate relating to high school science graduation |
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|requirement. |
| |
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6)LAO recommendations to revise the K-12 state reimbursable
mandate process . According to the LAO, the mandates process
has significant, longstanding shortcomings. Test claims can
take many years to be resolved. During this time, state fiscal
liabilities increase and K-14 education agencies are not
reimbursed for mandated activities. In addition, the LAO
identifies the following major problems with the current K-14
mandate system: (a) mandates do not serve a compelling
purpose; (b) costs can be higher than anticipated; (d)
reimbursements can vary greatly without justification; (e)
reimbursements reward ineffiency; and (f) the reimbursement
process ignores effectiveness.
The LAO recommends a comprehensive reform package for K-14
education mandates that relies on making determinations for
individual mandates. These recommendations include: (a)
either funding or eliminating them in their entirety and (b) a
hybrid approach whereby certain activities associated with a
mandate would be funded and the remaining activities
eliminated.
7)Technical issues with the bill . This measure requires the CSM
to transfer all pending incorrect LEA reduction claims to the
EAAP by July 1, 2011. The timeline in this measure for the
EAAP to hear these claims, however, does not ensure completion
of this work by July 1, 2011.
Also, the majority of the provisions of this bill apply to
K-12 LEAs, not community college districts, as specified.
This measure requires the LAO to review and report on each
state reimbursable mandate relating to LEAs. Unlike the other
provisions of this bill, it does not make clear that LEAs do
not include community college districts. The committee
recommends the author address these issues.
8)The governor's 2010-11 budget proposed to suspend all but
three K-14 mandates . In December 2008, a San Diego Superior
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Court judge ruled that the Legislature's practice of budgeting
$1,000 in the annual budget act for certain mandates in order
to defer payment on the total claim is unconstitutional. The
ruling was in response to a lawsuit filed in 2007 by five
school districts and the California School Boards Association
against the Department of Finance (DOF) and the SC seeking
payment of past mandate claims and to end the act of deferring
K-12 education mandates.
While constitutional separation of powers left the court with
the inability to force the Legislature to make budgetary
appropriations for K-12 mandates, its decision increases
pressure on the state to pay the annual ongoing cost of these
mandates.
The suspension of mandates relieves the state from the
obligation to pay for required activities. Likewise, local
schools do not have to perform these activities. According to
DOF, the governor's proposed suspensions would reduce mandate
claims by approximately $200 million GF/98.
Analysis Prepared by : Kimberly Rodriguez / APPR. / (916)
319-2081