BILL ANALYSIS
SB 503
Page 1
SENATE THIRD READING
SB 503 (Kehoe)
As Amended June 23, 2010
Majority vote
SENATE VOTE :37-0
BUSINESS & PROFESSIONS 11-0APPROPRIATIONS 17-0
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|Ayes:|Hayashi, Conway, Eng, |Ayes:|Fuentes, Conway, |
| |Hernandez, Hill, Ma, | |Bradford, |
| |Nava, Niello, Ruskin, | |Huffman, Coto, Davis, De |
| |Smyth, Logue | |Leon, Gatto, Hall, |
| | | |Harkey, Miller, Nielsen, |
| | | |Norby, Skinner, Solorio, |
| | | |Torlakson, Torrico |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Requires the State Controller (Controller) to select
one or more projects funded from any state obligation bond act
approved after January 1, 2010, to be the subject of an audit
conducted by up to five auditors. Specifically, this bill :
1)Requires the Controller to select one or more projects funded
by any state general obligation bond act approved by the
voters on or after January 1, 2010, to be subject to an audit
or audits, as specified.
2)Requires the Controller to audit the bond project in order to
ensure that the project is implemented in an efficient,
cost-effective, and timely way and that the bond proceeds are
spent in a manner that is legal and consistent with the
provisions of the authorizing measures.
3)Requires the Controller to make recommendations to the
Legislature and responsible departments and agencies about how
to improve implementation of bond projects, based upon these
audits.
4)Authorizes the Controller to examine any record of any agency,
contractor, subcontractor, vendor, or other individual or
entity receiving, directly or indirectly, bond proceeds if the
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record is related to the use of those proceeds, as specified.
5)Requires the department or agency responsible for the project
being audited to reimburse the Controller for the actual cost
of conducting the audit from the proceeds of bonds allocated
for administrative purposes for that project.
6)Requires the entity responsible for the project to determine
that it is able to pay the estimated costs of conducting the
audit prior to contracting with the Controller to do so, and
if the entity is unable to pay the estimated cost of the
audit, the Controller shall not conduct the audit.
7)Requires the Controller to use only those funds allocated for
the particular project being audited and not funds allocated
for any other project.
8)Requires the Controller, by April 30 of each year, to prepare
an audit plan for the following fiscal year specifying the
project that will be subject to an audit pursuant to this
bill, the responsible departments or agencies to be audited,
and an estimated completion date for the audits.
9)Authorizes the Controller to request funding in the annual
Budget Bill for additional auditors, as specified.
10)States legislative intent.
EXISTING LAW :
1)Sets forth the procedures for the issuance and sale of bonds
and for the disbursal of the proceeds of the sale of those
bonds under the State General Obligation Bond Law.
2)Provides for various oversight and reporting requirements for
the expenditure of state funds, including the proceeds of
bonds.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, costs for the audits would be up to $350,000
annually, assuming the maximum of five auditors authorized in
the bill plus one supervisor to conduct 10 to 15 audits. As
required by the bill, funding would come out of bond proceeds
allocated for the administrative costs of audited projects.
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Presumably, these audits will identify savings or avoided costs
of up to several million dollars annually, which would more than
offset the costs of the audits and could be allocated to
additional bond-funded projects.
COMMENTS : According to the author's office, "During the 2007-08
legislative session, the Senate Appropriations Committee's
Subcommittee on Fiscal Oversight and Bonded Indebtedness held an
informational hearing focusing on the 1B-1E infrastructure bonds
and need for greater oversight. SB 503 provides for this
oversight ensuring accountability and government efficiency to
California taxpayers."
Background . In January 2007, the Governor issued Executive
Order (EO) S-02-07 which directs government agencies that spend
bond funds to institute a three part accountability structure
that includes: 1) Front-End Accountability - creating a
strategic plan with performance standards for projects prior to
the expenditure of funds; 2) 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 and require each department to 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; and, 3)
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 EO 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 EO 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 EO 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
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their money is 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.
Analysis Prepared by : Rebecca May / B.,P. & C.P. / (916)
319-3301
FN: 0005953