BILL ANALYSIS
SENATE COMMITTEE ON EDUCATION
Gloria Romero, Chair
2009-2010 Regular Session
BILL NO: SB 1161
AUTHOR: Lowenthal
AMENDED: April 6, 2010
FISCAL COMM: Yes HEARING DATE: April 14, 2010
URGENCY: No CONSULTANT:Kathleen Chavira
SUBJECT : School Facilities Material Inaccuracies
KEY POLICY ISSUES
Current law requires the Office of Public School
Construction to notify the State Allocation Board (SAB) of
any false certification made by districts, architects or
design professionals in any school facility funding
application. Is this current definition of a material
inaccuracy too broad? Is there a lack of consistency or
transparency in the application of the finding of a
material inaccuracy?
Current law requires the SAB to prohibit a school district
from self-certifying project information as a consequence
of the finding of a material inaccuracy. Should the SAB
instead be given the discretion to determine whether a loss
of self-certification is appropriate?
SUMMARY
This bill deletes the current statutory definition of a
material inaccuracy, authorizes, rather than requires
(current law), the SAB to prohibit a school district from
self-certifying certain project information as a
consequence of a determination that an apportionment or
fund release of school construction bonds was made based
upon materially inaccurate information, and deletes the
authority of the SAB to impose a self-certification penalty
where no funding apportionment or fund release has been
made.
BACKGROUND
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Current law, requires the Office of Public School
Construction (OPSC) to notify the State Allocation Board
(SAB) in the event of a material inaccuracy, referenced in
statute as information found to have been falsely certified
by school districts, architects or design professionals.
Regulations (California Code of Regulations, Title 2,
1859) further define a material inaccuracy as any falsely
certified eligibility or funding application related
information submitted by school districts, architects or
other design professionals that allowed the school district
an advantage in the funding process.
If an apportionment or fund release has been made based
upon information or materials that constitute a material
inaccuracy, the SAB is required to impose the following
penalties:
1) Require the school district to repay to the SAB an
amount proportionate to the additional funding
received as a result of the material inaccuracy
including interest at the rate paid on moneys in the
Pooled Money Investment Account or at the highest rate
of interest for the most recent issue of state general
obligation bonds, whichever is greater, pursuant to a
maximum 5-year repayment schedule as approved by the
SAB.
2) Prohibit the school district from self-certifying
certain project information for any subsequent
applications for project funding for a period of up to
five years following the date of the finding of a
material inaccuracy or until the district's repayment
of the entire amount owed. However, the SAB may not
prohibit the school district from applying for state
funding under the School Facility Program.
3) Establish an alternative process for state or
independent certification of compliance that includes,
but is not be limited to, procedures for payment by
the school district of any increased costs associated
with the alternative certification process.
If a funding apportionment has occurred, but no fund
release has been made, the board is required to reduce the
apportionment to the district as necessary to reflect the
actual nature of the project and to disregard the
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inaccurate information or material. In addition, the
district is subject to the loss of self-certification
penalty delineated in (2) above.
If no funding apportionment or fund release has been made,
the inaccurate information or materials are not to be
considered and the district is subject to the loss of
self-certification penalty delineated in (2) above. The
project may continue if the application, minus the
inaccurate materials, is still complete. (Education Code
17070.51)
ANALYSIS
This bill :
1) Deletes the current statutory reference to a "material
inaccuracy" as information which has been falsely
certified by school districts, architects or design
professionals.
2) Deletes the requirement , and instead authorizes, the
SAB to prohibit a school district from self-certifying
project information for any subsequent applications
for project funding for a period of up to five years
following the date of the finding of the material
inaccuracy.
3) Deletes the authority of the State Allocation Board to
impose a self-certification penalty if no funding
apportionment or fund release has been made.
4) Makes other conforming and clarifying changes.
STAFF COMMENTS
1) Need for the bill . According to the author,
eligibility and funding applications contain dozens of
complex and detailed documents and it is not uncommon
for these self-certified documents to contain errors.
Currently, the author asserts, all false
certifications are deemed material inaccuracies
regardless of the significance of the error to the
state. The author contends that striking "false
certification" from current law will allow the ability
to distinguish between material inaccuracies that
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unfairly provide funding to school districts and
simple errors that have no material impact to the
state. In addition, the author believes that the bill
will provide consistency between the law and SAB
regulations and will result in savings to districts
and the state via the elimination of unnecessary
reviews, reports, and appeals, when there is no
benefit to the state.
2) How does it currently work? The SAB adopted
regulations that define "Material Inaccuracy" as any
falsely certified eligibility or funding application
related information submitted by school districts,
architects or other design professionals that allowed
the school district an advantage in the funding
process. Staff presents research, analysis, and
recommendations to the SAB for material inaccuracy
consideration. According to the OPSC, it is not
necessary for the SAB to determine that the
certification was knowingly false. No finding of any
intent or specific knowledge on the part of a district
is necessary.
According to the OPSC, the most common form of
material inaccuracy is a premature fund release
certification, where the district receives a funding
advantage through the false certification of documents
necessary to have apportioned funds released to the
district. Under current regulations (California Code
of Regulations, Title 2, 1859.90) the OPSC will
release state funds apportioned to the district once
the district certifies that it has entered into a
binding contract for at least 50 percent of the
construction included in the plans applicable to the
state funded project.
Current law requires that a district that has received
an apportionment must meet the criteria for fund
release (pursuant to EC 17072.32 or
17074.15) within a period established by the board
but not to exceed 18 months. (EC 17076.10(d)) If
the 18 months has elapsed and the district does not
secure a fund release, the apportionment is rescinded
and becomes available for other state School Facility
Program projects.
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3) Fiscal implications to the state and the district . The
previous state school construction program (the State
School Lease Purchase Program) required districts to
repay the state with interest in cases where
inaccurate information was provided. Due to an
oversight, there was no similar provision included in
the new School Facilities Act and SB 2066 (O'Connell,
Chapter 590, Statutes of 2000) was enacted to remedy
this situation. The OPSC opines that the SAB has the
fiduciary responsibility to recover funds overpaid,
and to recover the interest lost by the State during
the period of time that the funds should have remained
in the State bond fund earning interest. Additionally,
SB 2066 prohibited a district found to have committed
a material inaccuracy from self-certifying future
projects. CCR, Title 2, 1859.104.1(c) (4) requires
the SAB to charge the district an amount of $100 per
hour for the additional time to process and review the
district's applications during the prohibition from
self-certification.
4) Need for assuring ongoing consistency and
transparency . This bill gives the SAB the discretion
to impose a penalty that it was previously required to
apply to all districts in the event of a finding of a
material inaccuracy. Although most SAB deliberations
and actions take place in a publicly noticed open
meeting, in order to ensure the consistent and
transparent application of the SAB's discretion, it
may be prudent to require the public disclosure of the
rationale for the Board's decisions in this regard.
Staff recommends the bill be amended on page 2 line
28, after "inaccuracy" to insert "The board shall set
forth its reasons for its decision regarding both the
prohibition on self-certification and the term of the
prohibition, if applicable, in a regularly scheduled
public meeting."
5) Is there a transparency or inconsistency problem ?
According to the OPSC, since the inception of the SFP
in 1998, the SAB has found nine districts applications
to be materially inaccurate. Seven of these districts
falsely certified a fund release certification, one
district was found to have the falsely certified an
enrollment certification, and another failed to
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disclose that it had funds from Certifications of
Participation which should have been considered in
determining the amount of funding eligibility. Each
of these districts was found by the SAB to have
realized a funding advantage and were assessed an
interest penalty. Six districts lost the ability to
self-certify for five years, one for one year, with
the remaining districts awaiting action by the SAB on
the length of the self-certification penalty. Staff
was not provided with any examples of the inconsistent
application of the materially inaccuracy law.
6) Is a fund release or apportionment necessary to
realize a material impact to the state ? This bill
deletes current law provisions which require the SAB
to impose a loss of self-certification penalty even
when there has been no apportionment or fund release.
Coupled with other changes proposed by this bill, this
deletion would eliminate the discretion of the SAB to
determine whether a self-certification penalty is
appropriate in such a case.
Presumably, it is the author's intent to eliminate a
penalty which is imposed where no funding advantage
has been realized and no other district or the state
is damaged. Staff notes, however, as a result of the
state's current fiscal condition, the SAB is currently
authorizing "unfunded approvals," which are
essentially a reservation of bond funds which
districts may be able to use to secure bridge
financing in order to begin their projects while they
await the state sale of approved general obligation
bonds. Arguably, a district could realize an
advantage by receiving an "unfunded approval" which is
neither an apportionment nor a fund release, but, in
the case of a material inaccuracy, would nonetheless
unfairly reduce the availability of anticipated bond
funds for other districts. Giving discretion in this
regard would allow the SAB to determine on a case by
case basis whether a self-certification penalty was
appropriate.
Staff recommends that the bill be amended to retain
current law regarding the SAB authority to impose a
self-certification penalty when there has been no
apportionment or fund release.
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SUPPORT
California Coalition for Adequate School Housing
County Schools Facilities Consortium
OPPOSITION
None received.