BILL ANALYSIS
SB 1161
Page 1
Date of Hearing: June 30, 2010
ASSEMBLY COMMITTEE ON EDUCATION
Julia Brownley, Chair
SB 1161 (Lowenthal) - As Amended: April 20, 2010
SENATE VOTE : 30-0
SUBJECT : School facilities: material inaccuracy
SUMMARY : Revises the provisions governing material
inaccuracies. Specifically, this bill :
1)Deletes the definition of material inaccuracy as certified
eligibility or funding application related information falsely
certified by school districts, architects or design
professional, and instead requires the Office of Public School
Construction (OPSC) to notify the State Allocation Board (SAB)
if certified eligibility or funding application information is
found to contain a material inaccuracy.
2)Authorizes, rather than requires, the SAB to 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. Requires the SAB to set
forth the reasons for its decision regarding both the
prohibition on self-certification and the term of the
prohibition in a regularly scheduled public meeting.
3)Strikes the authority of the SAB to impose a
self-certification penalty if no funding apportionment or fund
release has been made.
4)Strikes the provision that specifies that if a school district
is found to have provided a material accuracy when no funding
apportionment or fund release has been made, the inaccurate
information or materials shall not be considered and the SAB
shall prohibit the school district from self-certification for
up to five years. Strikes the authorization for the project
to continue if the application, minus the inaccurate
materials, is complete.
EXISTING LAW :
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1)Requires, under the Leroy F. Greene School Facilities Act of
1998, the SAB to allocate to applicant school districts,
prescribed per-unhoused-pupil state funding for construction
and modernization of school facilities, including hardship
funding, and supplemental funding for site development and
acquisition.
2)Prohibits the SAB from apportioning funds to any school
district unless the applicant school district has certified to
the SAB that it has obtained the written approval of the
California Department of Education (CDE) that the site
selection, and the building plans and specifications comply
with the standard adopted by the CDE.
3)Specifies that if any certified eligibility or funding
application related information is found to have been falsely
certified by school districts, architects or design
professionals, referred to as a material inaccuracy, the OPSC
shall notify the SAB and the SAB shall require repayment of
the funds along with 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 within no more than five years. Requires the SAB to
prohibit the school district from self certifying certain
project information for any subsequent applications for
project funding for up to five years following the date of the
finding of material inaccuracy.
FISCAL EFFECT : According to the Senate Appropriations
Committee, minor impact on state education bond funds.
COMMENTS : Background . The School Facility Program (SFP) is
administered by the SAB, a ten-member body responsible for
apportioning state education bond funds to local educational
agencies (LEAs) for the construction of new school facilities
and modernization or rehabilitation of existing school
facilities. The SFP prescribes procedures and eligibility for
funding, including a required 50% match for new construction
projects and 40% match for modernization funding. Prior to an
apportionment, a LEA is required to first obtain approval from
the CDE, to ensure that the site selected is safe and conducive
to learning (e.g., the school will not be built near
high-voltage power transmission lines or high-pressure natural
gas lines) and the building specifications support the school's
education plan, and the Division of State Architect, to ensure
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that the architectural design plans meet fire, life and safety
requirements, Field Act requirements, and access requirements
under the Americans with Disability Act. The SFP also
prescribes specified timelines to ensure progress is made on the
proposed project, including timeframes for submission of various
forms, and utilizes a process whereby the applicant LEA self
certifies that it meets certain requirements. The information
certified by the applicant LEA is verified by the OPSC during
the closeout audit at the conclusion of the project. If the
OPSC discovers during the closeout audit that a district's
certifications are not consistent with actual actions, it must
provide notification to the SAB of potential material
inaccuracy.
Material Inaccuracy . SFP regulation defines a material
inaccuracy as any falsely certified application that allowed a
district an advantage in the funding process. In other words,
due to the certification of the applicant that it had met
various requirements and timelines, an apportionment was made
and the applicant received funds it was not yet eligible to
receive, or funds were released prematurely. According to the
OPSC, with use of the term "falsely certified", a LEA applicant
need not have committed the false certification intentionally in
order to be charged with a material inaccuracy. The term in
this context is the simple and common meaning of "inaccurate or
not true". It is a statement of fact. If funds had been
disbursed to the applicant and the applicant had not met all
requirements as certified, current law requires the SAB to
require repayment within five years, with interest. There is no
financial penalty if funds have not been disbursed. Since
statute does not specify how to calculate the interest penalty,
the SAB has discretion to determine the appropriate interest
calculation.
Current law also requires the SAB to prohibit a LEA from self
certification for up to five years if a material accuracy is
found or until the LEA repays the amount owed. The length of
loss of self certification is currently based on OPSC staff
recommendation, which has not recommended the option of allowing
self certification upon the district's repayment. During the
time period a LEA loses self certification, it is required to
pay $100 per hour for review of future applications.
According to OPSC, the most common form of material inaccuracy
is certification that a LEA has entered into a binding contract
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for 50% of the construction included in the plan within 18
months of receiving apportionment. If a LEA has received funds
for the project but had not met the 50% construction contract
requirement even it certified that it had, the LEA received a
premature fund release and an advantage in funding. The LEA is
required to return the funds and include interest calculated
from the date of the fund release to the date the LEA met the
50% construction contract requirement. The SAB has not adopted
policy on calculation of interest in the situation whereby a LEA
falsely certifies that it has entered into a binding contract
for 50% of the construction costs 18 months after the LEA
received the apportionment. Current law requires the
apportionment to be rescinded and the application denied.
Since the inception of the SFP in 1998, seven districts have
been found to have committed material inaccuracies; two of the
districts had two material inaccuracies each. Seven
applications falsely certified a fund release certification, one
application was found to have falsely certified an enrollment
certification, and another failed to 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 was assessed an interest penalty. Four
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. A few
of these districts have contended that there is no consistency
in the application of interest penalty. Two districts have had
to pay millions in interest penalty when the calculation of
interest is from the date of fund release to the date the SAB
finds a material inaccuracy has occurred, which could be years
after the district received the funds. The rationale is that
the district, rather than the state, benefited from the interest
earned.
According to the author, "Eligibility and funding applications
contain dozens of complex and detailed documents. It is not
uncommon for these self-certified documents to contain errors.
Most errors are found and rectified during the state application
review process. Some errors may not be found until a detailed
audit occurs. These errors are not necessarily material to the
state. Unfortunately, current law does not distinguish between
errors that are material to the state and errors that have no
state impact. The term 'material' carries the meaning in law of
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'relevant and significant'. Currently, all false certifications
are deemed material inaccuracies regardless of the significance
of the error to the state."
This bill would remove the requirement that any certification
made by a school district, architect or design professional was
"falsely certified". With the deletion of the term "falsely
certified", the SAB would not charge a material inaccuracy due
to an erroneous certification. The bill requires the OPSC to
notify the SAB when a certified eligibility or funding
application is found to contain a material inaccuracy.
"Material inaccuracy" is not defined. According to Black's Law
Dictionary, "material" means "important; more or less necessary;
having influence or effect; going to the merits; having to do
with matter as distinguished from form. Representation relating
to matter which is so substantial and important as to influence
party to whom made is 'material'." According to the author's
office, the intent is to give the SAB the discretion to
determine whether an erroneous certification is a "material"
inaccuracy and the opportunity to evaluate the circumstance that
resulted in an inaccurate certification, rather than charging
any and all inaccurate certifications as material inaccuracy.
The author may wish to consider clarifying the parameters for
material inaccuracy.
This bill also removes the requirement that the SAB prohibit a
school district from being able to self-certify on future
applications for up to five years and simply authorizes the SAB
to prohibit self certification with the reasons established at a
regularly scheduled public meeting.
Supporters of this bill state that the purpose of the material
inaccuracy law is to discourage applicants from making
certifications that will result in a funding advantage.
However, with the application process so complex, it is not
uncommon to make errors. Currently, any error is deemed
material inaccuracy, regardless of the severity of the error.
This bill gives the SAB the flexibility to distinguish between
minor or simple errors and those that result in funding
advantage.
Related legislation . AB 1476 (Cook) authorizes the SAB to
extend the repayment period of a material inaccuracy penalty by
up to five years if the district has received a negative
certification from the county office of education and the SAB
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finds that the district has no capital facilities funds
available to use for repayment. The bill was held in the
Assembly Appropriations Committee's suspense file in 2009.
REGISTERED SUPPORT / OPPOSITION :
Support
County School Facilities Consortium
Los Angeles Unified School District
Riverside County Schools Advocacy Association
San Francisco Unified School District
Opposition
None on file
Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087