BILL ANALYSIS �
AB 202
Page 1
Date of Hearing: April 27, 2011
ASSEMBLY COMMITTEE ON EDUCATION
Julia Brownley, Chair
AB 202 (Brownley) - As Amended: April 15, 2011
SUBJECT : Local educational agencies: reimbursable state
mandates
SUMMARY : Implements changes related to the state's process for
the determination and reimbursement of educational mandates that
streamline the reimbursement process, provide for future
Legislative review of mandates, and clarify the information on
educational mandates that the Legislative Analyst's Office (LAO)
is required to provide the Legislature. Specifically, this
bill :
1)Defines local education agency (LEA) for the purposes of these
provisions to mean a school district or county office of
education, but not a community college district.
2)States legislative intent that statutes creating a
reimbursable state mandate on local educational agencies be
periodically reviewed, and that the Legislature consider
recommendations on whether those statutes should be amended,
repealed, or remain unchanged.
3)Requires, in addition to a report submitted pursuant to
existing law, that the Legislative Analyst (LAO) review and
report to the appropriate policy and fiscal committees in both
houses of the Legislature on each reimbursable state mandate,
as specified, relating to local educational agencies; also
specifies the information to be provided in the report,
including a summary of the mandate, its statutory source,
related fiscal information, and recommendations as to whether
the mandate should be amended, repealed, or remain unchanged.
4) Makes any state-mandated program, that applies to a LEA
and that becomes operative on or after January 1, 2012,
inoperative with respect to a LEA on a date five years
following the operative date of the program.
5) Requires the Legislative Counsel to include a comment,
in the Legislative Counsel's Digest of any bill that is
identified as creating a state-mandated local program that
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applies to a LEA, indicating that the mandate becomes
inoperative five years following the operative date of the
program.
6) Requires the State Controller's Office (SCO) to notify
the Legislature, the Superintendent of Public Instruction
(SPI), and the Department of Finance (DOF) if reimbursement
claims on a mandate in any fiscal year, with a LEA-filed
test claim, exceed the statewide cost estimate by an amount
in excess of 25% of that estimate. Also requires the
Legislature to provide for a re-examination of the statute
or regulations that created that mandate.
7) Requires the Commission on State Mandates (COSM) to
notify the fiscal and education policy committees of each
house of the Legislature within 30 days if a LEA files a
test claim based upon any regulation alleged to contain a
mandate.
8) Authorizes a LEA test claimant to designate another LEA
for the purposes of drafting the Parameters and Guidelines
(Ps&Gs), developing the Estimate of Statewide Costs, or
negotiating a Reasonable Reimbursement Methodology (RRM).
9) Requires a LEA, for LEA-filed test claims for which a
RRM was developed and approved and for which the RRM is
formulaic, to certify in writing that the data provided in
any claim are correct.
10)Makes changes to the process whereby a LEA test claimant
and DOF are authorized to develop a RRM, including:
a) Providing for only one extension of 90 days in addition
to the initial 180 days allowed for the development of a
RRM.
b) Eliminating the ability of an LEA test claimant or DOF
to unilaterally end the development of a RRM once that
process starts, and instead, authorizing the parties to
jointly request that the RRM process be ended.
c) Requiring that a RRM development process that reaches
its deadline (or that reaches the point where the parties
jointly notify the COSM that no further progress is
possible) will be declared to be at an impasse and will
move to arbitration.
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11)Requiring the Chief Executive Officer of the Fiscal Crisis
Management Assistance Team (FCMAT), or a FCMAT employee
designated by the Chief Executive Office, as the sole
arbitrator, and requires the arbitrator to mediate or
arbitrate a draft RRM within 90 days.
12)Requires the LEA and DOF to give all support information
to the arbitrator within 10 days of the declared impasse,
develop a proposed statewide cost estimate based on the
draft RRM, and submit the draft RRM and proposed statewide
cost estimate to the COSM within 30 days of receiving the
draft RRM from the arbitrator.
EXISTING LAW :
1)Requires the state, under the California Constitution, to
provide a subvention of funds to reimburse local governments,
including school districts, whenever the Legislature or a
state agency mandates a new program or higher level of
service, with specified exceptions.
2)Establishes a procedure for local government agencies to file
test claims and claims for reimbursement of these costs with
the COSM and the SCO.
3)Requires the COSM to hear and decide upon each claim for
reimbursement, to determine the amount to be subvened for
reimbursement, to adopt Ps&Gs to guide the payment of claims,
to adopt a RRM, and to hear incorrect reduction claims from
local agencies if the SCO reduces reimbursement claims upon
audit.
4)Authorizes a test claimant and DOF to notify the COSM of their
intent to follow the process to develop a RRM for the
reimbursement of mandated costs, to develop a draft RRM, and
to submit the draft RRM to the COSM for approval.
5)Requires the COSM to consult with DOF, among other state
officials, when adopting Ps&Gs for reimbursement.
6)Requires the SCO to develop claiming instructions for each
mandate and to pay claims, subject to the availability of
funds; also authorizes the SCO to audit claims submitted for
reimbursement.
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7)Requires the LAO to submit a report to the Joint Legislative
Budget Committee and legislative fiscal committees on the
mandates reported by the COSM, and requires that report to
make recommendations as to whether the mandate should be
repealed, funded, suspended, or modified.
FISCAL EFFECT : Unknown
COMMENTS : The concept of state reimbursement to local
agencies, including LEAs, for state mandated activities
originated with SB 90 (Dills), Chapter 1406, Statutes of 1972,
also known as the Property Tax Relief Act of 1972. The primary
purpose of that Act was to limit the ability of local agencies
and school districts to levy taxes. To offset these limitations,
the Legislature declared its intent to reimburse local agencies
and school districts for the costs of new programs or increased
levels of service mandated by state government. The Legislature
authorized the State Board of Control (BOC) to hear and decide
upon claims requesting reimbursement for costs mandated by the
state.
In 1979, Proposition 4 amended the California Constitution by
adding Article XIII B, section 6, which requires the state to
reimburse local governments for the cost of new programs or
higher levels of service mandated by the Legislature or any
state agency; the BOC continued to hear claims under these
requirements. In 1984, the Legislature created the COSM, a
quasi-judicial body succeeding the BOC as the entity that
decides test claims alleging that the Legislature or a state
agency imposed a reimbursable state-mandated local program. If
the COSM identifies a state-mandated program as eligible for
reimbursement, it then adopts Ps&Gs defining what activities
will be reimbursed and adopts statewide cost estimates. The
COSM is also authorized to hear claims of incorrect reductions
from local agencies if the SCO reduces reimbursement claims upon
audit and the claimant chooses to dispute that reduction. The
COSM consists of the State Treasurer, the SCO, the Director of
DOF, the Director of the Office of Planning and Research, two
local elected officials (with the restriction that they come
from different categories of local government, including school
district governing boards, city councils, or county boards of
supervisors), and a public member with experience in public
finance.
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Most eligible mandates are reimbursed on the basis of actual
costs. Claimants document each cost associated with the
activities identified in the Ps&Gs, and submit that
documentation to the SCO along with their claims. This process
is burdensome and prone to clerical error; it also results in
large administrative costs on the claimant, large audit costs on
the SCO, and a high probability of claim reductions as a result
of SCO audits. Statutory changes enacted in the last four
Legislative Sessions have put alternative reimbursement
processes in place in an attempt to move the reimbursement of
some mandates away from an actual cost basis and toward a
formulaic reimbursement approach; the RRM process is one of
those alternative processes. Under the RRM process, a test
claimant may join with DOF to develop and propose a RRM and
statewide estimate of costs for reimbursement of a mandated
program. The parties are given 180 days plus up to four
extensions of that 180-day period to jointly develop the RRM.
The RRM must be based upon cost data collected from a
representative sample of potential claimants, and is proposed to
the COSM by the parties in lieu of submitting proposed Ps&Gs for
new mandates. By statute, the RRM is required to be based,
where possible, on a general allocation formula, uniform cost
allowance, or some other approximation of the local costs
mandated; in other words the RRM process is meant to provide for
a method for calculating reimbursable costs that is a simpler
alternative to the detailed documentation required for the
reimbursement of actual costs.
There are currently 38 existing mandates for which K-12 LEAs may
file a claim for reimbursement; there are 9 additional K-12 LEA
mandates which have been suspended. These mandates cover a wide
variety of activities. The annual cost of claims for
reimbursement on these K-12 mandates had climbed to
approximately $416 million by 2009-10; the 2010-11 budget,
however, included several actions that reduced annual K-12
mandate costs from that level down to $80 million. The budget
achieved this reduction by eliminating costs associated with two
of the costliest mandates, suspending or partially suspending
six mandates, reducing the local administrative burden of two
mandates, and requesting that the COSM re-determine one mandate.
Also as part of its 2010-11 budget actions, the Legislature
created a work group to consider remaining mandates and make
recommendations for how to treat them going forward; a report
from this LAO-convened work group will be released shortly.
Despite these recent budget actions, significant mandate costs
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remain; for example, the LAO noted in testimony before the
Assembly Budget Subcommittee #2 that the $80 million annual cost
for existing mandates is likely to grow given anticipated
claims, and that the amount owed to school districts for
prior-year claims, due to many years of deferring mandate
payments, now totals roughly $3.4 billion.
In addition, the current backlog of test claims at the COSM, as
of March 24, 2011, includes 22 K-12 LEA test claims pending
hearing; some of those test claims were originally filed as far
back as 2003.
In October 2009, after conducting a follow-up of its 2003 audit
on state mandates, the California State Auditor issued an audit
report concerning state mandate determination and payment
processes. According to this audit report, "while the
Commission on State Mandates has made progress in reducing its
backlog of test claims for state mandates, the continuing
backlog is large." The auditor found that high workload and
insufficient resources exist at the COSM, and that, "This
situation, combined with the long time that elapses before the
Commission makes determinations, means that substantial costs
will continue to build before the Legislature has the
information it needs to take any necessary action." Three
findings or recommendations of the State Auditor form the basis
for the proposals in this bill.
1)Even "before the Commission becomes involved in determining
whether a mandate exists, problems can arise when the
Legislature establishes new required activities for local
entities. This may be done without effective evaluation of the
potential breadth or cost of the activities." There is "a
possible void in the Legislature's understanding of what
activities and costs a new program or higher level of service
will entail and of differences in how local entities perform
mandated activities." Increasing information available to the
Legislature on the impacts of educational mandates appears to
be called for.
2)In the period after the Commission has reported a new mandate
and its estimated cost, "problems can arise due to the lack of
state control of mandate activities undertaken by local
entities and the tendency for programs to diverge from
original intentions or lose their usefulness over time." In
order to reduce these problems, the State Auditor recommends
the sunsetting of each mandate, so as to "force the
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reassessment of mandate activities and costs, hopefully
leading to the modifications needed to keep worthy activities
on track or to eliminate mandates that have outlived their
usefulness."
3)Alternative processes for determining reimbursements on state
mandates, such as the RRM process, may reduce the workload
facing the COSM and the costs to the LEA of claiming
reimbursement. According to the State Auditor, "Although
under the �RRM] process �COSM] participation is not
eliminated, it greatly reduces the �COSM] workload related to
establishing a mandate's guidelines and adopting a statewide
cost estimate. The �COSM] reviews the formula to ensure that
it has been developed according to statutory requirements; it
does not examine the formula's detailed methodology. By
relieving the �COSM] of at least some of its work, these new
processes have the potential to give �COSM] staff more time to
address the �COSM] work backlog?These processes are also
beneficial to local entities because methodologies that
involve formulas typically have much simpler documentation
requirements, and to the �SCO] because simpler documentation
usually takes less effort to audit and should result in fewer
claim adjustments."
According to the State Auditor, "Issues related to cost data,
differing cost structures, or complex program design can raise
insurmountable problems for the alternative processes." The
Auditor states that DOF management cited the impossibility of
obtaining a representative sample of eligible local entities
needed for support, the even greater difficulty in obtaining
that necessary support for educational entities, and the fact
that educational mandates usually do not relate to clear inputs
or outputs that could be associated with a standard payment
rate, as reasons for why educational mandates have not been good
candidates for RRMs. At the same time, the Auditor states that,
"Differing views on the quality of cost data may also block
agreement," and cites an interview with a consultant who
believes that DOF prefers to rely on audited cost data, and who
sees this as another hurdle to gathering cost information and
reaching final agreement on a RRM. It is clear that the two
parties in the RRM process may have differing views as to why
the RRM process has not been successful and why agreements on a
RRM on any specific test claim may be impossible to reach. The
fact that the views of the two parties negotiating this
agreement differ may be an indication that mediation and/or
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arbitration could be successful. The auditor also points out an
example, where "the Commission's process was delayed for one
year while Finance and local entities attempted to negotiate a
reimbursement formula? an effort that ultimately failed because
they could not agree on any reimbursement formulas the local
entities proposed." The auditor concludes that, "Although
alternative processes offer potential benefits, when they fail
they can delay the traditional mandate determination process."
Shortened timelines would reduce this potential impact.
According to the author, "the intent of this bill is to
implement changes in the mandate reimbursement process in order
to 1) reduce the impact of ineffective and unnecessary mandates
placed on local educational agencies, 2) reduce the long-term
liability to the state for mandate reimbursements, and 3)
streamline the process and reduce the workload of the COSM,
other state agencies and local educational agencies, so as to
reduce processing time and administrative costs for all claims."
Specifically, this bill proposes to:
1)Increase information available to the Legislature by
augmenting the reporting requirements placed on the LAO with
respect to mandates filed by a LEA; by requiring the SCO to
notify the Legislature, SPI and DOF if reimbursement claims on
a mandate in any fiscal year, for a LEA-filed test claim,
exceed the statewide cost estimate by an amount in excess of
25% of that estimate; and by requiring the COSM to notify the
Legislature within 30 days if a LEA files a test claim
generated by regulatory action taken by a state agency.
2)Require a review of new mandates by making any state-mandated
program, that applies to a LEA and that becomes operative on
or after January 1, 2012, inoperative with respect to a LEA on
a date five years following the operative date of the program;
the bill also requires the Legislature to provide for a
re-examination of the statute or regulations that created that
mandate, if the claims filed exceed cost estimates by 25
percent.
3)Improve and restructure the RRM process as it applies to
LEA-filed test claims by compressing timelines, allowing the
COSM to declare an impasse in the negotiations, and ending the
process through arbitration of any stalemate; the bill also
allows a LEA test claimant to designate another LEA for the
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purposes of drafting the Ps&Gs, developing the Estimate of
Statewide Costs, or negotiating a RRM.
Related legislation : SB 64 (Liu), pending in the Senate
Committee on Governance and Finance, provides for a
specialized mandate test claim process for K-12 school districts
that has many of the same process elements as that for local
agencies, with the exception of creating a school district test
claim advisory committee tasked with assisting the COSM by
providing recommendations, as specified. SB 887 (Emmerson),
pending in the Senate Committee on Education, establishes a
voluntary, temporary, alternative mandate reimbursement process
for local educational agencies eligible for mandate
reimbursement as of June 30, 2011, and to provide for the
self-certification, with independent oversight, of participant
local educational agencies in order to meet compliance
standards.
Previous legislation : AB 2082 (Committee on Education), held in
the Senate Education Committee in 2010, would have streamlined
the process for hearing incorrect reduction claims, provided for
future Legislative review of new mandates, and clarified the
information on educational mandates that the Legislative Analyst
is required to provide the Legislature. AB 917 (Nestande),
introduced in 2009 and held in the Assembly Education Committee
at the author's request in 2010, would have required either full
funding for or suspension of education related state-mandated
local programs in each fiscal year; AB 844 (Villines), failed
passage in the Assembly Education Committee in 2009, and AB 3008
(Villines), failed passage in the Assembly Education Committee
in 2008, were substantially similar to AB 917. AB 1222 (Laird
and Silva), Chapter 329, Statutes of 2007, revises the criteria
required to be met for the reasonable reimbursement methodology
for state mandates. AB 2856 (Laird), Chapter 890, Statutes of
2004, authorizes the COSM to adopt reimbursement methodologies
for mandates that place greater emphasis on the use of unit
costs and other approximations of local costs, and stated the
intent to streamline the documentation and reporting process for
mandates. SCA 4 (Torlakson), Res. Chapter 133, Statutes of
2004, requires the Legislature to either appropriate full
funding for or suspend the operation of the mandate in that
fiscal year, with the exception of education or employment
mandates. AB 2834 (Migden), Chapter 1128, Statutes of 2002,
revises statutes governing the annual fiscal and compliance
audits of school districts, and establishes EAAP as a separate
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state agency. SB 90 (Dills), Chapter 1406, Statutes of 1972,
expressed the Legislature's intent to reimburse local agencies
and school districts for the costs of new programs or increased
levels of service mandated by state government. Proposition 4
amended the California Constitution in 1979 to establish this
intent as a requirement.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of School Business Officials
Education Mandated Cost Network
Opposition
Public Advocates (unless amended)
Analysis Prepared by : Gerald Shelton / ED. / (916) 319-2087