BILL ANALYSIS �
SB 186
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Date of Hearing: August 8, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 186 (Kehoe) - As Amended: June 19, 2012
Policy Committee: Local
GovernmentVote:9-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill expands, until January 1, 2017, the State Controller's
authority to perform audits or investigations of counties,
cities, special districts and joint powers authorities (JPAs) if
the Controller has reason to believe that a local government is
violating specified financial requirements. Specifically, this
bill:
1)Authorizes the Controller, after making findings as specified,
to perform an audit or investigation if any county, city,
special district or JPA is not complying with the financial
requirements of state law, state grant agreements, local
charters or local ordinances, if sufficient funds exist for
the Controller to conduct the audit or investigation.
2)Requires any costs incurred by the Controller regarding an
investigation into financial reports related to redevelopment
project areas, as specified, to be borne by the county, city,
special district or JPA and to be a charge against any
unencumbered funds of the entity.
3)Sunsets specified provisions related to the Controller's
authority to audit or investigate suspected noncompliance with
specified financial requirements, the making and sharing of
findings and evidence, and provisions for the waiver of costs
as of January 1, 2017. Re-enacts provisions similar to
existing law after the bill's provisions sunset on January 1,
2017.
4)Authorizes the Controller, at the written request of the
governing body, chief administrative officer, or chief
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executive of a local agency, to convene a local agency
financial review committee (Committee) to provide assistance
to the local agency in reviewing and assessing its financial
condition and related internal controls to avert or manage a
serious financial problem.
5)Increases the penalties for an officer of a local agency who
fails or refuses to make and file his or her report within 20
days after receipt of a written notice from the Controller:
FISCAL EFFECT
The bill grants the Controller's office considerable
flexibility, so costs are likely to vary, but can be expected to
be in the range of $1-2 million. Reimbursements from audited
entities will reduce the use of state resources.
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COMMENTS
1)Purpose . According to the author, SB 186 extends the
Controller's authority to identify fiscal mismanagement,
create meaningful consequences for local agencies who fail to
provide proper fiscal stewardship and establish support
mechanisms for local agencies to use before they reach a
crisis. The author notes that unfortunately, these trends are
only discovered when the local government entity is in danger
of a major financial crisis, such as defaulting on private
debt. Such an outcome can have a catastrophic impact on local
services and potentially lead to a downgrade of the state's
credit rating. The author argues that given the state's
fiscal and policy obligation to ensure fiscally sustainable
communities, it is imperative the state provide independent
oversight to protect public funds by identifying and
preventing problems that threaten the economic viability of
our cities, counties and other local governments.
2)Support . The Controller, the bill's sponsor, states since
uncovering the financial problems of the City of Bell and
County of Modoc, his office has been flooded with complaints
that indicate the problems associated with these two
municipalities are not isolated and the economic recession and
self-inflicted fiscal management are resulting in a growing
number of local governments in California are facing severe
financial distress. The Controller contends SB 186 will give
the Controller's Office the authority to quickly respond to
concerns about mismanagement or violations of state law
affecting local, state and federal funding.
The California Labor Federation contends the State Controller
possesses tremendous expertise in municipal finance that
should be made available to struggling local governments.
This bill clarifies that the State Controller, if requested by
a local entity, can assist that entity in reviewing its
finances and in convening a financial review committee to make
recommendations.
3)Current legislation .
a) AB 187 (Lara), Chapter 451, Statutes of 2011, authorizes
the State Auditor to establish a high-risk local government
agency audit program to identify, audit, and issue reports
on any local government agency that the State Auditor
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identifies as being at high risk for the potential of
waste, fraud, abuse or mismanagement.
b) AB 276 (Alejo) increased penalties for local agencies,
including specified JPAs, that fail to file their annual
financial transaction reports with the Controller's Office
in a timely manner. AB 276 was subsequently amended to
another subject. Portions of AB 276 have been incorporated
into SB 186.
c) SB 449 (Pavley) authorized the Controller, if sufficient
funds are available, to review the finances of cities,
counties, special districts and redevelopment agencies, and
allow the Controller to convene a local agency financial
review committee to provide assistance to local agencies
that seek help in averting or managing a financial problem.
SB 449 failed passage in the Assembly Local Government
Committee. Portions of SB 449 have been incorporated into
SB 186.
d) AB 229 (Lara) would have expanded the Controller's
regulatory power over local government auditing practices.
AB 229 was subsequently amended to another subject.
e) AB 253 (Smyth) would have required the Controller, in
collaboration with the Committee on City Accounting
Procedures, to prescribe for cities uniform accounting and
reporting procedures conforming to Generally Accepted
Accounting Principles. AB 253 is pending in the Senate
Committee on Governance and Finance.
f) AB 1345 (Lara) imposes additional requirements on audits
of local governments. AB 1345 is pending on the Senate
floor.
4)There is no registered opposition to this bill.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081