BILL NUMBER: SB 449 INTRODUCED
BILL TEXT
INTRODUCED BY Senator Pavley
FEBRUARY 16, 2011
An act to add and repeal Article 6 (commencing with Section 12485)
of Chapter 5 of Part 2 of Division 3 of Title 2 of the Government
Code, relating to state government.
LEGISLATIVE COUNSEL'S DIGEST
SB 449, as introduced, Pavley. Controller: local agency financial
review.
Existing law requires certain local agencies to furnish reports to
the Controller concerning financial transactions of the local
agency, subject to uniform accounting and reporting procedures
prescribed by the Controller. The Controller may provide for the
investigation of certain local agency finances if a report is not
made in the time, form, and manner required or there is reason to
believe that a report is false, incomplete, or incorrect.
This bill would additionally authorize the Controller to conduct a
preliminary review to determine the existence of a local agency
financial problem, and perform an audit upon completion of that
review, subject to specified criteria.
The bill would require the Controller to convene a local agency
financial review committee with a specified membership, and authorize
the committee to recommend a financial recovery plan for a local
agency requesting assistance. It would require the committee to
report to the Legislature annually on the actions of the committee
and the status of all engagements with local agencies pursuant to
these provisions.
The bill would specify that its provisions would be repealed on
January 1, 2015.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. (a) The Legislature finds all of the following:
(1) The economic recession has disproportionately affected
California and, in particular, the local agencies that deliver vital
services to the public. Many local agencies have been forced to take
unprecedented steps to avert financial crisis and maintain a sound
credit rating. Revenue pressures precipitated by the recession have
exposed financial mismanagement at many local agencies.
(2) The State of California has a vital financial interest in the
solvency of its local agencies. When insolvency occurs or is even
intimated by a local agency, the state's credit rating is often
negatively impacted, costing the state millions of dollars, making
borrowing more difficult, and hindering the state's economic
recovery.
(3) The health and welfare of the citizens of the state would be
adversely affected by the insolvency of local agencies. Therefore,
the survival of local agencies is vitally necessary to the interests
of this state in providing necessary governmental services.
(b) Accordingly, the Legislature declares that it is a valid
public purpose for the state to assist a local agency in a fiscal
emergency situation by requiring prudent fiscal management, and that
the authority and powers conferred by this act constitute a necessary
program and serve a valid public purpose.
SEC. 2. Article 6 (commencing with Section 12485) is added to
Chapter 5 of Part 2 of Division 3 of Title 2 of the Government Code,
to read:
Article 6. Local Agency Financial Review and Assistance
12485. (a) The Controller may conduct a preliminary review to
determine the existence of a local agency financial problem if one or
more of the following occur:
(1) (A) The governing body or the chief administrative officer of
a local agency requests a preliminary review under this section. The
request shall be in writing and shall identify the existing fiscal
conditions that make the request necessary.
(B) Any costs incurred pursuant to this paragraph shall be borne
by the local agency requesting the review and shall be a charge
against any unencumbered funds of the local agency.
(2) The Controller receives a written request from a creditor with
an undisputed claim that remains unpaid six months after its due
date against the local agency that exceeds the greater of ten
thousand dollars ($10,000) or 1 percent of the annual general fund
budget of the local agency, provided that no less than 30 days prior
to submitting the request, the creditor notifies the local agency in
writing of his or her intention to submit the request.
(3) The Controller receives notification from the trustee,
actuary, or at least 10 percent of the beneficiaries of a local
agency pension fund alleging that the local agency has not timely
deposited its minimum obligation payment to the pension fund as
required by law.
(4) The Controller receives notification that employees of the
local agency have not been paid and it has been at least seven days
after the scheduled date of payment.
(5) The Controller receives notification from a trustee, paying
agent, or bondholder of a default in a bond payment, or a violation
of one or more bond covenants, by a local agency.
(6) The Controller receives notification that the local agency is
delinquent in the distribution of tax revenues as required by law.
(7) The local agency fails to provide an annual financial report
or audit that conforms with the minimum procedures and standards of
the Controller as required by law.
(8) The Controller is requested by either house of the Legislature
to conduct a preliminary review under this section.
(b) In conducting a preliminary review pursuant to this section,
the Controller shall provide the local agency written notification of
the review, and shall meet with the local agency officials to
receive, discuss, and consider information provided by the local
agency concerning the agency's financial condition.
(c) The Controller shall report to the Governor and the
Legislature within 120 days after beginning a preliminary review
pursuant to this section, on whether the review has determined that
one or more conditions indicative of a serious financial problem may
exist within the local agency.
12486. (a) Upon completion of a preliminary review conducted
pursuant to Section 12485, the Controller may conduct an audit of the
local agency that was the subject of the preliminary review. The
local agency shall make its books and records available to the
Controller for this purpose.
(b) The audit shall be conducted for purposes of determining if
one or more of the following conditions indicative of a serious
financial problem have occurred, or are likely to occur, if remedial
action is not taken:
(1) A default in the payment of principal or interest upon bonded
indebtedness for which no funds, or insufficient funds, are on hand
and segregated in a special trust fund.
(2) Failure for a period of 30 days or more beyond the due date to
transfer one or more of the following to the appropriate agency:
(A) Taxes withheld on the income of employees.
(B) Taxes collected by the local agency as agent for another
governmental entity or taxing authority.
(C) Any contribution required by a pension, retirement, or benefit
plan.
(3) Failure for a period of 30 days or more to pay wages and
salaries or other compensation or benefits owed to local agency
employees or retirees.
(4) The total amount of accounts payable for the current fiscal
year, as determined by the local agency treasurer's uniform chart of
accounts, is in excess of 10 percent of the total expenditures of the
local agency in that fiscal year.
(5) Failure to eliminate an existing deficit in any fund of the
local agency within the two-year period preceding the end of the
local agency's fiscal year for which a preliminary review was
conducted pursuant to Section 12485.
(6) Projection of a deficit in the general fund of the local
agency for the current fiscal year in excess of 10 percent of the
budgeted revenues for the general fund.
12487. (a) The Controller shall convene a local agency financial
review committee to provide assistance to local agencies who seek
help in averting or managing a financial problem. The committee shall
meet no less than quarterly.
(b) The committee shall be chaired by the Controller and include
representatives of the office of the Treasurer and the Department of
Finance.
(c) The Controller shall utilize the services of a consultant
having extensive financial management and accounting experience with
local agencies, to assist in evaluating and assisting local agencies
who are undergoing or facing a financial problem.
(d) A local agency may request assistance from the committee in
meeting the ordinary needs of government operations. The request
shall identify the existing financial conditions that make the
request necessary.
(e) In consultation with the local agency requesting assistance,
and using any applicable data from a preliminary review or audit
conducted pursuant to this article, the committee shall recommend a
financial recovery plan for the local agency. The financial recovery
plan shall consider both of the following:
(1) Conducting the operations of the local agency within the
resources available according to the data provided by the local
agency.
(2) The payment in full of the scheduled debt service requirements
on all bonded and other indebtedness and other uncontested legal
obligations of the local agency.
(f) The Controller shall report to the Legislature, no later than
June 30, 2012, and annually thereafter, on the actions of the
committee and status of all engagements with local agencies pursuant
to this section.
12488. For purposes of this article, "local agency" means a city,
county, city and county, special district, or redevelopment agency.
12489. This article shall remain in effect only until January 1,
2015, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2015, deletes or extends
that date.