BILL NUMBER: SB 449 AMENDED
BILL TEXT
AMENDED IN SENATE MAY 17, 2011
AMENDED IN SENATE APRIL 26, 2011
AMENDED IN SENATE APRIL 25, 2011
AMENDED IN SENATE APRIL 7, 2011
AMENDED IN SENATE MARCH 30, 2011
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 amended, 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 Controller 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The bill would specify that its provisions would be repealed on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, 2017.
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.
(2) The State of California has a vital financial interest in the
solvency of its local agencies. When insolvency occurs at a local
agency, the municipal credit in the state can be negatively impacted,
costing the state and local governments 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 fiscal health 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 to avert or manage financial problems as defined in this
act, 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 of
the following occur:
(1) (A) The governing body, chief administrative officer, or chief
executive 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) If the local agency requests a review, any costs incurred
pursuant to this paragraph shall be borne by the local agency.
(2) (A) The Controller receives a written request from a creditor
with an undisputed claim 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, and that remains unpaid six
months after its due date, 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.
(B) For purposes of this subdivision, a claim shall be deemed
undisputed unless the local agency has made a determination that any
of the following conditions are present:
(i) There is a discrepancy between the invoice or claimed amount
and the provisions of the contract or grant.
(ii) There is a discrepancy between the invoice or claimed amount
and either the claimant's actual delivery of property or services to
the local agency or the local agency's acceptance of that delivery or
deliveries.
(iii) Additional evidence supporting the validity of the invoice
or claimed amount is required to be provided to the local agency by
the claimant.
(iv) The invoice has been improperly executed or needs to be
corrected by the claimant.
(v) There is a discrepancy between the refund or other payment due
as calculated by the person to whom the money is owed and by the
local agency.
(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 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.
(b) The Controller may conduct a preliminary review to determine
the existence of a local agency financial problem if two or more of
the following occur:
(1) 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.
(2) The Controller receives notification that the local agency is
delinquent in the distribution of tax revenues as required by law.
(3) The Controller receives notification that a local agency has
implemented retirements and layoffs constituting greater than 20
percent of the local agency's workforce, relative to the prior year
budget.
(4) The Controller receives notification that a local agency has
reduced its police or fire services funding by more than 50 percent,
relative to the prior year budget.
(c) The Controller may conduct a preliminary review to determine
the existence of a local agency financial problem if three or more of
the following occur:
(1) The Controller receives notification that the local agency has
a critical cashflow situation, evidenced by a midyear borrowing not
anticipated in the most recently enacted budget.
(2) The Controller receives notification that a local agency has
enacted a midyear budget correction.
(3) The Controller receives notification that a local agency has
had a decline in year-over-year general fund collections of greater
than 15 percent.
(4) The Controller receives notification that a local agency has
had deficits in one or more major restricted funds, defined as
providing greater than 10 percent of the local agency's annual total
budget, for a period exceeding a fiscal year.
(5) 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.
(d) 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.
(e) The Controller shall provide written notification to the
Governor and the Legislature within 120 days after beginning a
preliminary review pursuant to this section, when the review has
determined that one or more conditions indicative of a serious
financial problem may exist within the local agency.
(f) When conducting a preliminary review, the Controller shall
give priority consideration to preliminary reviews conducted pursuant
to subdivision (a) over subdivisions (b) and (c). The Controller
shall further give priority consideration to preliminary reviews
conducted pursuant to subdivision (b) over subdivision (c).
12486. (a) The Controller may conduct an audit of the local
agency 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 financial records of the local agency, 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.
(b) (1) The governing body, chief administrative officer, or chief
executive of a local agency may request an audit under this section.
The request shall be in writing and shall identify the existing
fiscal conditions that make the request necessary.
(2) If the local agency requests a review, any costs incurred
pursuant to this section shall be borne by the local agency.
(c) The local agency shall make its books and records available to
the Controller for this purpose.
(d) In conducting an audit pursuant to this section, the
Controller shall provide the local agency written notification of the
audit, 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.
(e) The Controller shall give priority consideration to conducting
an audit of local agencies that meet the conditions pursuant
in to this section, over local agencies
that only meet the conditions for a preliminary review pursuant to
Section 12485.
(f) If an audit conducted pursuant to this section finds that one
or more conditions indicative of a serious financial problem may
exist within a local agency, the Controller shall provide written
notification to the Governor and the Legislature within 120 days
after beginning that audit.
12487. (a) The Controller shall convene a local agency financial
review committee to provide assistance to local agencies that seek
help in averting or managing a financial problem. The committee shall
meet no less than annually. Assistance provided pursuant to
this section shall not include direct financial payments or loans to
local agencies that are not otherwise authorized by statute.
(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 in the state, to assist in evaluating and assisting
local agencies that 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) A local agency that is subject to a preliminary review
pursuant to Section 12485, or an audit pursuant to Section 12486,
shall receive priority consideration by the local agency financial
review committee.
(f) In consultation with the local agency requesting assistance,
and using any applicable data from a preliminary review or audit
conducted pursuant to this article if a preliminary review or audit
has occurred, 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.
(g) 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,
2017, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2017, deletes or extends
that date.