BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 449|
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THIRD READING
Bill No: SB 449
Author: Pavley (D)
Amended: 5/19/11
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 6-3, 4/6/11
AYES: Wolk, DeSaulnier, Hancock, Hernandez, Kehoe, Liu
NOES: Huff, Fuller, La Malfa
SENATE APPROPRIATIONS COMMITTEE : 6-2, 5/26/11
AYES: Kehoe, Alquist, Lieu, Pavley, Price, Steinberg
NOES: Walters, Runner
NO VOTE RECORDED: Emmerson
SUBJECT : Controller: local agency financial review
SOURCE : State Controller, John Chiang
DIGEST : This bill authorizes the State Controller, if
sufficient funds are available, to review the finances of
cities, counties, special districts, and redevelopment
agencies, and provides financial consultant expertise until
January 1, 2017.
ANALYSIS : Existing law requires cities, counties,
special districts, joint powers authorities, and
redevelopment agencies to report specified fiscal
information to the State Controller (SCO) each year, which
is subsequently compiled in an Annual Financial
Transactions Report. If local agencies' reports are not
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made in the time, form, and manner required, or if there is
reason to believe that a report is false, incomplete, or
incorrect, the SCO is required to appoint a qualified
accountant to make an investigation and to obtain the
information required. The accountant must report the
results of the investigation to the SCO and file a copy of
the report with the legislative body of the county, city,
or district in which the investigation is conducted.
Existing law requires the local government to pay any costs
incurred by the SCO associated with these investigations,
including contracts with accountants. The SCO does not
have discretion to audit local governments' financial
affairs outside the scope of information connected to the
Annual Financial Transactions Report, unless the
investigation is concerned specifically with disbursements
of state or federal funds.
This bill authorizes the SCO to review the finances of
cities, counties, special districts, and redevelopment
agencies, and provide financial consultant expertise until
January 1, 2017. Specifically, this bill:
1. Authorizes the SCO to conduct a preliminary review of
local agency finances, if sufficient funds are
available, and prioritize those reviews based on the
identification of more serious considerations, as
specified.
2. Authorizes the SCO to audit local agency records to
identify serious financial problems, as specified.
3. Authorizes a local agency to request an SCO preliminary
review or audit, and require the local agency to pay for
any costs incurred in conducting a review or audit that
it requests.
4. Requires the SCO to provide written notice of the review
or audit to the affected local agency, and require
written notification to the Governor and Legislature if
a review or audit results in identification of
conditions indicative of serious financial problems.
5. Requires the SCO to convene a local agency financial
review committee at least annually to assist local
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agencies with addressing financial problems. The
committee would be chaired by the SCO and include
representatives from the State Treasurer's Office and
the Department of Finance.
6. Requires the SCO to utilize consultants with local
government financial management and accounting
experience to assist local agencies with financial
problems and recommend a financial recovery plan, as
specified.
7. Requires the SCO to provide annual reports to the
Legislature on the activities of the committee.
Comments
The worldwide economic downturn has presented significant
challenges to the financial integrity of local governments
in California, which has been compounded in some cases by
poor decision making and illegal activities by local
officials. Fiscal mismanagement in the City of Bell, the
near-insolvency of Modoc County, a recent $30 million
judgment against the Town of Mammoth Lakes, and the City of
Vallejo bankruptcy case provide clear examples of local
agencies that are facing severe fiscal challenges. In
addition, the SCO has recently launched an audit of the
City of Montebello's finances, citing evidence of false
information in financial reports and audits. This bill
provides the SCO with authority to proactively identify
local fiscal concerns, and develop a plan to address
serious financial problems before they reach a crisis
point.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee analysis:
Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13
2013-14 Fund
SCO audit staff up to $125up to $250up
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to$250 General/
Local*
Financial review committee
-SCO, STO, DOF participation likely minor
costs to staff committee
General
-Financial consultants contract costs of up to $250
per year General
SCO annual report minor
costs to report on activities
General
*SCO costs to conduct preliminary reviews and audits may be
covered by local agencies that request a review or audit,
as specified.
SUPPORT : (Verified 5/26/11)
State Controller John Chiang (source)
American Federation of State, County and Municipal
Employees
California Professional Firefighters
Laborers Local 777 and 792
AGB:do 5/31/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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