Existing law imposes ethics training and sexual harassment prevention training and education on specified local agency officials. Existing law requires each training to be 2 hours and requires the officials to receive each training every 2 years, and as described otherwise.

This bill would require, if a local agency provides any type of compensation, salary, or stipend to a member of a legislative body, or provides reimbursement for actual and necessary expenses incurred by a member of a legislative body in the performance of official duties, all local agency officials, as defined, to receive at least 2 hours of fiscal and financial training, as described. The bill would require the training to be received at least once every 2 years, as provided. The bill would exempt a local agency official from the training requirements if they comply with specified criteria under existing law relating to eligibility for appointment or election to, and continuing education for, the office of county auditor, county treasurer, county tax collector, or county treasurer-tax collector.

This bill would authorize a local agency or an association of local agencies to contract with or otherwise collaborate with a provider of a training course to offer one or more training courses, or sets of self-study materials with tests, to its local agency officials to meet the training requirement, as described. The bill would require the training courses and materials to be developed in consultation with experts in local government finance. The bill would require providers of training courses to provide participants with proof of participation for purposes of complying with local agency recordkeeping requirements. The bill would require a local agency to provide information on training available at least once annually. By imposing additional duties on local agency officials, the bill would create a state-mandated local program.

The bill would include findings that changes proposed by this bill address a matter of statewide concern rather than a municipal affair and, therefore, apply to all cities, including charter cities.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law imposes ethics training and sexual harassment prevention training and education on specified local agency officials. Existing law requires each training to be 2 hours and requires the officials to receive each training every 2 years, and as described otherwise.

This bill would require, if a local agency provides any type of compensation, salary, or stipend to a member of a legislative body, or provides reimbursement for actual and necessary expenses incurred by a member of a legislative body in the performance of official duties, all local agency officials, as defined, to receive at least 2 hours of fiscal and financial training, as described. The bill would require the training to be received at least once every 2 years, as provided. The bill would exempt a local agency official from the training requirements if they comply with specified criteria under existing law relating to eligibility for appointment or election to, and continuing education for, the office of county auditor, county treasurer, county tax collector, or county treasurer-tax collector.

This bill would authorize a local agency or an association of local agencies to contract with or otherwise collaborate with a provider of a training course to offer one of or more training courses, or sets of self-study materials with tests, to its local agency officials to meet the training requirement, as described. The bill would require the training courses and materials to be developed in consultation with experts in local government finance. The bill would require providers of training courses to provide participants with proof of participation for purposes of complying with local agency recordkeeping requirements. The bill would require a local agency to provide information on training available at least once annually. By imposing additional duties on local officials, the bill would create a state-mandated local program.

The bill would include findings that changes proposed by this bill address a matter of statewide concern rather than a municipal affair and, therefore, apply to all cities, including charter cities.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law imposes ethics training and sexual harassment prevention training and education on specified local agency officials. Existing law requires each training to be 2 hours and requires the officials to receive each training every 2 years, and as described otherwise.

This bill would require, if a local agency provides any type of compensation, salary, or stipend to a member of a legislative body, or provides reimbursement for actual and necessary expenses incurred by a member of a legislative body in the performance of official duties, all local agency officials, as defined, to receive at least two 2 hours of fiscal and financial training, as described. The bill would require the training to be received at least once every two 2 years, as provided. The bill would exempt a local agency official from the training requirements if they comply with specified criteria under existing law relating to eligibility for appointment or election to, and continuing education for, the office of county treasurer, county tax collector, or county treasurer-tax collector.

This bill would authorize a local agency or an association of local agencies to contract with or otherwise collaborate with a provider of a training course to offer one of more training courses, or sets of self-study materials with tests, to its local agency officials to meet the training requirement, as described. The bill would require the training courses and materials to be developed in consultation with the California State Auditor. experts in local government finance. The bill would require providers of training courses to provide participants with proof of participation for purposes of complying with local agency recordkeeping requirements. The bill would require a local agency to provide information on training available at least once annually. By imposing additional duties on local officials, the bill would create a state-mandated local program.

The bill would include findings that changes proposed by this bill address a matter of statewide concern rather than a municipal affair and, therefore, apply to all cities, including charter cities.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law imposes ethics training and sexual harassment prevention training and education on specified local agency officials. Existing law requires each training to be 2 hours and requires the officials to receive each training every 2 years, and as described otherwise.

This bill would require, if a local agency provides any type of compensation, salary, or stipend to a member of a legislative body, or provides reimbursement for actual and necessary expenses incurred by a member of a legislative body in the performance of official duties, all local agency officials, as defined, to receive at least two hours of fiscal and financial training, as described. The bill would require the training to be received at least once every two years, as provided.

This bill would authorize a local agency or an association of local agencies to contract with or otherwise collaborate with a provider of a training course to offer one of more training courses, or sets of self-study materials with tests, to its local agency officials to meet the training requirement, as described. The bill would require the training courses and materials to be developed in consultation with the California State Auditor. The bill would require providers of training courses to provide participants with proof of participation for purposes of complying with local agency recordkeeping requirements. The bill would require a local agency to provide information on training available at least once annually. By imposing additional duties on local officials, the bill would create a state-mandated local program.

The bill would include findings that changes proposed by this bill address a matter of statewide concern rather than a municipal affair and, therefore, apply to all cities, including charter cities.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Date of Hearing: July 12, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

SBPCA Bill Id:SB 769

Author:(Gonzalez) – As Amended Ver:June 22, 2023

Urgency: No State Mandated Local Program: Yes Reimbursable: Yes

SUMMARY:

This bill requires local agency officials in a city, county or special district that is designated as high risk by the California State Auditor (CSA) or is in violation of State Controller’s Office (SCO) requirements to receive at least two hours of fiscal and financial training at least once every two years, if the local agency provides any type of compensation or reimbursement for actual and necessary expenses incurred to its local agency officials.

Specifically, this bill:

1. Defines “local agency” for purposes of this bill, as a city, county, city and county, charter city, charter county or special district, which meets one of the following:
2. The local agency has been designated as high risk pursuant to an audit conducted by the CSA.
3. The local agency has received a written notice from the SCO of the agency’s failure to timely submit the annual financial transaction report as required by existing law.
4. The local agency has a local agency official found to have willfully and knowingly submitted a false annual financial transaction report to the SCO.
5. Defines “local agency official,” for purposes of this bill, as either an employee designated by the agency’s legislative body to receive the training, or a member of a local agency’s legislative body or any elected local agency official who receives any type of compensation, salary, or stipend or reimbursement for actual and necessary expenses incurred in the performance of official duties.
6. Requires each local agency official in an affected local agency to receive at least two hours of fiscal and financial training, if the local agency provides compensation, salary, or stipend or reimbursement for actual and necessary expenses incurred by a member of the legislative body in the performance of official duties.
7. Authorizes a local agency or association of local agencies to contract or collaborate with training providers to meet the requirements of the bill, requires the training courses and materials to be developed in consultation with experts in local government finance, and authorizes the training courses to be taken at home, in-person, or online.
8. Requires training providers to provide participants with proof of participation, and requires local agencies to provide information on training available to local agency officials at least once annually.
9. Requires every local agency official in an affected local agency’s service as of January 1, 2024, to complete the training by January 1, 2026, and every two years thereafter, and requires a local agency official commencing service on or after January 1, 2024, to receive training within two years from the first day of service, and every two years thereafter.
10. Requires a local agency whose officials must receive training to maintain records for at least five years showing dates of completion and the entity providing the training for each official.
11. Exempts certain local fiscal officers with specified statutory training requirements from the provisions of the bill.

FISCAL EFFECT:

Costs to affected local agencies of an unknown amount, but potentially in the hundreds of thousands of dollars annually statewide. These costs are likely reimbursable by the state General Fund, subject to a determination by the Commission on State Mandates (COSM). Based on prior COSM findings, the mandate is not expected to apply to the provision of the training, but certain other eligible expenses incurred by local entities are likely to be subject to state-reimbursement. Reimbursement would be available only for affected general law counties and certain special districts subject to the tax and spend provisions of the California Constitution and are required by state law to provide reimbursement of expenses to members of their legislative bodies. Most other local agencies, including cities, are not required by law to provide compensation or reimbursement or do not receive property tax, and therefore, are not eligible for state reimbursement.

COMMENTS:

1. Purpose. The author seeks to encourage responsible governing and prevent fiscal mismanagement by requiring training for certain local agency officials on the fiscal and financial responsibilities of their position.
2. Background. In the most recent reporting period for which comprehensive information is available (fiscal year 202-21), the CSA has designated ten cities as high risk in the past two years, and the SCO has sent notices of failure to timely file an annual financial transactions report to 112 cities, six counties, and 955 special districts. This bill would require each of these local entities, as well as any agency that meets the criteria in the future, to provide fiscal and financial training to its local agency officials.

Existing law, AB 1234 (Salinas), Chapter 700, Statutes of 2005, requires specified local officials to receive two hours of ethics training every two years, if a local agency provides any type of compensation or reimbursement to members of its legislative body. Existing law specifies a local agency that requires its officials to complete ethics training must maintain records for five years indicating the dates of course completion and the entity providing the training for each official. This bill is structured similarly to the ethics training requirement in AB 1234.

The COSM adopted a statement of decision on May 25, 2012, related to the requirements of AB 1234, finding the statute imposes a partially reimbursable state-mandated program on general law counties (44 entities) and special districts subject to the tax and spend provisions of articles XIIIA and XIIIB of the California Constitution (610 entities) that are required by their enabling statutes to provide compensation or reimbursement of expenses necessary to perform the reimbursable activities to its members. Notably, the COSM found the ethics training itself was not a reimbursable activity, but authorized reimbursement to eligible claimants for the administrative aspects of the requirement, such as adopting written policies in a public meeting regarding reimbursable expenses, providing expense report forms, providing information on training courses, and maintaining training records.

Due to the similarity of this bill to AB 1234, it is likely the COSM would find only the administrative requirements of this bill to be eligible for state-reimbursement and would determine the training requirement not be a reimbursable activity. If a successful mandate claim is filed, hundreds of local entities could be eligible for reimbursement, even if for only the administrative expenses. If one-third of the potentially affected local agencies filed a claim exceeding $1,000, costs would be over $200,000.

1. Prior Legislation. AB 1235 (Gordon), of the 2013-14 Legislative Session, was substantially similar to this bill, but would have applied more broadly to all local agencies that provided any type of compensation or reimbursement to a member of its legislative body. AB 1235 was vetoed by Governor Brown, who stated:

This bill imposes financial management training requirements on elected city, county and special district officials at potentially significant costs to the state. I believe local governments can impose appropriate financial management training without the aid of the State General Fund.

Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081

Date of Hearing: June 21, 2023

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Cecilia Aguiar-Curry, Chair

SBPCA Bill Id:SB 769

Author:(Gonzalez) – As Amended Ver:June 12, 2023

SENATE VOTE: 37-2

SUBJECT: Local government: fiscal and financial training.

SUMMARY: Requires specified local officials to receive two hours of fiscal and financial training at least once every two years. Specifically, this bill:

1. Defines the following terms:
   1. “Fiscal and financial training” to include:
      1. Laws and principles relating to financial administration and short-and long-term fiscal management, including, but not limited to, the role and responsibilities of financial administration, financial policies, municipal budget and budget processes, and financial reporting and auditing.
      2. Laws and principles relating to, but not limited to, capital financing and debt management, mechanisms for local agency revenues, pensions and other postemployment benefits, and cash management and investments.
      3. General fiscal and financial planning principles and any pertinent law relevant to the local agency official’s public service and role in overseeing the local agency’s operations and relevant to the local agency’s procurement practices and responsibilities.
   2. “Legislative body” as specified in the Ralph M. Brown Act.
   3. “Local agency” as a city, county, city and county, charter city, charter county, charter city and county, or special district, which meets one of the following:
      1. The local agency has been designated as high risk pursuant to an audit conducted by the California State Auditor.
      2. The local agency has received a written notice from the State Controller’s Office (SCO) of the agency’s failure to timely submit the annual financial transaction report as required by existing law.
      3. The local agency has a local agency official that has been found to have willfully and knowingly submitted a false annual financial transaction report to the SCO.
   4. “Local agency official” as either of the following:
      1. Any member of a local agency’s legislative body or any elected local agency official who receives any type of compensation, salary, or stipend or reimbursement for actual and necessary expenses incurred in the performance of official duties.
      2. Any employee designated by a local agency’s legislative body to receive the training specified under this bill.
2. Provides that if a local agency provides any type of compensation, salary, or stipend to a member of a legislative body, or provides reimbursement for actual and necessary expenses incurred by a member of a legislative body in the performance of official duties, then all local agency officials shall receive at least two hours of fiscal and financial training, pursuant to this bill.
3. Specifies that a local agency or an association of local agencies may contract with or otherwise collaborate with a provider of a training course to offer one or more training courses, or sets of self-study materials with tests, to its local agency officials to meet the requirements of this bill.
4. Provides that training courses, or the sets of self-study materials with tests, may be taken at home, in person, or online. These courses and materials shall be developed in consultation with widely recognized experts in local government finance.
5. Requires all providers of training courses to provide participants with proof of participation, as specified.
6. Provides that a local agency shall provide information on training available to meet the requirements of this bill to its local agency officials at least once annually.
7. Requires every local agency official who is in a local agency’s service as of January 1, 2024, and commenced that service prior to January 1, 2024, shall receive the fiscal and financial planning training required by this bill before January 1, 2026, unless that official’s term of office ends before January 9, 2026. Thereafter, the local agency official shall receive the training at least once every two years.
8. Specifies that every local agency official who commences service with a local agency on or after January 1, 2024, shall receive the fiscal and financial training required by this bill no later than two years from the first day of service with the local agency. Thereafter, the local agency official shall receive the training at least once every two years,
9. Provides that a local agency official who serves more than one local agency is only required to comply with the training requirements of this article once every two years, regardless of the number of local agencies the official serves. However, the official shall provide a copy of proof of participation to all local agencies that they serve.
10. Requires a local agency that requires its local agency officials to complete the fiscal and financial planning training required by this bill to maintain records indicating both of the following:
    1. The dates that local officials satisfied the requirements of this bill.
    2. The entity that provided the training.
11. Provides that, notwithstanding any other provision of law, a local agency shall maintain the above records for at least five years after local agency officials receive the training. These records are public records subject to disclosure under the California Public records Act.
12. Exempts certain local fiscal officers that are in compliance with specified requirements.
13. Finds and declares that the fiscal management of local governments is a matter of statewide concern and is not a municipal affair. Therefore, this bill applies to all cities, including charter cities.
14. Provides that if the Commission on State Mandates determines that this bill contains costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made.
    

FISCAL EFFECT: According to the Senate Appropriations Committee, “Unknown reimbursable state-mandated costs, potentially exceeding $50,000, related to certain administrative requirements specified in the bill (General Fund). The mandate is not expected to apply to the provision of the training, but certain other eligible expenses incurred by local entities are likely to be subject to state-reimbursement. Reimbursement would be available for affected general law counties and certain special districts that are subject to the tax and spend provisions of the California Constitution and are required by state law to provide reimbursement of expenses to members of their legislative bodies.”

COMMENTS:

1. Local Government Finances. Local elected and appointed officials are charged with a fiduciary duty to the public. They are responsible for guiding multi-million dollar county and municipal agencies that depend on numerous sources of revenues and have multiple layers of policy and management responsibilities. Understanding their financial fiduciary responsibilities is one of their most important duties.
   
   Many factors dictate how a local agency manages its funds, including: the amount of revenue the agency receives annually; the source of the revenue, whether it be property taxes, sales taxes, fee-based revenue, utility taxes, grants, loans, bond funding, etc.; restrictions on how these funds can be used; and, many other dynamics in which each local agency is accountable. No two local agencies manage their finances in the same way. In order to balance the individual agency needs, the state, both constitutionally and statutorily, has provided local agencies with decision-making flexibility in how finances can be managed.
   
2. Current Training Requirements. The California Constitution, and state law, including the Ralph M. Brown Act and the Political Reform Act, establish standards for the operations of the legislative bodies of local agencies. The Ralph M. Brown Act requires that legislative bodies of local agencies meet, deliberate, and vote in open session, with specified exceptions. The Political Reform Act prohibits local officials from participating in decisions which affect their material interests and establishes disclosure requirements.
   

In 2005, the Legislature enacted AB 1234 (Salinas), Chapter 700, Statutes of 2005, to require members of local agencies’ legislative bodies to participate in ethics training, if those agencies offer compensation or expense reimbursement to their board members. AB 1234 required local agency officials to receive at least two hours of training and general ethics principles and ethics laws relevant to the official’s public service every two years. Such training is required to include, but is not limited to, the following information:

• 1. Laws relating to personal financial gain by public servants, including, but not limited to, laws prohibiting bribery and conflict-of-interest laws.
     
  2. Laws relating to claiming prerequisites of office, including, but not limited to, gift and travel restrictions, prohibitions against the use of public resources for personal or political purposes, prohibitions against gifts of public funds, mass mailing restrictions, and prohibitions against acceptance of free or discounted transportation by transportation companies.
     
  3. Government transparency laws, including, but not limited to, financial interest disclosure requirements and open government laws.
     
  4. Laws relating to fair processes, including, but not limited to, common law bias prohibitions, due process requirements, incompatible offices, competitive bidding requirements for public contract, and disqualification from participating in decisions affecting family members.

AB 1661 (McCarty & Gonzalez), Chapter 816, Statutes of 2016, additionally required local agency officials to receive two hours of sexual harassment prevention training and education within the first six months of taking office or commencing employment, and every two years thereafter. The requirements of the bill apply only if a local agency provides any type of compensation, salary, or stipend to its local agency officials. AB 1661’s requirements apply to any member of a legislative body and any elected official of cities and counties (including charter cities and charter counties), and special districts.

1. High-Risk Local Government Agency Audit Program. In response to local government malfeasance, AB 187 (Lara), Chapter 451, Statutes of 2011, authorized the State Auditor to establish a high-risk local government agency audit program to identify, audit, and issue reports on any local government agency or any publicly-created entity that the State Auditor identifies as being at high-risk for the potential of waste, fraud, abuse, or mismanagement or that has major challenges associated with its economy, efficiency, or effectiveness.

Current law requires the State Auditor to notify the Joint Legislative Audit Committee (JLAC) whenever the local government is identified as at high-risk, requires the Auditor to provide annual updates of all audits in progress, and remove the agency from the high-risk local government agency audit program if the agency has taken significant corrective measures for identified deficiencies. If the State Auditor determines that a local government agency is at high-risk, the audit reports must be issued at least once every three years with recommendations for improvement in the local government so identified.

1. State Controller Reports. Each city, county, and special district is currently required to provide to the SCO a report of all the financial transactions during the preceding year. The report must contain data from financial statements prepared in accordance with Generally Accepted Accounting Principles, if the data is available. The report must be provided seven months after the close of each fiscal year or within the time prescribed by the SCO, whichever is later, and shall be in the form required by the SCO.

Once submitted, the SCO must compile, publish, and make publicly available on its website, in a format that can be printed and downloaded, reports on the financial transactions and information on annual compensation of each county, city, and special district. The SCO must publish the reports of the financial transactions on or before November 1 of each year following the end of the annual reporting period. This data is available upon request of the Legislature on or before April 1 of each year.

1. Bill Summary. This bill requires specified local agency officials to receive at least two hours of fiscal and financial training if the local agency has been designated as high-risk pursuant to an audit by the State Auditor, the local agency has received a written notice from the SCO of the agency’s failure to timely submit the annual financial transaction report, or the local agency has a local agency official that has been found to have willingly and knowingly submitted a false annual financial transaction report. This bill also dictates when the specified local agency officials must receive the training, the information that must be provided in the training, and record maintenance requirements. This bill is sponsored by the author.
2. Author’s Statement. According to the author, “While local elected officials hold expansive fiscal, budgetary, and financial responsibilities, there is no existing requirement that they receive any training on these critical duties and obligations. SB 769 will address this lack of preparation and education, by implementing recommendations by the California State Auditor (CSA), that will require local agency officials, such as city councilmembers and other members of local agency legislative bodies, to complete fiscal and financial training on their duties and responsibilities in budgeting, contracting, procurement, and other critical fiscal obligations. The CSA’s high-risk local program has found repeated instances of local officials financially mismanaging local agencies, and recommended additional training as a remedy. SB 769 will encourage responsible governing by applying training requirements for local officials if the local agency is designated as high risk pursuant to an audit conducted by the California State Auditor, fails to timely submit their annual financial transaction report, or has been found to have submitted a false annual financial transaction report.”
3. Previous Legislation. AB 1235 (Gordon) of 2013 was similar to this bill and would have required specified local agency officials to receive training in financial management, if the local agency provides any type of compensation or reimbursement to a member of its legislative body, as specified. The Governor vetoed AB 1235 saying, “This bill imposes financial management training requirements on elected city, county and special district officials at potentially significant costs to the state. I believe local governments can impose appropriate financial management training without the aid of the State General Fund.”
   
4. Technical Amendments. To ensure consistency throughout the bill, the Committee may wish to consider amending the bill as follows:

53238.2. (a) Every local agency official who is in a local agency’s service as of January 1, 2024, and commenced that service prior to January 1, 2024, shall receive the fiscal and financial planning training required by this article before January 1, 2026, unless that local agency official’s term of office ends before January 9, 2026. Thereafter, the local agency official shall receive the training at least once every two years.
(b) Every local agency official who commences service with a local agency on or after January 1, 2024, shall receive the fiscal and financial planning training required by this article no later than two years from the first day of service with the local agency. Thereafter, the local agency official shall receive the training at least once every two years.
(c) A local agency official who serves more than one local agency is only required to comply with the training requirements of this article once every two years, regardless of the number of local agencies the local agency official serves. However, the local agency official shall provide a copy of proof of participation to all local agencies that they serve.

53238.3. (a) A local agency that requires its local agency officials to complete the fiscal and financial planning training required by this article shall maintain records indicating both of the following:
(1) The dates that local agency officials satisfied the requirements of this article.
(2) The entity that provided the training.
(b) Notwithstanding any other provision of law, a local agency shall maintain these records for at least five years after local agency officials receive the training. These records are public records subject to disclosure under the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1).

1. Arguments in Support. According to the League of Women Voters of California, “This bill would seek to provide training to local agency officials on their responsibilities and duties in crucial fiscal obligations. Governmental systems that are based on economic efficiency and administrative effectiveness will be more accountable to their constituents because of this uniform requirement.
   

“SB 769 proposes a two-hour fiscal and financial training at least every two years, including education in financial administration, fiscal management, capital financing, local agency revenues, pensions and other benefits, and local laws relevant to the officials’ public service and role in overseeing operations. It would target those local agencies most likely to benefit: those designated as high-risk by the State Auditor, or those that did not have a timely annual financial report or had an agency official who willingly submitted a false annual financial report.

“This bill recognizes the need for local agency officials to be educated on fiscal and financial matters, so vital to decisions that these officials make or to management of these matters on the local level. The training should help the agencies become more effective administratively and economically, and also have a greater likelihood of being politically accountable.”

1. Arguments in Opposition. None on file.

REGISTERED SUPPORT / OPPOSITION:

Support

California Association of County Treasurers and Tax Collectors

League of Women Voters of California

Open Contracting Partnership

State Association of County Auditors

Opposition

None on file

Analysis Prepared by: Jimmy MacDonald / L. GOV. / (916) 319-3958

 THIRD READING  

Bill No: SB 769

Author: Gonzalez (D)

Amended: 4/20/23

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 7-1, 4/19/23

AYES: Caballero, Seyarto, Blakespear, Durazo, Glazer, Skinner, Wiener

NOES: Dahle

SENATE APPROPRIATIONS COMMITTEE: 6-1, 5/18/23

AYES: Portantino, Ashby, Bradford, Seyarto, Wahab, Wiener

NOES: Jones

SUBJECT: Local government: fiscal and financial training

SOURCE: Author

DIGEST:

This bill requires certain local agency officials to receive at least two hours of fiscal and financial training at least once every two years, if a local agency provides compensation or reimbursements for expenses incurred in the performance of official duties.

ANALYSIS:

Existing law:

1. Establishes standards for the operations of the legislative bodies of local agencies. The Ralph M. Brown Act requires that legislative bodies of local agencies meet, deliberate, and vote in open session, with specified exceptions. The Political Reform Act prohibits local officials from participating in decisions which affect their material interests and establishes disclosure requirements.
2. Requires members of local agencies’ legislative bodies to participate in ethics training, if those agencies offer compensation or expense reimbursement to their board members.
3. Grants the State Auditor the authority to establish a high-risk local agency audit program to identify, audit, and issue reports, on local agencies the Auditor identifies as being high-risk for the potential of waste, fraud, abuse, mismanagement, or that the Auditor has identified as having major challenges with its economy, efficiency, or effectiveness. The Auditor is responsible for state costs associated with the program, must only conduct the program as funds permit, and these audits cannot interfere with mandated audits and audits the Joint Legislative Audit Committee requests. For high-risk local agencies, the Auditor must issue audit reports once every three years with recommendations for improvement.

This bill:

1. Requires local agency officials to receive at least two hours of fiscal and financial training, if the local agency provides any type of compensation, salary, or stipend or reimbursement for actual and necessary expenses incurred by a member of the legislative body in the performance of official duties, as specified.
2. Authorizes a local agency or association of local agencies to contract or collaborate with training providers to meet the requirements of the bill, require the training courses and materials to be developed in consultation with experts in local government finance, and authorize the training courses to be taken at home, in-person, or online.
3. Requires training providers to provide participants with proof of participation, and require local agencies to provide information on training available to meet the bill’s requirements to its local agency officials at least once annually.
4. Requires current local agency officials to complete the training by January 1, 2026, unless the official’s term of office ends before January 9, 2026, require agency officials commencing on or after January 1, 2024 to receive training within two years from the first day of service, and require training every two years thereafter.
5. Requires a local agency that requires its officials to receive training to maintain records for at least five years that indicate the dates of completion and the entity providing the training for each official.
6. Exempts certain local fiscal officers that have specified statutory training requirements from the provisions of the bill.
7. Defines “local agency official,” for purposes of the bill, as either an employee designated by the agency’s legislative body to receive the training, or a member of a local agency’s legislative body or any elected local agency official who receives any type of compensation, salary, or stipend or reimbursement for actual and necessary expenses incurred in the performance of official duties.
8. Defines “local agency,” for purposes of the bill, as a city, county, charter city or county, or special district that meets one of the following:
   1. The agency has been designated as high risk pursuant to an audit conducted by the State Auditor.
   2. The agency has received written notice from the State Controller’s Office of the agency’s failure to submit the annual financial transaction report, as specified.
   3. The agency has a local agency official that has been found to have willfully and knowingly submitted a false annual financial transaction report.

Background

In 2005, the Legislature enacted AB 1234 (Salinas, Chapter 700, Statutes of 2005) to require members of local agencies’ legislative bodies to participate in ethics training, if those agencies offer compensation or expense reimbursement to their board members.

In response to criminal convictions stemming from the misappropriation of public funds in the City of Bell in Los Angeles County, AB 187 (Lara, Chapter 451, Statutes of 2011) granted the State Auditor the authority to establish a high-risk local agency audit program to identify, audit, and issue reports, on local agencies the Auditor identifies as being high-risk for the potential of waste, fraud, abuse, mismanagement, or that the Auditor has identified as having major challenges with its economy, efficiency, or effectiveness. The Auditor has focused exclusively on cities in this program so far, and maintains a high-risk city dashboard, which it annually updates to identify cities that could be facing fiscal challenges.

The State Auditor has designated ten cities as high risk in the past two years, and that the State Controller’s Office sent notices of failure to timely file an annual financial transactions report to 112 cities, six counties, and 955 special districts in the most recent reporting period for which comprehensive information is available (2020-21).

Comments

1. Purpose of the bill. According to the author, “While local elected officials hold expansive fiscal, budgetary, and financial responsibilities, there is no existing requirement that they receive any training on these critical duties and obligations. SB 769 will address this lack of preparation and education, by implementing recommendations by the California State Auditor (CSA), that will require local agency officials, such as city councilmembers and other members of local agency legislative bodies, to complete fiscal and financial training on their duties and responsibilities in budgeting, contracting, procurement, and other critical fiscal obligations. The CSA’s high-risk local program has found repeated instances of local officials financially mismanaging local agencies, and recommended additional training as a remedy. SB 769 will encourage responsible governing and prevent fiscal mismanagement by applying training requirements for local officials who receive any type of compensation, salary, or stipend, on the fiscal and financial responsibilities of their position.”
2. Standards versus incentives. Improved financial management practices can help assure that local agencies use limited public resources most effectively and bolster public confidence in the operations of local agencies. Yet those local agencies working to improve their practices are unlikely to find value in a new directive, while those resistant to change are equally unlikely to benefit. As an alternative, the state could establish an incentive-based strategy that rewards excellence, recognizes and evaluates innovation and encourages continued improvement in financial management. That strategy might include establishing best-practices for financial management, budget and expenditure transparency, long-range planning, debt utilization and related financial responsibilities, including training. Consistent with best practices, the State could promote a certification or related model, creating incentives for local agencies that meet and exceed standards. Incentives might include market-based recognition, through bond markets, civil service and exempt hiring policies, as well as public recognition. The Legislature may wish to consider whether an incentive-based model would more effectively improve local agency financial practices.

Related/Prior Legislation

AB 1235 (Gordon, 2013), which Governor Brown vetoed, would have required specified local agency officials to receive training in financial management, if the local agency provides any type of compensation or reimbursement to a member of its legislative body, as specified. The Governor’s veto message stated the following:

This bill imposes financial management training requirements on elected city, county and special district officials at potentially significant costs to the state. I believe local governments can impose appropriate financial management training without the aid of the State General Fund.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Senate Appropriations Committee, unknown reimbursable state-mandated costs, potentially exceeding $50,000, related to certain administrative requirements specified in this bill (General Fund). The mandate is not expected to apply to the provision of the training, but certain other eligible expenses incurred by local entities are likely to be subject to state-reimbursement. Reimbursement would be available for affected general law counties and certain special districts that are subject to the tax and spend provisions of the California Constitution and are required by state law to provide reimbursement of expenses to members of their legislative bodies.

SUPPORT: (Verified 5/18/23)

California Association of County Treasurers and Tax Collectors

League of Women Voters of California

Open Contracting Partnership

State Association of County Auditors

OPPOSITION: (Verified 5/18/23)

None received

Prepared by: Jonathan Peterson / GOV. & F. / (916) 651-4119

5/20/23 13:09:29

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SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

SB 769 (Gonzalez) - Local government: fiscal and financial training

Bill Summary:

SB 769 would require certain local agency officials to receive at least two hours of fiscal and financial training at least once every two years, if a local agency provides compensation or reimbursements for expenses incurred in the performance of official duties, as specified.

Fiscal Impact:

• Unknown reimbursable state-mandated costs, potentially exceeding $50,000, related to certain administrative requirements specified in the bill (General Fund). The mandate is not expected to apply to the provision of the training, but certain other eligible expenses incurred by local entities are likely to be subject to state-reimbursement. Reimbursement would be available for affected general law counties and certain special districts that are subject to the tax and spend provisions of the California Constitution and are required by state law to provide reimbursement of expenses to members of their legislative bodies. See staff comments below.

Background:

Existing law, AB 1234 (Salinas), Chap 700/2005, requires specified local officials to receive two hours of ethics training every two years, if a local agency provides any type of compensation or reimbursement to members of its legislative body, as specified. If a local agency develops its own ethics training curricula, it must be reviewed for sufficiency and accuracy by the Fair Political Practices Commission and the Attorney General. Existing law specifies that a local agency that requires its officials to complete ethics training shall maintain records for five years that indicates the dates of course completion and the entity providing the training for each official.

Proposed Law:

SB 769 would require certain local officials to receive at least two hours of fiscal and financial training at least once every two years, if a local agency meets specified criteria. Specifically, this bill would:

• Define “local agency official,” for purposes of the bill, as either an employee designated by the agency’s legislative body to receive the training, or a member of a local agency’s legislative body or any elected local agency official who receives any type of compensation, salary, or stipend or reimbursement for actual and necessary expenses incurred in the performance of official duties.
• Define “local agency,” for purposes of the bill, as a city, county, charter city or county, or special district that meets one of the following:
  • The agency has been designated as high risk pursuant to an audit conducted by the State Auditor.
  • The agency has received written notice from the State Controller (SCO) of the agency’s failure to submit the annual financial transaction report, as specified.
  • The agency has a local agency official that has been found to have willfully and knowingly submitted a false annual financial transaction report.
• Require local agency officials to receive at least two hours of fiscal and financial training, if the local agency provides any type of compensation, salary, or stipend or reimbursement for actual and necessary expenses incurred by a member of the legislative body in the performance of official duties, as specified.
• Authorize a local agency or association of local agencies to contract or collaborate with training providers to meet the requirements of the bill, require the training courses and materials to be developed in consultation with experts in local government finance, and authorize the training courses to be taken at home, in-person, or online.
• Require training providers to provide participants with proof of participation, and require local agencies to provide information on training available to meet the bill’s requirements to its local agency officials at least once annually.
• Require current local agency officials to complete the training by January 1, 2026, unless the official’s term of office ends before January 9, 2026, require agency officials commencing on or after January 1, 2024 to receive training within two years from the first day of service, and require training every two years thereafter.
• Require a local agency that requires its officials to receive training to maintain records for at least five years that indicate the dates of completion and the entity providing the training for each official.
• Exempt certain local fiscal officers that have specified statutory training requirements from the provisions of the bill.

Related Legislation:

AB 1235 (Gordon), which was vetoed by Governor Brown in 2013, would have required specified local agency officials to receive training in financial management, if the local agency provides any type of compensation or reimbursement to a member of its legislative body, as specified. The Governor’s veto message stated the following:

This bill imposes financial management training requirements on elected city, county and special district officials at potentially significant costs to the state. I believe local governments can impose appropriate financial management training without the aid of the State General Fund.

Staff Comments:

Staff notes that the State Auditor has designated ten cities as high risk in the past two years, and that the SCO sent notices of failure to timely file an annual financial transactions report to 112 cities, six counties, and 955 special districts in the most recent reporting period for which comprehensive information is available (2020-21). This bill would require all of these local entities, as well as any agency that meets the criteria in the future, to provide training to its local agency officials, as specified.

This bill is structured very similarly to the requirements in existing law for the provision of ethics training by local agencies. The Commission on State Mandates (COSM) adopted a statement of decision on May 25, 2012 related to the requirements of AB 1234 (Salinas, 2005), finding that the statute imposes a partially reimbursable state-mandated program on general law counties (44 entities) and those special districts subject to the tax and spend provisions of articles XIIIA and XIIIB of the California Constitution (610 entities), that are required by their enabling statutes to provide compensation or reimbursement of expenses necessary to perform the reimbursable activities to its members. Notably, the COSM found that the ethics training itself was not a reimbursable activity. The parameters and guidelines only authorized reimbursement to eligible claimants for the following:

• Adopting a written policy in a public meeting specifying the types of occurrences that qualify a member of a legislative body for reimbursement of expenses.
• Providing expense report forms to members of the legislative body.
• Providing information on training courses that meet the ethics training requirements to local officials at least once annually.
• Maintenance of training records for five years.

On July 26, 2013, the COSM released a statewide cost estimate of $0 for costs incurred in complying with the Local Agency Ethics (AB 1234) program. This estimate was based upon the fact that no eligible claims for reimbursement had been filed to date, but the COSM indicated that the estimate may not be accurate in predicting future costs, due to the dearth of data available from claimants. This may be due to eligible claimants not having supporting documentation to file a claim, or because eligible claimants may not reach the minimum $1,000 threshold for submitting a claim since the COSM only approved reimbursement for minor administrative activities related to the program.

Staff notes that the requirements of SB 769 are similar to those imposed by AB 1234 (Salinas). As such, staff assumes that the COSM would only find the administrative requirements of this bill to be eligible for state-reimbursement, and would determine that the training requirement would not be a reimbursable activity. If a successful mandate claim is filed, however, hundreds of local entities could be eligible for reimbursement (general law counties and certain special districts, if those local entities are designated as high risk by the State Auditor or have received a written notice from the SCO for failing to timely submit an annual financial transaction report).

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SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Anna M. Caballero, Chair

2023 - 2024 Regular

Local government: fiscal and financial training

Requires local agencies to provide financial management training to members of their legislative bodies.

Background

The California Constitution, and state law, including the Ralph M. Brown Act and the Political Reform Act, establish standards for the operations of the legislative bodies of local agencies. The Ralph M. Brown Act requires that legislative bodies of local agencies meet, deliberate, and vote in open session, with specified exceptions. The Political Reform Act prohibits local officials from participating in decisions which affect their material interests and establishes disclosure requirements.

In 2005, the Legislature enacted AB 1234 (Salinas) to require members of local agencies’ legislative bodies to participate in ethics training, if those agencies offer compensation or expense reimbursement to their board members.

State Auditor high-risk local government audit program. In response to criminal convictions stemming from the misappropriation of public funds in the City of Bell in Los Angeles County, AB 187 (Lara, 2011) granted the State Auditor the authority to establish a high-risk local agency audit program to identify, audit, and issue reports, on local agencies the Auditor identifies as being high-risk for the potential of waste, fraud, abuse, mismanagement, or that the Auditor has identified as having major challenges with its economy, efficiency, or effectiveness. The Auditor is responsible for state costs associated with the program, must only conduct the program as funds permit, and these audits cannot interfere with mandated audits and audits the Joint Legislative Audit Committee requests. For high-risk local agencies, the Auditor must issue audit reports once every three years with recommendations for improvement. The Auditor has focused exclusively on cities in this program so far, and maintains a high-risk city dashboard, which it annually updates to identify cities that could be facing fiscal challenges.

For example, the Auditor first issued a report on the City of Maywood in Los Angeles County in 2016, where it identified a multitude of concerns regarding the city’s financial practices, including:

• Inadequate oversight of city operations;
• Lack of transparency;
• Ongoing deficits;
• Deficient budgeting process;
• Failure to maximize revenue;
• Poor contract administration; and
• Inadequate accounting controls.

After a 2019 update to its initial audit revealed some progress toward implementing a corrective action plan, the Auditor removed its high-risk designation for the City of Maywood in December 2022. The 2022 report highlighted Maywood’s progress implementing its corrective action plan, including:

• Improving its process for hiring and overseeing key management positions;
• Establishing a comprehensive hiring policy;
• Evaluating the performance of its city manager;
• Ceasing incurring ongoing deficits;
• Improving budget policies; and
• Establishing key internal financial controls.

While Maywood has taken steps to respond to the Auditor’s reports, other cities have not. For example, despite undergoing a similar audit process, the Auditor continues to designate Richmond, a city in Alameda County, as high-risk due to various factors, such as high pension costs and an ongoing deficit forecast.

Building off the requirement for local official to complete ethics training, the author wants to require training in financial management practices to ensure that local officials are more informed, and make improved fiscal and financial decisions.

Proposed Law

Senate Bill 769 requires all local agency officials to participate in at least two hours of fiscal and financial training every two years if that local agency provides any compensation, salary, stipend, or reimbursement for actual and necessary expenses to the members of its legislative body. Under the measure, “local agency officials” include:

• Any member of the local agency’s legislative body, or any elected local agency official, who receives any type of compensation, salary, stipend, or reimbursement for actual and necessary expenses; or
• Any employee the local agency’s legislative body designates to receive the training.

This training must include, but is not limited to, the following:

• Laws and principles of fiscal administration and short- and long-term fiscal management, including rights and responsibilities of financial administration, financial policies, municipal budgets and processes, and financial reporting and auditing;
• Laws and principles of capital financing and debt management, mechanisms for city revenues, pensions and other postemployment benefits, and cash management and investments; and
• General fiscal and financial planning principles and any pertinent laws relevant to the local agency officials’ public service, role in overseeing the local agency’s operations, and relevant to the local agency’s procurement practices and responsibilities.

Local agencies, or an association of local agencies, may contract or collaborate with a training provider to offer one or more courses, or sets of self-study materials with tests, to its local agency officials to meet the training requirement, which may be taken at home, in-person, or online. The bill requires consultation with the Auditor on these courses and curricula. Training providers must provide participants with proof of participation. Local agencies must offer the training at least once each year, and maintain records indicating the dates that local officials completed the training, as well as the entity that provided it. These agencies must maintain these records for at least five years after local agency officials receive the training. The measure also provides that these records are public records subject to disclosure under the California Public Records Act.

Local agency officials must provide a copy of participation to each local agency that they serve. If the official is in a local agency’s service as of January 1, 2024, and began that service prior to January 1, 2024, they must complete the training requirement before January 1, 2026, unless their term of office ends before January 9, 2026. If the official commences service on or after January 1, 2024, the must complete the training no later than one year from their first day of service with the local agency.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “While local elected officials hold expansive fiscal, budgetary, and financial responsibilities, there is no existing requirement that they receive any training on these critical duties and obligations. SB 769 will address this lack of preparation and education, by implementing recommendations by the California State Auditor (CSA), that will require local agency officials, such as city councilmembers and other members of local agency legislative bodies, to complete fiscal and financial training on their duties and responsibilities in budgeting, contracting, procurement, and other critical fiscal obligations. The CSA’s high-risk local program has found repeated instances of local officials financially mismanaging local agencies, and recommended additional training as a remedy. SB 769 will encourage responsible governing and prevent fiscal mismanagement by applying training requirements for local officials who receive any type of compensation, salary, or stipend, on the fiscal and financial responsibilities of their position.”

2. Good actors and bad apples. Locally elected boards govern California’s local agencies, which are accountable to their electors. Training in financial management practices is readily available through statewide associations representing local agencies, public and private colleges and universities, industry trade groups, and other sources. Local agencies in California range from small special districts with less than $100,000 in annual revenues to Los Angeles County, which manages more than $32 billion annually. While undoubtedly there are exceptions, most local agencies are well managed. It is unclear that an across-the-board training requirement will improve financial management practices in agencies needing improvement. To better pinpoint local agencies that may be facing financial challenges, the Committee was wish to consider amending the bill so that the training requirement only applies under the following conditions:

• The local agency has been designated as high risk pursuant to an audit conducted by the California State Auditor;
• The local agency has received a written notice from the Controller of the agency’s failure to timely submit the annual financial transaction report; and
• The local agency has a local agency official that has been found to have willfully and knowingly submitted a false annual financial transaction report.

3. Standards versus incentives. Improved financial management practices can help assure that local agencies use limited public resources most effectively and bolster public confidence in the operations of local agencies. Yet those local agencies working to improve their practices are unlikely to find value in a new directive, while those resistant to change are equally unlikely to benefit. As an alternative, the state could establish an incentive-based strategy that rewards excellence, recognizes and evaluates innovation and encourages continued improvement in financial management. That strategy might include establishing best-practices for financial management, budget and expenditure transparency, long-range planning, debt utilization and related financial responsibilities, including training. Consistent with best practices, the State could promote a certification or related model, creating incentives for local agencies that meet and exceed standards. Incentives might include market-based recognition, through bond markets, civil service and exempt hiring policies, as well as public recognition. The Committee may wish to consider whether an incentive-based model would more effectively improve local agency financial practices.

4. Let’s be clear. The Committee may wish to consider the following clarifying amendments to SB 769 to ensure that the author’s intent is accurately carried out:

• Some elected officials subject to SB 769’s training requirements, like treasurers and tax collectors, already receive statutorily required, continuing financial education. To avoid duplicative training, the Committee may wish to consider amending the bill to exempt treasurers and tax collectors in compliance with their existing continuing financial education requirements.
• SB 769 provides local officials in office before January 1, 2024, the date the bill goes into effect, until January 1, 2026, or two years, to satisfy their training requirement. However, local officials that take office after the bill goes into effect, only have one year. To ensure that all local officials have sufficient time to comply with SB 769’s requirements, the Committee may wish to consider amending the bill to allow local officials who enter office after the bill goes into effect two years to comply with the new training requirements.
• SB 769 requires the training to include laws and principles relating to mechanisms for city revenues. However, the measure also applies to counties and special districts. To ensure that the training is relevant to all local agencies, not just cities, the Committee may wish to consider amending the bill to specify that the training must include mechanisms for local agency revenues.
• SB 769 requires local agencies to consult with the State Auditor to develop training materials. However, requiring the entity that audits these local agencies to consult on training materials could raise issues regarding the independence of their audits. The Committee may wish to consider amending the bill to instead require local agencies to consult with widely recognized experts in local agency finance to develop these training materials.

5. Previous legislation. AB 1235 (Gordon, 2013) included similar fiscal training provisions to this measure. Governor Brown vetoed the bill with the following message:

This bill imposes financial management training requirements on elected city, county and special district officials at potentially significant costs to the state. I believe local governments can impose appropriate financial management training without the aid of the State General Fund.

6. Mandate. The California Constitution requires the state to reimburse local governments for the costs of new or expanded state mandated local programs. Because SB 769 adds to the duties of local officials, Legislative Counsel says that the bill imposes a new state mandate. The measure states that if the Commission on State Mandates determines that the bill imposes a reimbursable mandate, then reimbursement must be made pursuant to existing statutory provisions.

7. Charter city. The California Constitution allows cities that adopt charters to control their own “municipal affairs.” In all other matters, charter cities must follow the general, statewide laws. Because the Constitution does not define “municipal affairs,” the courts determine whether a topic is a municipal affair or an issue of statewide concern. SB 769 says that its statutory provisions apply to charter cities. To support this assertion, the bill includes a legislative finding that fiscal management of local governments is a matter of statewide concern.

Support and Opposition

(4/14/23)

Support:
California Association of County Treasurers and Tax Collectors
Open Contracting Partnership
State Association of County Auditors

Opposition: None submitted.

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