C.A.S.H. WORKSHOP Planning for 2016 Local Bond Success September 22, 2015 Sacramento, CA Legal Requirements for School Bonds What Public Agencies Can and Cannot Do

Citizens’ Oversight Committee  Proposition 39 permits the use of local general obligation bonds for school projects subject to certain limitations. The limitations include the establishment of an independent citizens’ oversight committee to engage in specified activities. 2

Appointment  Within sixty (60) days following certification of successful school bond election results, school board is to appoint a citizens’ oversight committee. 3

Purpose of the Oversight Committee  Section of the Education Code sets forth the pertinent provisions regarding the responsibilities of an independent citizens’ oversight committee which provides that the purpose of the citizens’ oversight committee shall be to inform the public at least annually concerning the expenditure of bond revenues. 4

Oversight Committees’ Bylaws Establish:  The committee  Purpose  Duties  Authorized Activities  Membership  Meetings of the Committee  District Support  Officers  Amendment of Bylaws  Termination 5

6  Best practices: Role of Committee is to compliment authority of School Board.

Number and Term – 7, 2, 3  Committee shall consist of at least seven (7) members to serve two (2) year terms, without compensation, for no more than three (3) consecutive terms. 7

Membership must include:  business community representative  senior citizens’ representative  bona-fide taxpayers’ representative  parent or guardian of an enrolled student  parent or guardian also active in PTA 8

Qualification Standards  Members must:  be at least 18 years old and a state citizen in accordance with Gov’t Code Section 1020  reside within the District’s geographic boundaries  No member may be a District:  Employee  Vendor/contractor/consultant  Relative of an employee or official 9

10  Best practices: seek to appoint members representing diversity of interest groups and broad-based knowledge and experience.

The Particulars The Committee shall: 1. Actively review and report on the proper expenditure of taxpayers’ money for school construction. 2. Advise the public as to whether a school district is in compliance with the requirements of paragraph (3) of subdivision (b) of Section 1 of Article XIII A of the California Constitution which provides: 11

California Constitution: Article XIII A, Section 1(b)(3) (3) Bonds... for the construction, reconstruction, rehabilitation, or replacement of school facilities, including the furnishing and equipping of school facilities, or the acquisition or lease of real property for school facilities, approved by 55 percent of the voters of the district

Accountability Requirements: Ballot must include: (A) A requirement that the proceeds from the sale of the bonds be used only for the purposes specified in Article XIIIA, Section 1(b)(3), and not for any other purpose, including teacher and administrator salaries and other school operating expenses. (B) A list of the specific school facilities projects to be funded and certification that the school district board, community college board, or county office of education has evaluated safety, class size reduction, and information technology needs in developing that list. 13

14 Ballot must include: (C) A requirement that the school district board conduct an annual, independent performance audit to ensure that the funds have been expended only on the specific projects listed. (D) A requirement that the school district board conduct an annual, independent financial audit of the proceeds from the sale of the bonds until all of those proceeds have been expended for the school facilities projects.

15  Best practices: Many Committees receive frequent presentations on status of on- going projects and project completion reports. Sometimes including site visits.

16  Best practices: Oversight provides assurance that funds are spent on authorized projects.  Best practices: Ultimate decisions on project priorities are school board responsibility.

Additional Allowed Activities In furtherance of its purpose, the citizens’ oversight committee may engage in any of the following activities.  Receiving & reviewing copies of the annual, independent performance audit.  Receiving and reviewing copies of the annual, independent financial audit.  Viewing school facilities and grounds to ensure that bond revenues are expended in compliance with requirements.  Receiving and reviewing copies of any deferred maintenance proposals or plans developed by a school district, including any reports required by Section

Additional Allowed Activities, con’t. In furtherance of its purpose, the citizens’ oversight committee may also engage in any of the following activities.  Reviewing efforts by the school district to maximize bond revenues by implementing cost-saving measures, including, but not limited to, all of the following: a) mechanisms designed to reduce the costs of professional fees b) Mechanisms designed to reduce the costs of site preparation c) Recommendations regarding the joint use of facilities d) Mechanisms designed to reduce costs by incorporating efficiencies in school site design e) recommendations regarding the use of cost-effective and efficient reusable facilities plans 18

Responsibilities Snapshot  Overseeing Bond Expenditures  Informing the public concerning the District’s use of bond revenues 19

Overseeing Bond Expenditures The committee is responsible for ensuring that the District’s use of its bond revenues is:  in compliance with the laws,  the provisions of the California Constitution,  and the authority approved by the District’s voters. 20

Examples  May review school facilities to monitor the District’s bond expenditures and may review the prior years and current year annual independent performance and financial audits to ensure bond revenues were used for specified school facilities projects only, and not for teacher and administrator salaries or other school operating expenditures. 21

Examples (cont.)  May evaluate whether the District has implemented cost savings measures to reduce professional fees and school construction costs. 22

Examples (cont.)  May make recommendations on methods to maximize bond revenues. Upon completion of a review of the District’s expenditures, projects and activities, the oversight committee is required to prepare a public report (at least annually) to inform the public regarding the District’s use of bond revenues, and whether, based on its review and findings, whether bond revenues were expended for proper purposes. 23

Committee “No-No’s”  While the law appears to grant the oversight committee the power to review bond expenditures, make recommendations, and prepare a public report, the law does not convey to the committee the authority to preapprove in advance or to override the District’s actual use of bond revenues nor does it authorize the committee to pre-approve or disapprove bond expenditures ordered by the District’s Board. 24

Conclusion  The committee’s responsibilities in a nut shell: 1. Overseeing District expenditures, activities and projects, and 2. Informing the public regarding the use of the bond revenues Because the committee does not have authority to approve or disapprove of the District’s actual use of the bond revenues, as this authority is reserved for the District’s Board, the District shall expend the bond revenues as it deems fit. If it is later determined that the District misused or wasted the bond revenues, an action may be maintained to restrain or prevent the expenditure of the bond revenues for such unauthorized purpose. 25

CONFLICT OF INTEREST AND PAY-to-PLAY 26

27 Political Reform Act  Government Code Section 81000, et seq.  Regulated by Fair Political Practices Commission (the “FPPC”)

Political Reform Act Disqualification Requirement  “No public official at any level of state or local government shall make, participate in making or in any way attempt to use his official position to influence a governmental decision in which he knows or has reason to know he has a financial interest.” Government Code Section

Points to Remember  PRA applies to financial conflicts arising from economic interests  Other laws apply to other types of conflicts  Existence of a conflict is heavily fact dependent  If you change the facts, the answer may change  Be proactive – learn which of your economic interests may result in a conflict 29

Action If You Have a Conflict  Disclose the existence and nature of the conflict  Abstain from discussion or attempting to influence  Abstain from voting  Physically leave the room, unless consent item  Make certain the record reflects the above 30

Form 700  FPPC Form 700 includes many economic interests  FPPC Form 700 does not include all economic interests that can cause a conflict under the Political Reform Act  Just because you did not have to disclose it does not mean it may not cause a conflict 31

Economic Interests You Must Report  List from Local District Conflict of Interest Code  Real property  Within the jurisdiction of your district  Within 2 miles of your district  Sources of income or investments  Doing business in your jurisdiction  Has business contacts  Regular distribution, manufacturing, or sales activity 32

Limitations on Acceptance of Gifts  Maximum of $420/year from any source, as of 1/1/2009  Adjusted every odd number year by FPPC  Persons subject to limitation:  Local elected officials  Designated employees (i.e., those having to file Form 700)  Candidates for local elected office 33

Government Code Section 1090  “... County, district,... and city officers or employees shall not be... financially interested in any contact made by them..., or by any body or board of which they are members. Nor shall county, district... and city officers or employees be purchasers at any sale or vendors at any purchase made by them in their official capacity.” 34

The Prohibition is Absolute  1090 applies regardless of whether:  The contract is fair or equitable  The contract is let for bid  The official abstains  Contracts in violation of 1090 are void  Violation of 1090 is a FELONY 35

Do Not Mess With Section 1090  No FPPC advice available  Violation is a felony  Bill Honig  Loss of public office  Loss of benefit of the bargain 36

Pay-to-Play  Wikipedia defines it as: ... when money is exchanged for services or the privilege to engage (play) in certain activities. The common denominator of all forms of pay-to-play is that one must play to “get in the game,” with the sports analogy frequently arising. 37

MSRB Rule G-37  Broker or dealer of municipal securities may not engage in business within two years after any contribution to an official of an agency....  Certain exceptions apply but rule may even extend to solicitation of others for contributions and coordination.  In school bond election context, rule would apply to underwriters, brokers, dealers, contributions to board members. 38

Limitations on Campaign Contributions  In other states, limitations apply to contributions to bond campaigns.  In California, several legislative efforts have been made to restrict limitations to campaigns made by potential underwriters or other bond brokers. 39

40  These restrictions would prohibit an underwriting firm from purchasing bonds from a school district, if that firm made significant contributions to the bond campaign.  Even though no express limitations directly apply under California law, consider:  Section 1090 limitations mentioned above  Campaign ramifications

Campaign Ramifications  Opponents to campaign may seize on pay-to-play.  “Despicable Pay-to-Play Culture of School Bonds Harms Coronado Taxpayers, Vote No on Prop E.”  Posted on April 22, 2014 by Coronado Taxpayer 41

42  “From the perspective of political transparency advocates, school bond campaigns have long been the “golden goose” of California pay-to- play politics. The formula in these settings has been simple – feed the government “goose” with large donations to help a municipal bond campaign pass and reap the “golden egg” benefits by being hired to underwrite, advise or consult on the bond issue.”  Tax blog

43  State treasurer Bill Lockyer has requested attorney general Kamala Harris to examine the legality of several school bond issues involving campaign donors.  Lockyer has also asked state officials to take legislation action to institute rules to limit financial advisors, bond underwriters and bond lawyers from giving money to body campaigns and then working on such projects.

44

45

46

Thank You! If you would like to learn more about KMTG, please visit us at our website: 47