Author Archives: CASH Staff

Bond Accountability: How to Make it an Everyday Thing

June 22, 2017

The following is being shared as a courtesy to our members from the California Debt & Investment Advisory Commission (CDIAC).

In compliance with federal and state legislation, California public agencies are expected to establish and maintain internal control systems to account for and report on the expenditure of funds. There is an abundance of resources available to administrators that provide guidance on the development of internal control systems. [1] When applied consistently and correctly these controls can provide both the agency and the public an assurance that the funds are being properly managed and accounted for.

That being said, not all agencies apply the same system of controls they may have developed to manage general governmental funds to their bond funds. Even if they do, the system of controls used to account for and report on bond expenditures may not be fully integrated into the agency’s administrative structure even though doing so may ensure it is consistently applied.

This article is designed to provide readers a framework to understand internal control systems as they apply to bond funds and then, more importantly, present ways to bridge the gaps that often exist between a preexisting control system and the ongoing administration of bond funds.

Fundamentals of an Internal Control System

In December 2015 the Task Force on Bond Accountability released its Final Report summarizing its efforts to develop best practice guidelines on the fiduciary care and use of state and local bond proceeds. [2] The guideline adhered to the COSO framework for internal controls provided in the U.S. Government Accountability Office, Green Book. This consists of five elements:

Control Environment–An agency’s control environment represents the formal structures, goals, and objectives that form an internal control system. This includes the personnel–elected or appointed, the policies and procedures directing their activities in support of the control system, and the authority provided to those with oversight roles, including external bond oversight committees.

Risk Assessment–Within the context of a bond program, risk assessment is the process of identifying objectives and assessing the likelihood that risk events will occur and unfavorably affect the agency’s achievement of those objectives. The assessment of risk provides the basis for developing appropriate measures to manage risk.

Control Activities–Control activities are the actions the public agency takes through policies, procedures, and the delegation of duties to achieve its objectives and mitigate risk. The system of internal controls may vary, depending on the size, nature, and organizational complexity of the agency, but it must address the identified risks.

Information and Communications–As guardians of public funds, public agencies have a fiduciary responsibility to adopt a system of internal controls that provides a reasonable assurance that the agency is properly receiving, managing, and disbursing bond funds. Information and communication facilitates accountability and performance tracking.

Monitoring–The effectiveness of any set of internal controls is a function of its ability to mitigate risk. Since risks and program activities change over time, the internal control system must be dynamic, able to respond to changing requirements, staffing, and agency objectives. By monitoring the effectiveness of the control system, agencies can more readily adjust to these changing conditions.

Making the Control System part of the Agency’s DNA

An agency’s control system is effective only if it is consistently and universally employed. Agencies can ensure that this happens by operationalizing the control system in: 1) the agency’s plans, policies, and procedures; 2) the controlling bond documents; and 3) staff training.

Plan, Policies, and Procedures—Public agencies are guided by a number of plans, policies, and procedures when issuing and administering debt. These include a debt policy, investment policy, disclosure policy, as well as a capital improvement or facility management plan. These may be used to express elements of the control system to increase the likelihood that they will be carried out. Debt policies that call out the uses of debt, the types and terms of a debt issue, the responsibilities of the agency and staff for ongoing reporting and disclosure, the administration of debt-related payments, the uses to which the proceeds may be spent, can drive specific control activities.

Administrative policies and procedures often spell out the separation of duties between staff as well as procedures, timelines, and schedules to process specific actions. With regard to the disbursement of bond funds, for example, the agency’s policies and procedures may identify nonconforming transactions or exceptions that warrant immediate action, such as errors and discrepancies or changes in the payee name designation.

As funds are disbursed, policies and procedures may require staff to review expenditure plans, to seek legal review of contracts and agreements, to conduct site visits, and to maintain records of assets or portions of assets being financed. They may additionally set forth the content and timing of reports provided to any oversight committee or community interest groups.

Controlling Bond Documents—To strengthen compliance with policies and procedures, public agencies should integrate elements of the control system into bond documents. These include, among others, the indenture, the trust agreement, the tax certificate, the continuing disclosure agreement, and any agreements with insurers or other credit providers. The process must begin during the pre-issuance phase, during which the agency should account for all documents that will direct the roles and activities governing the investment and administration of bond funds and ongoing reporting and compliance.

Elements of the control system correspond to the specific content of most indentures, making linking the two fairly straightforward. For example, the typical indenture addresses the structure of accounts used to receive bond funds, the “waterfall” of revenues and payments, covenant restrictions, reserve maintenance and security, requirements for the disbursement of construction funds, and the terms for the trustee to safeguard and release funds. Each of these fits nicely into one or more control activities. Likewise, the trustee agreement contains terms that address financial and administrative management. Seeing that it contains language the clarifies the trustee’s role as a fiduciary when holding and investing bond funds, guaranteeing reserve requirements, monitoring bond covenants, and maintaining current balances on bond funds increases the likelihood that the agency’s control system is active and not reactive.

Agencies can use the tax certificate to establish and test control procedures to validate expenditures, including requirements for the use of proceeds, the timing of disbursement, requirements and limitations on the use of construction funds, private use restrictions, and, of course, the timing of arbitrage and yield restriction filings.

Finally, the continuing disclosure agreement provides the framework for ongoing reporting to investors and regulatory agencies and, in so doing, establishes measures to assess compliance and avoid problems. The agreement, in most cases, addresses filing requirements, the materials to be included, and the dates of submission.

Ongoing Staff Training—Public agencies can better ensure that their control system are active and employed by staff by providing training and communicating plans, policies, and procedures. Training should be provided to members of the governing body and oversight committees as well as service providers, such as auditors, who may need insights into the agency’s control system in order to perform their duties. Some agencies may need more frequent training on one or more elements of the control system. For example, agencies that use a conduit financing structure, may decide to train staff on control activities addressing expenditures and to review and update the training program to reflect improvements or changes in the control system.

Final Thoughts

Issuers enhance the expectation that they will timely and fully meet their repayment obligations through the development and application of a well-designed internal control system that tracks, monitors, and reports on the use of bond funds. Once adopted, however, issuers must take steps to institutionalize these control measures. If the agencies control system is integrated into and supported by its plans, policies, and procedures and expressed in controlling bond documents it is more likely to be applied. Furthermore, education and communication are the cornerstones of effective administrative processes. Agencies that undertake the work to articulate their control system in this manner and to train staff will undoubtedly derive material benefits in the form of better financing terms.

CDIAC has an upcoming seminar on ongoing bond administration on September 6th in Sacramento. Registration is available on CDIAC website: www.treasurer.ca.gov/cdiac.

[1] For information on establishing and implementing internal controls, see Standards for Internal Control in the Federal Government, U.S. Government Accountability Office (GAO), Sept. 2014, available at http://www.gao.gov/assets/670/665712.pdf, hereafter GAO Standards for Internal Control (“Green Book”); see also Gauthier, Stephen J., An Elected Official’s Guide: Internal Control, Government Finance Officers Association (GFOA), 2015, and Internal Control – Integrated Framework (2013), Committee of Sponsoring Organizations of the Treadway Commission (COSO), May 14, 2013.

[2] Task Force on Bond Accountability, Task Force Final Report, December 14, 2015 available at http://www.treasurer.ca.gov/tfba/final_report.pdf.

CASH Budget Update: Legislature Approves State Budget & Trailer Bills

June 15, 2017

Today, the Legislature passed AB 97, the budget bill for FY 2017-18, meeting the constitutional deadline to pass an on-time budget by June 15, 2017. The Legislature also passed a number of accompanying trailer bills to implement policy changes in the budget. The budget includes $125.1 billion in General Fund spending, including $9.9 billion in total reserves. This is the largest budget reserve in California’s history and is consistent with the Governor’s priority of preparing for the next economic downturn. The budget will now go to the Governor for his signature, or line item veto, if any.

School Finance Budget Trailer Bill – AB 99

School Facility Audit Language – This bill includes new school facility audit language (commencing with changes to Education Code Section 41024) that requires local auditors to include state funded facility projects in the annual school district audit. The audit language includes references to the new fund release grant agreement adopted at the June 5, 2017 State Allocation Board (SAB) meeting. The audit language also includes language on the use of project savings and the process for repaying state funds audit exceptions.

One-Time Discretionary Funding – This bill includes $876.6 million (one-time Proposition 98) for any purpose, including deferred maintenance and capital outlay. This is approximately $145 per average daily attendance.

Emergency Repair Program – This bill includes language that any unencumbered funds in the School Facilities Emergency Repair Account revert to the Proposition 98 Reversion Account. AB 99 extends this encumbrance.

Budget Trailer Bills AB 111 and SB 96 (Anticipate Approval at the Time of Posting)

Proposition 39 – The date for local encumbrance of these funds increases from June 30, 2018 to June 30, 2019.

DSA Filing Fee – The Legislature passed budget trailer bill AB 111, which increases Division of the State Architect (DSA) project filing fees for construction or alteration of school buildings. The fee will increase from 0.7% to 1.25% for the first $1 million in construction costs, and from 0.6% to 1.0% for costs in excess of $1 million. If the balance in the Public School Planning, Design, and Construction Review Revolving Fund exceeds six months of expenditures, the fee will automatically decrease.

Department of Industrial Relations – The Legislature passed budget trailer bill SB 96, which makes changes to the Department of Industrial Relations (DIR) prevailing wage monitoring program, including:

Raises the threshold for the program’s applicability from $1,000 to $25,000 for construction projects and $15,000 for maintenance projects.

  • Increases penalties for contractors and subcontractors who fail to register correctly.
  • Creates new penalties for awarding bodies, including school districts, which would be subject to a fine of up to $100 per day, up to $10,000.
  • An awarding body determined to be a “willful violator” with two program violations within 12 months could lose state facility funding for one year.
  • Increases the annual contractor registration fee from $300 to $400 and permits a contractor to register for multiple years at a time.

The budget also includes $805,000 in 2017-18 and $759,000 in 2018-19 for positions to educate awarding bodies about their requirements under the law.

Additional OPSC Staffing and Bond Sales – We thank Senator Bates for her comments on lack of Proposition 51 progress; however, the budget agreement does not include any additional staff for the Office of Public School Construction (OPSC) nor any proposed increase in the January budget proposal for Proposition 51 state school bond sales.

~ CASH Staff

DSA Seeking Input from Access Stakeholders

June 9, 2017

The Division of the State Architect Access Compliance Team (DSA) and the University of California, Davis Extension Collaboration Center (UC Davis) are seeking your involvement in the design of a new consultative body, a diverse representative alliance created to provide feedback to DSA on proposed amendments to the California Building Code (CBC) regulations that affect individuals with disabilities. UC Davis will serve as a neutral facilitator to gather stakeholder input to help design the alliance. Once the alliance is formed, UC Davis will organize a kick-off workshop to provide training to support the effectiveness of the alliance in its role in DSA’s code development process.

At this time, UC Davis is soliciting information through an anonymous survey. Please take a few moments (5 – 10 minutes) to complete this survey, which can be accessed at: www.surveymonkey.com/r/DSAAccess.

Your response to the survey will be sent directly to UC Davis. Please return your survey response by June 19, 2017. Upon conclusion of the survey process, UC Davis will share a summary of the survey results and the next steps with DSA and the recipients of this email, in July 2017.

Should you have any difficulty accessing the survey, please contact ida.clair@dgs.ca.gov.

Thank you for your participation, as we take a big step forward in ushering in a new era of improved stakeholder collaboration in the code development process.

Proposition 39 Update

June 9, 2017

I am pleased to provide this update to CASH members on state legislative actions with regard to the Proposition 39 program.  We are active on two pathways – legislative and through the budget process – for an extension of the program’s encumbrance deadline date so that local education agencies (LEAs) may fully use their allocations knowing what the fifth year of allocation will be. There is also state action on a program extension beyond the five years that California’s voters approved in November 2012.

Legislation – SB 518 (de Leon)

The Leader of the Senate, President Pro Tem Kevin De Leon is the author of legislation to extend the Proposition 39 program and directs any funding remaining in the fund by a date certain to be used for clean energy buses in needy communities with bad air quality as determined by the Air Resources Board.

After the bus allocation of $75 million, another $100 million is to be added for low and no-interest loans to schools under the Energy Conservation and Assistance Act (ECAA).  Funds remaining after the two uses above will be available to K-12 school districts, charters, county offices of education and charter schools by application within four tier levels based on average daily attendance (ADA) data.

The bill also:

  • Sets encumbrance date for the Proposition 39 Program’s five years of funding at 3/31/19 and sweeps unused funding on 3/1/18 for the purposes outlined above.
  • Removes the Proposition 39 Program’s sunset going forward – to be allocated in the annual budget process.

We have held productive conversations about the timelines in SB 518, as we have concerns that the “sweeping” date would leave schools with no additional time beyond the current August 1, 2017 CEC deadline for submission of final energy expenditure plans (EEP).

If they are planning to use their fifth-year allocations, LEAs should be moving forward to submit plans to the CEC by that date (see more info on the EEP deadline below). 

Senate Pro Tem de Leon’s Proposition 39 legislation is progressing and has moved off Suspense and was approved on the floor of the Senate.  SB 518 is now moving to Assembly for assignment to a policy committee.

State Budget and Proposition 39 Program

We testified at and communicated with State Budget Subcommittee hearings in both the Assembly and the Senate on Proposition 39 and both Houses have included a Prop 39 extension in their Budget proposals that are now being discussed in Budget Conference Committee.

The Assembly has recommended an extension to June 30, 2019 – a full year extension – if this were to occur, we believe that the CEC will set their EEP final deadline date more in line with what LEAs originally anticipated for the full years – at or around June 30, 2018.

The Senate’s budget proposal aligns with the SB 518, the Senate Pro Tem’s legislation, and includes the March 1, 2018 sweeping date for use by K-12 schools, clean buses, loans and the extension of the program indefinitely – and the March 31, 2019 encumbrance date.

A CASH letter has been sent to the members of the Legislative Budget Conference Committee asking for the Assembly deadline date and the extension of the program as proposed in Senate.  Stay Tuned.

CEC Advice for Schools

At School Energy Coalition (SEC) Forums held last month, the CEC shared some advice with us about those final EEPs – LEAs should include all school sites that may be potentially considered for projects in your plan – even if you are unsure of the funding that may be available – because the system the agency uses won’t allow amendments to add sites later.

They also shared that there are about one million dollars remaining in CEC’s Bright Schools and technical assistance; low and no-interest loans for energy efficiency projects funded under the ECAA.

CASH/SEC Zero-Net Energy Workshop: June 27 and 29

SEC is pleased to be co-sponsoring the June Workshop with CASH on moving schools to zero-net energy.  The Workshops will be held on June 27th in Sacramento and June 29th in Ontario.  Click here to register online.

We will be sharing information on how to get to ZNE on a school site or district – from the planning and decision-making process, ZNE and CHPS, financing and case studies from schools that are making the move now to generate savings and provide healthy classrooms for teachers and students that improve academic performance, teacher retention along with utility bill savings.

Please contact me with comments or questions on energy, water, or Prop 39!  aferrera@m-w-h.com

~ Anna Ferrera

2017 STEAM Symposium Call for Presenters – Deadline is Friday, June 16, 2017

California STEAM Symposium 2017: December 10-11, 2017 at the Moscone Center, San Francisco

The Symposium is becoming the STEAM Symposium this year, and the thematic strands reflect the importance of braiding together science, technology, engineering, and math with art and design thinking.

The strand, “Supporting STEM/STEAM through 21st Century Learning Environments” offers a unique opportunity for school facilities and education professionals to present new, modernized, or modified STEM/ STEAM school facilities and learning environments. Prospective presenters may consider sharing school designs and practical ideas that enhance one or more STEM/STEAM topics, as well as partnerships with schools and districts that have designed or modified facilities to support STEM and STEAM learning. Presenters can submit proposals now and until Friday, June 16, 2017.

For more information please visit: http://www.stemcalifornia.org/STEM

If you have any questions please contact:

Molly Stitt

Education Programs Consultant

School Facilities & Transportation Services

California Department of Education

mstitt@cde.ca.gov

916-322-6249

SAB Priority Funding Request Due Thursday, June 8, 2017

June 6, 2017

Please be aware that, if your district is on the State Allocation Board’s Unfunded List and eligible for Priority Funding, you must submit your Priority Funding request by 5:00 pm on Thursday, June 8, 2017.

The Priority Funding (PF) process was created to allow projects that receive unfunded approval by the State Allocation Board (SAB) and are placed on the Unfunded List (Lack of AB 55 Loans) to receive an apportionment with accelerated timelines.

Following is the text from the June 5, 2017  State Allocation Board agenda regarding the current Priority Funding filing round:

CURRENT PRIORITY FUNDING FILING ROUND

The priority funding filing period began on May 10, 2017 and will close on June 8, 2017. Priority funding requests with original signatures by an Authorized District Representative must be physically received by the Office of Public School Construction (OPSC) before the close of business at 5:00 pm on June 8, 2017. These requests will be valid from July 1, 2017 through December 31, 2017.

Requirements for Participation in Priority Funding

OPSC reminds school districts that the requirements for Participation in the Priority Funding Process are in effect under School Facility Program Regulation Section 1859.90.3. There are two ways for a school district to not participate in the priority funding process as follows:
• Not submit a valid priority funding request in the 30-day filing period, or
• Submit a valid priority funding request but fail to submit a valid Fund Release Authorization (Form SAB 50-05) to request the release of funds after the Board approves an apportionment.
The second time that either of these occurs, the funding for the project will be rescinded without further action by the Board. For additional information, please refer to the Procedures for School Facility Program Funding.

June Facility Planners Update

June 6, 2017

The CASH Facility Planners Meeting Update for June 2017 is now available and includes information regarding:

  • Proposition 51 Implementation
  • Legislative Update
  • Upcoming Networking Mixers

Click here to download the Update.

~ CASH Staff

SAB Takes Action on Upfront Agreement & Beyond Bond Authority Project List

On Monday, June 5, 2017, the State Allocation Board (SAB) took action on two key policy issues that are critical to the implementation of Proposition 51: a) Regulatory Amendments for Increased Program Accountability (template for Upfront Grant Agreement); and, b) School Facility Program (SFP) Applications Received Beyond Bond Authority List (how to proceed with projects on the Acknowledged List). These proposals were originally scheduled to be adopted at the SAB meeting on April 24, 2017, but the action was deferred to a later date due to concerns with the draft prepared by the Office of Public School Construction (OPSC).

Fourteen CASH members testified during the hearing including Chair Don Ulrich (Clovis USD), Vice Chair Julie Arthur (Palm Springs USD), Immediate Past Chair Jenny Hannah (Kern HSD), and board members Rob Pierce (Elk Grove USD) and Alan Reising (Long Beach USD). The following is a summary of the actions that the SAB took on these agenda items:

Upfront Grant Agreement
The SAB voted to approve the Upfront Grant Agreement and conforming regulatory amendments, approved the projects on Attachment #5 for placement on the Unfunded List (Lack of AB 55 Loans), and exempted these projects from the Grant Agreement requirement. CASH and the education community had advocated for changes to the Grant Agreement, which were incorporated in this approval. These changes include:

  • Changes to the eligible expenditures list to expand eligibility of freezers, refrigerators, and exercise equipment.
  • The option of project-specific guidance letters incorporated by reference into the Grant Agreement – allows districts to achieve certainty on unusual project expenditures, ensuring auditors will allow.
  • The Grant Agreement is required at fund release, not as a condition of apportionment.
  • Projects on the True Unfunded List are exempt; the grant agreement still applies to all projects on the Acknowledged List.

The Grant Agreement as adopted includes a significant policy change by making educational technology, including computers and printers, an ineligible expenditure.

Beyond Bond Authority List
After extensive discussion and testimony from CASH board members and members of the education community, the SAB voted to approve “Option 1” which requires new construction projects on the Acknowledged List to re-justify their eligibility for the enrollment year in which the application was processed by OPSC, without losing their place in line. The biggest policy debate of the evening was whether schools should be required to update eligibility, or if projects would be processed with eligibility at the time of submittal. Projects that would no longer be eligible under updated eligibility have the right to submit an appeal to the SAB.

CASH would like to thank our members for their dedication and commitment to qualifying, approving, and now working to implement Proposition 51.

~ CASH Staff

DSA’s New Plan Review Appointment Process Eliminates Bin Time

We are sharing with you this important news that we have received from the Division of the State Architect.

The Division of the State Architect (DSA) is pleased to announce the upcoming implementation of an appointment-based process for project submittal. If the project submittal contains all necessary information and documents, plan review will immediately commence on the scheduled submittal date. This new process eliminates the “bin time” when complete plan submittals sat idle while awaiting assignment to a DSA plan reviewer.

DSA expects to begin scheduling project submittal appointments in early July, with the first appointments held in mid-August.

Since DSA’s current bin time is four to six weeks, this new process allows design professionals an extra four to six weeks to work on project plans. Elimination of the current bin time also results in significant individual and cumulative cost savings to clients and school districts by avoiding inflationary cost escalations.

Under the previous system, plans delivered to DSA waited for an intake review to ensure the package was complete, and then waited in a queue for approximately four to six weeks until the plans could be reviewed. DSA’s new process maximizes clients’ time because plans may be worked on and developed right until the agreed-upon submittal date.

This process applies to all projects other than those eligible for over-the-counter plan review. DSA will release further information and procedures within the next few weeks. Additionally, DSA will conduct a regional series of stakeholder outreach meetings commencing in Fall 2017. We look forward to implementing these improvements with you.

Please direct any questions to DSACommunication@dgs.ca.gov.

CASH Alert: Encouragement to Attend the June 5, 2017 SAB Meeting

May 26, 2017

On Monday, June 5, 2017, the State Allocation Board (SAB) will meet at 4:00 pm in Room 437 of the State Capitol to consider recommendations on the proposed Grant Agreement, True Unfunded List, and Acknowledged List. Click here to see the CASH letter addressing these proposals.

We encourage you to attend the SAB meeting and speak to your specific concerns about the proposals and how they will affect your school district or client district.

More information will be provided during the CASH Monthly Update Meeting also scheduled for Monday, June 5, 2017, at 11:00 am in the Lower Level Conference Room A at 1130 K Street, Sacramento, CA 95814.

We additionally would like to further encourage you to communicate your concerns directly to your State Senators and Assembly Members. The district draft letter found here, may be a resource in doing so.

~ Tom Duffy