Misappropriated Bond Funds

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Staff Report Update Number 2

Posted by Ender Wiggins on July 8, 2012 at 10:40 AM

The first Staff Report Update, under Observation #2, discussed the need for a law that would hold those responsible for misappropriating bond funds accountable and mentioned that State Senator Huff had introduced a bill, SB 633, to do just that.

This update is intended as an explanation of what happened to SB 633.

 

In 2011-12, there were 754 proposed bills that were chaptered into law out of 1799 bills submitted for consideration. Also, over 500 new regulations were approved last year by over 100 California regulating agencies. And, its like that every single year. In 2010-11, for instance, there were 1,990 bills considered of which 733 were eventually chaptered into law.

 

With all those laws and regulations stacking up to the rafters, you'd think by now California would have a passed law that enacted some kind of sanction on State agencies, boards, committees and other such entities if they made unauthorized expenditures of State bond funds. At a minimum, it seems reasonable to expect that when it was determined that a misappropriation of taxpayers' funds had occurred, part of the punitive corrective action would be that the taxpayers were reimbursed the amount stolen/misappropriated.

 

Incredibly, that's not the case.

 

Generating revenue from the sale of bonds is a popular trend in California. A recent Little Hoover Commission study, which uncovered several examples of the waste and abuse, reported that Californians authorized $77 billion in General Obligation bonds in the thirty-four years between 1970 and 2004. In the last six years, however, Californians have voted for $54 billion in bond spending. The report also revealed that there are "no hard sanctions for organizations that misuse bond money."

 

The study's first recommendation offered to correct this situation was that "the Legislature and state government entities administering bond programs must improve oversight to ensure bond money is spent efficiently and effectively and as voters intended." It even went so far as to suggest that, "Rather than a verbal slap on the wrist, the possibility of incurring a financial penalty might deter organizations from mishandling the money."

In an effort to correct this problem and bring greater accountability to the use of bond funds, State Senator Bob Huff (R-Diamond Bar), authored SB 633. SB 633 gives the California Department of Finance (DOF) the authority to issue a corrective action plan, if an audit uncovers that bond funds have been misspent by a state entity or agency. Furthermore, the Huff measure also enabled the DOF to issue “cease and desist” orders on the offending agency, suspending any further allocation of bond funds to the offending agency until the corrective action plan has been implemented.

 

SB 633 sailed through its Senate committee hearings and Senate Floor vote without opposition. In the Assembly, no opposition contacted the author prior to the bill's hearing by the ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER PROTECTION on June 19, 2012, other than the Coalition for Adequate School Housing and the Los Angeles Unified School District.

 

Those two organizations were concerned that "This proposal put significant power and control in the hands of a single entity, as is the case with the State Allocation Board (SAB). The SAB consists of six legislative members, a Governor's appointee, and three state agencies, including the DOG, who chairs the SAB. The role and purpose of the SAB is to develop policies and or procedures for the administration of the School Facility Program to allocate state authorized bond funds. SB 633 would significantly increase the power of the DOF and restricts the ability of the remaining SAB members to develop or support policies or procedures opposed by the DOF."

 

Senator Huff indicated a willingness to work with the CASH and the LAUSD to amend the bill such as to leave the School Facility Program policies and procedures solely in the hands of the SAB.

 

The day of the Assembly committee hearing, opposition also appeared from three environmentalists groups including The Nature Conservancy, The Trust for Public Lands, and company by the name of the Conservation Strategy Group who said they were representing a "number of conservation groups".

The environmentalists primary objection was that the bill would take oversight power away from the State Legislature and give it to DOF, who they felt was an inappropriate authority to be overseeing these expenditures. They stated that they weren't aware of any agencies misusing funds or an abundance of problems to which this bill would apply.

 

Conservation Strategy Group is a company owned by Joe Caves. For a more complete discussion of Mr. Caves involvement in the misappropriation of State bond funds see the original Staff Report.

 

Protecting the best interests of the environmentalists and those that profitted from the misappropriation of state bond funds to the detriment of the taxpayer, the Democrat leadership of the ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER PROTECTION killed SB 633 on a straight party line vote.

 

And, so, the situation continues. There are no repercussions for stealing taxpayers' money.  Neither the RMC nor the MRCA have repaid the misappropriated state bond funds identified by the DOF  

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