Date: 6/2/06

SCO Audits Challenged

Pursuant to Article XIII B, Section 6(a) of the state Constitution (adapted by the voters in 1979) local government entities, including school districts, are to be reimbursed for the cost of state-mandated new programs or higher levels of service in existing programs. The Commission on State Mandates ruled in 1986 that the statutory Mandate Reimbursement Process (MRP), which in part allowed for the recovery of costs for the preparation and submission of mandate claims, constituted a reimbursable mandated cost.

Directed by the Legislature to reconsider whether the MRP constitutes a reimbursable mandate in light of statutory changes since the commission ruling, the commission has reversed itself effective July 1. The same legislation that directed the reconsideration also amended Government Code section 17556(f) to prohibit the commission from finding a reimbursable mandate when the new program or higher level of service is “necessary to implement, reasonably within the scope of,” or expressly included in a voter-approved ballot measure. Previously this section only prohibited reimbursement for duties expressly included in a voter approved ballot measure. The commission has now ruled that the MRP is “necessary to implement and reasonably within the scope of” the mandate reimbursement provisions of the voter-approved Article XIII B, Section 6.

CSBA’s Education Legal Alliance along with others from the education community contemplate bringing legal action challenging the constitutionality of Government Code section 17556(f) and the recent action by the commission. In the meantime, members of the education community have apparently secured an agreement with the Schwarzenegger administration that MRP claims will be paid at least for 2006-07 claims processing pending continuing discussions regarding mandate funding and reform. The education community groups also seek the repeal of the 2005 amendment to Government Code section 17556(f), which is relied upon by the commission in reversing itself and finding that no reimbursable mandate exists for the MRP effective July 1.

In a related matter, 10 school districts and community college districts, led by Clovis USD, have filed a lawsuit against state Controller Steve Westly over the pattern and practice of arbitrary and capricious audits of claims for mandate reimbursement. As examples, 15 State Controller’s Office audits involving seven different state-mandated programs are identified. The districts note that 85 percent of the total costs claimed have been reduced, amounting to at least $17.5 million for claims filed for fiscal years 1997-98 through 2002-03.

At the heart of the matter is the unreasonable and unauthorized documentation required by the SCO for substantiation of the claim. The districts seek remedies that include a court directive that the state controller refrain from imposing arbitrary and capricious documentation standards and audit methods not expressed in statutes or regulations, that the audits be reopened and audited in accordance with lawful requirements and that funds be restored with interest.

Thus, the state’s recent actions to greatly reduce school district’s ability to gain reimbursement for state mandated programs are or soon will be under legal attack.