Article
Enhancing proposition 39 construction bond programs with CBOC expenditure reviews
Nov. 20, 2023 · Authored by Stephen Bacchetti, Anton Jungherr of California Association of Bond Oversight Committees
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Article
Nov. 20, 2023 · Authored by Stephen Bacchetti, Anton Jungherr of California Association of Bond Oversight Committees
Construction bond programs are often the largest expenditure of a school district’s capital and operating budget. With bond program costs ranging from millions to several billion dollars, citizens and stakeholders want to know where and how funds are spent.
Understanding California Proposition 39, its accountability requirements, and reporting best practices is essential to supporting a successful bond program.
Below is an overview of Prop 39 and actionable steps to help citizens bond oversight committee (CBOC) members effectively review construction expenditures and contribute to program success.
California voters passed Proposition 39 on Nov. 7, 2000, which amended provisions to the California Constitution and subsequently amended the California Education Code.
The purpose and intent of the initiative was “to implement class size reduction, to ensure that our children learn in a secure and safe environment, and to ensure that school districts are accountable for prudent and responsible spending for school facilities.”
The proposition resulted in the following amendments to the California Constitution:
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Based on California’s Education Code Section 15278, the Citizens Oversight Committee’s three core duties are to:
Oversight committee members play a crucial role in ensuring that bond program expenditures are transparent, efficient, and in line with the intended objectives.
Here are review best practices committee members can use to effectively assess bond program expenditures.
Establishing clear guidelines and procedures for reviewing expenditures is a critical first step that provides structure and processes that can help the committee and District work efficiently and effectively together.
Set a regular review schedule to examine bond program expenditures. A good practice is to sample a few expenditures per meeting by requesting monthly reports or check payments and payroll. This keeps the committee’s workload, as well as the district’s, manageable and helps address issues as they arise. The cadence can be monthly, quarterly, or as determined by the committee and district, depending on the size and complexity of the program.
Thoroughly examine all relevant documentation related to the expenditures. Allowable expenditures are those directly related to the Listed Projects and school district employee labor performing administrative oversight work on the Listed Projects.
Common bond expenditures include:
The construction expenditure type determines how it’s evaluated for requirement compliance and what’s considered sufficient, appropriate evidence to support the expenditure.
There are two common high-risk areas.
Districts can’t use funds for teacher and administrative salaries or operating expenses. Specifically, the California Constitution and California Education code states “that the proceeds from the sale of school facilities bonds are used for specified school facilities projects only.”
Opinion 04-110 further clarifies that, “a school district may use Proposition 39 school bond proceeds to pay the salaries of district employees to the extent they perform administrative oversight work on construction projects authorized by a voter approved bond measure.”
Joint funded position timekeeping is a common area that may warrant further questions to confirm the appropriateness and compliance of the charges generally requiring timesheets with itemized description of duties performed to confirm compliance with the ballot language.
It’s important to understand the root cause of the change, such as scope modification, architect errors, or unforeseen conditions. Change orders should be approved by appropriate parties such as the district, architects or engineers, and the general contractor. Change orders should also be fully substantiated with itemized estimates and assumptions.
Additionally, California’s Public Contract Code section 20118.4 notes a school district’s governing board may authorize changes in plans and specifications and order extra work performed without competitive bidding provided the cost of the extra work to be performed doesn’t exceed the limit of expenditures allowed without bids or doesn’t exceed 10% of the original contract price, whichever is greater.
During review, also ask about:
When reviewing expenditures, consider all these factors and documents to ensure any potential findings have sufficient and appropriate evidence to provide a reasonable basis for the findings.
Educating your CBOC members on the technicalities within construction bonds increases their ability to effectively evaluate expenses and spot inconsistencies or issues. Here are the primary technical areas and what they include.
Work with Bond Counsel and District Management to ensure compliance with Public Contracting Code and Policies and Procedures. We recommend districts formalize construction delivery methodology strategies and controls within their policies and procedures to establish appropriate approval controls and compliance with Public Contracting Code.
Common construction delivery methods include:
Choosing the right type of contract can be just as critical to managing budgets as competitive bidding procedures. Understanding the different types of contracts can help increase transparency and accountability.
The most common contract types are:
Each contract type should be evaluated for its suitability with common factors, including project size, schedule, and scope complexity. Lump-sum contract types, if not properly procured, can lead to higher markups, increased change orders or inadequate material quality.
Time-and-materials and cost-plus contract types that aren’t appropriately managed may encounter low productivity resulting in schedule delays and increased construction spending.
GMP contracts might suffer from poor cost-of-work definitions that result in a lack of control of budget and cost.
Establishing strong cost-of-work definitions can have many benefits when coupled with a GMP contract. A GMP contract allows districts and contractors to define adequate allowable and unallowable costs of work for a project. Cost-of-work definitions, along with a right-to-audit clause, should be sufficiently clear to enable the efficient validation of compliant project charges.
Engaging an experienced team of construction auditors can help align best practices with competitive-bidding procedures, contract-type selection, and cost-of-work definitions.
Be vigilant for any potential red flags, such as unexpected cost increases, delays, or reporting inconsistencies. Investigate and address these issues promptly. An audit subcommittee that reports regularly to the CBOC can review supporting documentation and share findings and reports with the public to maintain transparency and accountability.
Use the oversight process as an opportunity for continuous improvement. Where can processes be enhanced? Where can constructive recommendations be given to improve cost efficiencies and project effectiveness? Approaching review duties with optimism and an eye for opportunity can help bring more value to the bond monies and improve the program as a whole.
All performance audits should comply with standards outlined under Prop 39. However, more expansive performance audits that examine spending efficiencies and effectiveness can bring significant benefits to school districts.
These expansive audits often result in significant control improvements and cost savings, which often exceed the audit’s fees.
Many school districts stop at the basic performance audit as it meets reporting requirements. CBOC members can help their school districts look beyond the basics and see how in-depth audits can uncover more cost-saving opportunities and help get more bang for the bond-generated buck.
Simplify the oversight committee’s review process with the following checklist. These items align with best practices and cover everything an independent review and evaluation of a bond program should include.
Anton Jungherr, Co-Founder & Executive Director, California Association of Bond Oversight Committees
