Lawmakers Extend Deadline for Proposition 39 Energy Efficiency Funding and Create New Program

July 2017
Number 42

State lawmakers have extended the deadlines to apply for and encumber money dedicated to energy efficiency projects at schools and community colleges – the program known as Proposition 39 – and have created a new program to fund such projects indefinitely.

Proposition 39 was scheduled to sunset June 30, 2018. Now, Senate Bill (SB) 110 has extended the deadline for encumbering Proposition 39 funds by one year, to June 30, 2019. At the same time, the bill creates the Clean Energy
Job Creation Program, which will administer funds for energy efficiency projects at school districts, charter schools, county offices of education and community colleges. The program opens for business at the start of the
2018-19 fiscal year.

After the bill’s passage, the California Energy Commission sent out a notice extending the deadline for submitting an energy expenditure plan to January 12, 2018. The original deadline had been August 1, 2017. Amendments to an existing energy expenditure plan that request additional funds must also be submitted by January 12, 2018.

Under SB 110, in order to take advantage of Proposition 39, agencies now have until June 30, 2019 to encumber those funds. The California Energy Commission defines “encumbrances” as “obligations in the form of purchase orders, contracts, salaries, and other commitments chargeable to an appropriation for which a part of the appropriation is reserved.”

After March 1, 2018, SB 110 reappropriates the remaining money in the existing Proposition 39 fund based on the number of school districts, charter schools and county offices of education that have not yet submitted energy expenditure plans. The bill devotes $75 million to loans or grants for school bus replacements or retrofits, prioritizing funding to agencies with the oldest school buses or those operating in disadvantaged communities. It also authorizes $100 million for low- and no-interest revolving loans for projects and technical assistance aimed at expanding clean energy generation and improving energy efficiency, prioritizing funding based on diversity in geographic and agency size, energy savings and the percentage of low-income students served.

Any remaining money from Proposition 39 will be used to provide competitive grants to school districts, charter schools and county offices of education for energy efficiency and generation projects, with 10 percent going to education agencies with 1,000 or fewer students, 10 percent going to agencies with between 1,001 and 2,000 students and the rest going to larger education agencies.

Under the new Clean Energy Job Creation Program beginning in 2018-19, 11 percent of available funds will be allocated to the Chancellor of the California Community Colleges for distribution to community college districts for energy efficiency projects, and the California Energy Commission will distribute the rest to school districts, charter schools and county offices of education.

Projects will be selected based on in-state job creation and energy benefits. Priority for grants made through the new program will be given based on the number of students eligible for free and reduced-price meals, geographic diversity, school type and local area workforce needs. Funding will be available as appropriated in the annual budget act. Both the reallocated funds and money provided to local education agencies under the new program must be encumbered within nine months of allocation to those agencies.

Lozano Smith will provide additional details about the new program as they emerge. If you have any questions about SB 110, Proposition 39 or energy efficiency projects in general, please contact the author of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

California Travel Ban Does Not Apply to Local Agencies

July 2017
Number 41

A California law that bars state agencies from funding travel, and from requiring employees to travel, to states that permit discrimination on the basis of sexual orientation, gender identity or gender expression – and Attorney General Xavier Becerra’s recent expansion of the list of states covered by the ban – have raised questions regarding whether the law applies to cities, counties, school districts and community college districts.

While there is no definitive legal guidance on the issue, the law expressly applies to state agencies, departments, boards, authorities and commissions, including the University of California and the California State University system. As “state agencies,” it appears the law also applies to the California Community Colleges Chancellor’s Office and the California Department of Education. AB 1887 does not state that it applies to cities, counties, school districts or community college districts, nor do these entities appear to be state agencies under the law.

The acting general counsel of the California Community Colleges Chancellor’s Office agrees: In a June 29 legal update, he said that while the restrictions apply to the chancellor’s office itself, community college districts are local education agencies that are not covered by the ban. Still, the letter cautioned local community college districts that the chancellor’s office may not be able to approve a request for state-funded travel to any of the states covered by the ban.

Effective January 1, 2017, Government Code section 11139.8 (enacted by Assembly Bill (AB) 1887) prohibits California state agencies, departments, boards, authorities and commissions from requiring any state employees, officers or members to travel to other states that permit discrimination on the basis of sexual orientation, gender identity, or gender expression and also, from approving a request for state-funded or state-sponsored travel to a state that has passed such a law.

AB 1887 prohibits travel to any state that has enacted a law after June 26, 2015 that voids or repeals existing state or local protections against discrimination on the basis of sexual orientation, gender identity or gender expression or permits discrimination against same-sex couples or their families on those bases.

The original list of states covered by the ban included Kansas, Mississippi, North Carolina and Tennessee. On June 22, Becerra added Alabama, Kentucky, South Dakota and Texas to the list after those states approved laws that permit such discrimination.

Exceptions to the travel restrictions include:

  • Enforcement of California law, including auditing and revenue collection;
  • Litigation;
  • To meet contractual obligations incurred before January 1, 2017;
  • To comply with requests by the federal government to appear before committees;
  • To participate in meetings or training required by a grant or required to maintain grant funding;
  • To complete job-required training necessary to maintain licensure or similar standards required for holding a position, in the event that comparable training cannot be obtained in California or a different state not subject to the travel prohibition; and
  • For the protection of public health, welfare or safety, as determined by the affected agency, department, board, authority, commission or legislative office.

If local government agencies intend to use state grant money for travel to any of the states covered by the ban, they should check to determine if the travel restrictions are included as a condition of the grant. In addition,
local agencies may have adopted their own policies that mirror AB 1887.

Additional information about AB 1887 and the states the travel ban applies to is available on the Attorney General’s website. For more information on AB 1887, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Stephanie M. White

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

State’s Top Court Rules that Contractors Can be Prosecuted for Conflict of Interest

July 2017
Number 40

The California Supreme Court has ruled that an independent contractor can be criminally liable for a conflict of interest under California Government Code section 1090, expanding the universe of penalties a contractor can face for violating the statute and reversing a prior appellate court ruling that exempted contractors from criminal liability for such conflicts.

The Court’s decision in People v. Superior Court (Sahlolbei) (June 26, 2017, No. S232639) ___ Cal.5th ___ only applies to independent contractors who have been entrusted with entering into transactions on behalf of the public agency. But due to an expansion of government and public contracting in which regular employees and even consultants can have control over the public purse, the decision has broad implications for all California public agencies.

Section 1090 prohibits public officers and employees from making contracts in which they have a financial interest when acting in their official capacities. Generally, any contract made in violation of section 1090 is void and cannot be enforced. Criminal penalties for a willful violation include a fine of up to $1,000 or imprisonment, and a lifetime ban on holding public office.

Hossain Sahlolbei worked as a surgeon at a Riverside County hospital and served on the hospital’s executive committee, both in an independent contractor capacity. Sahlolbei negotiated a $36,000 per month contract with an anesthesiologist at the committee’s behest plus $10,000 for moving expenses. He then pressured the hospital to hire the anesthesiologist for $48,000 a month, with $40,000 for moving expenses. Sahlolbei instructed the anesthesiologist to deposit his paychecks into Sahlolbei’s bank account, and the surgeon paid the anesthesiologist $36,000 a month and pocketed the rest. He was later charged with violating section 1090.

In reversing the appellate court’s judgment dismissing the charge, the Supreme Court held that independent contractors are not categorically excluded from prosecution under section 1090 and that an independent contractor who has been retained or appointed by a public agency and whose actual duties include engaging in or advising on public contracting is charged with acting on the agency’s behalf. This makes such contractors fully subject to the statute. The Supreme Court found that Sahlolbei violated section 1090 because there was evidence that hospital leadership asked him to assist in identifying doctors to recruit to the hospital, which he actually did and directly profited from.

As the Supreme Court provided in a hypothetical, a stationery supplier that sells paper to a public agency would ordinarily not be liable under section 1090 if it advised the agency to buy pens from its subsidiary, because the
supplier was not engaging in a transaction on the agency’s behalf. However, a person who was initially hired by an agency as an officer or employee with contracting responsibilities and then rehired as an independent contractor to perform the same duties would be subject to section 1090.

The Court also expressly reversed the Second District Court of Appeal decision in People v. Christiansen (2013) 216 Cal.App.4th 1181 (Christiansen), reasoning that the Legislature intended for section 1090 to apply to certain contractors in both the civil and criminal liability contexts. In Christiansen, a school district’s planning and facilities director, who served the district as an independent contractor, was prosecuted for violating section 1090 after she advised the school district to hire her consulting company for facilities management services, among other self-dealings. The appellate court held that prior courts’ expansion of the statutory term “employees” to apply to independent contractors made them civilly but not criminally liable under section 1090. The Supreme Court disagreed with that conclusion.

Since Christiansen, California courts have applied civil liability under section 1090 to independent contractors in a series of “lease-leaseback” cases involving companies that provided “preconstruction” consulting services to school districts that later hired them as lease-leaseback contractors. (See 2017 Client News Brief No. 32,
2016 Client News Brief No. 29 and 2015 Client News Brief No. 30.) The Supreme Court decision in Sahlolbei raises the possibility that such contractors can now be either or both civilly and criminally liable under section 1090.

The Supreme Court limited its decision by refusing to express a view on whether an independent contractor can be held criminally liable under section 1090 for conduct that occurred during the time frame between the decisions in Christiansen and Sahlolbei.

Public agencies should be aware that independent contractors, including consultants, cannot “change hats” to obscure their participation in public contracting. In reviewing any transaction between an independent contractor and a public agency for a conflict, the focus should be on the substance, not the form, of the transaction. Transactions in which a public agency hires a consultant to perform work about which the consultant previously advised the public agency as well as those in which a public agency hires a former employee as a consultant when both roles include similar work are particularly prone to conflicts of interest and should be carefully evaluated for legality prior to any engagement.

If you have any questions about this decision or conflict of interest law in general, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Iain J. MacMillan

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Public Agencies No Longer Required to Contract with DIR Registered Contractors for Small Projects

July 2017
Number 38

Senate Bill (SB) 96, passed this June as part of the California state budget, contains provisions designed to encourage more contractors to participate on small public works projects.

Public works projects under $25,000 and maintenance projects under $15,000 are now exempt from the requirements of the Department of Industrial Relations (DIR) registration program. The new law also permits contractors to register for up to three years in advance and imposes new penalties on contractors found to be in violation of the registration requirements. The deadline for public agencies to provide notice to DIR of new public works projects has also been extended from five to 30 days from the date the contract was awarded.

Prior Law

Since April 1, 2015, all contractors have been required to register with the DIR and to pay an annual registration fee of $300 in order to bid on or be awarded a public works project, regardless of whether the project was competitively bid. Some public agencies have experienced difficulty in identifying contractors willing to comply with the registration requirements, especially where the contemplated project is relatively small. In order to assist DIR in monitoring prevailing wage compliance, public agencies were required to provide notice to DIR within five days of the award of any public works contract. (See 2014 Client News Brief No. 43.)

Changes Made by SB 96

SB 96 amended Labor Code § 1725.5 to exempt public works projects, including construction, alteration, demolition, installation or repair work, of $25,000 or less and maintenance projects of $15,000 or less from the DIR registration and electronic certified payroll reporting requirements, effective July 1, 2017. This change is intended to encourage more contractors to participate on small public works projects. The law also increases the registration fee from $300 to $400 but will allow contractors to register or renew their registration for up to three years at a time beginning June 1, 2019.

Labor Code § 1773.3 has also been amended to provide more flexibility to local governments in providing DIR with notice of a new public works project. Public agencies now have 30 days from the date a public works contract was awarded to file the required notice with DIR.

Beginning January 1, 2018, new penalties will apply to any contractor or subcontractor found to be in violation of the registration requirements. Labor Code § 1771.1 now provides that contractors and subcontractors found to have engaged in work on a public works project without being registered may be assessed a $100 penalty for each day of work performed in violation of the registration requirements, up to a maximum of $8,000. Contractors or subcontractors found to have entered into a subcontract with an unregistered lower tier subcontractor could be assessed similar penalties.

Additionally, DIR is required to issue a stop order prohibiting the use of the unregistered contractor or subcontractor on all public works until that contractor or subcontractor complies with the registration requirement. A contractor or subcontractor’s violation of such a stop order is a misdemeanor punishable by imprisonment of up to 60 days in jail and a $10,000 fine.

If you have questions regarding these changes to the DIR registration program or other public works obligations, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Anne L. Collins

Partner

Nicholas J. Clair

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Appellate Court Orders Publication of Lease-Leaseback Decision, Making it Binding Precedent

June 2017
Number 32

On May 31, 2017, the First District Court of Appeal ordered publication of its decision in California Taxpayers Action Network v. Taber Construction, Inc. et al.(2017) 12 Cal.App.5th 115 (Taber), which upholds the validity of a lease-leaseback arrangement. This reversed the court’s initial decision not to publish the case. Publication of the Taber decision means that it serves as citable precedent upon which school districts and others may now rely.

In Taber, the Court of Appeal reviewed the validity of a lease-leaseback arrangement that was challenged on the grounds that it did not comply with Education Code section 17406, the lease-leaseback statute covering school districts. Agreeing withMcGee v. Balfour Beatty Construction, LLC (2016) 247 Cal.App.4th 235 (McGee), which was recently decided by the Second District Court of Appeal, the Taber court declined to follow the lease-leaseback holding ofDavis v. Fresno Unified School District (2015) 237 Cal.App.4th 261 (Davis) and to read Davis’ “genuine lease” and “financing” requirements into the lease-leaseback statute. On the other hand, the Taber court did agree with both Davis andMcGee that allegations that a lease-leaseback contractor acted as an officer or employee of the school district when performing pre-construction services was sufficient to allow a conflict of interest cause of action under Government Code section 1090 to proceed to trial. (For further discussion of the Taber decision, see 2017 Client News Brief No. 23.)

While the Taber decision represents the second appellate court ruling that specifically repudiates the holding of Davis, it does not overrule that case, as one Court of Appeal cannot overturn the ruling of another. In the event a lease-leaseback challenge is brought in state court, a trial court has the option of applying McGee,Taber or Davis. A trial court, however, will ordinarily follow an appellate opinion from its own district even though it is not bound to do so, meaning that trial courts in the First and Second Appellate Districts (generally, the greater San Francisco and Los Angeles areas) may be more inclined to follow Taber and McGee, respectively, while trial courts in the Fifth Appellate District (generally, the Central Valley) may be more inclined to follow Davis. Until and unless the California Supreme Court weighs in, uncertainty may remain.

If you have any questions about the legality of lease-leaseback and which appellate court decision may apply to your project, or about other project delivery methods, please contact the authors of this Client News Brief or
an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Travis E. Cochran

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Public Entities Must Proceed with Caution When Preparing an Addendum to a Negative Declaration

June 2017
Number 31

A California appellate court has held that a public entity violated the California Environmental Quality Act (CEQA) by preparing an addendum to a mitigated negative declaration. In Friends of the College of San Mateo Gardens v. San Mateo County Community College District (2017) 11 Cal.App.5th 596, the court found that proposed changes to the District’s original facilities project might have a significant effect on the environment, requiring further analysis, rather than use of an addendum.

The California Environmental Quality Act

Under CEQA, a public agency generally conducts an initial study to determine if a project may have a significant effect on the environment unless an exemption applies. If the initial study shows that there is no substantial evidence that the project may have a significant effect on the environment, CEQA requires the agency to prepare a negative declaration. Alternatively, if the project has potentially significant environmental effects but these effects will be reduced to insignificance by mitigation measures, CEQA requires the agency to prepare a mitigated negative declaration. Projects where the environmental effect cannot be reduced to insignificance by mitigation measures require an environmental impact report (EIR).

In the event an agency modifies a project after a negative or mitigated negative declaration has been adopted, CEQA outlines subsequent review provisions that apply so long as the original declaration is relevant. These provisions require the agency to prepare a subsequent negative or mitigated declaration or subsequent EIR depending on certain circumstances. The guidelines also allow the agency to prepare an “addendum,” rather than a subsequent negative or mitigated negative declaration, if there are only “minor technical changes or additions.” Such addenda have more limited analysis and do not reopen public comment opportunities. Alternatively, if the modifications are such that the original negative or mitigated declaration is no longer relevant, the public entity must start over by conducting a new initial study.

Background

The San Mateo County Community College District (District) adopted a facilities master plan proposing nearly $1 billion in new construction and facilities renovations that involved demolition of certain buildings and renovation of others. In order to comply with CEQA, the District published an initial study and mitigated negative declaration analyzing the physical environmental effects of implementing the plan’s proposed improvements in 2006. However, after the District failed to obtain adequate funding for its original plan, it added one building to its demolition list and removed two others. As a result of these changes, the District prepared an addendum to the 2006 mitigated negative declaration.

The proposed changes to the plan prompted complaints by a number of students and faculty which ultimately led to a lawsuit challenging the addendum. (Friends of College of San Mateo Gardens v. San Mateo County Community
College Dist.
(Sept. 26, 2013, No. A135892) [nonpub. opn.].) The community members expressed concern that the proposed changes would eliminate a portion of an existing garden making up one-third of one percent of the total landscaped and open space on campus. The court concluded that the proposed changes constituted a “new” project, meaning that new CEQA review was required. However, the California Supreme Court disagreed and remanded the case with
additional instructions. (Friends of College of San Mateo Gardens v. San Mateo County Community College Dist. (2016) 1 Cal.5th 937.)

On remand, the appellate court found that substantial evidence supporting the District’s original mitigated negative declaration was still relevant and agreed with the District’s determination that CEQA’s somewhat more limited subsequent review provisions were applicable. However, the court concluded that the District did not properly comply with its obligations under those provisions. The court considered testimony from community members regarding the project’s aesthetic value to be substantial evidence that the project might have a significant environmental effect, rendering the proposed changes more than “minor technical changes or additions,” and therefore requiring more than the adoption of an addendum.

Takeaway

The lesson from this case is that, when modifying a project after a negative or mitigated negative declaration has been adopted, public entities should be very cautious when deciding whether to prepare an addendum or adopt a subsequent or supplemental negative declaration or EIR. Although courts give public entities deference when deciding whether to proceed under CEQA’s subsequent review provisions so long as there is evidence that the original negative or mitigated declaration remains relevant, the decision to prepare an addendum (rather than a subsequent or supplemental negative declaration or EIR) is reviewed with much more scrutiny. As we learn from San Mateo Gardens, even complaints about aesthetics from community members could be enough evidence for a court to conclude that modifications to a project may have a significant environmental effect, requiring further review. No matter what subsequent review process is selected, it is important to ensure that the rationale is well-documented in the administrative record in order to best defend the public entity’s decision.

For more information about the California Environmental Quality Act, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Anne L. Collins

Partner

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Bond Insurers on Credit Watch

June 2017
Number 30

On June 6, 2017, S&P Global Ratings (S&P) placed two of the three active municipal bond insurers, Build America Mutual Assurance Company (BAM) and National Public Finance Guarantee Corp. (NPFGC), on credit watch with negative implications.

S&P intends to review the insurers and may adjust their assigned rating based on their competitive strengths or weaknesses relative to their peers. S&P stated that its review may lead to a downgrade of BAM or NPFGC. S&P is of the view that the competitive position of BAM and NPFGC may be sufficiently weaker within the industry than Assured Guaranty Ltd. and its operating subsidiaries, making greater rating differentiation appropriate among the municipal bond insurers. S&P expects to complete its review within the next three months, per its statements given in a research update report issued on June 6, 2017.

What this means for you : Issuers of municipal bonds should review their outstanding bonds to determine if any are insured by BAM or NPFGC. If S&P moves forward with a rating downgrade of BAM or NPFGC, the downgrade is treated as a “material event” under SEC Rule 15c2-12 and, accordingly, must be reported as part of an issuer’s continuing disclosure obligations for any bonds insured by the downgraded insurer.

If your agency has outstanding bonds insured by either BAM or NPFGC and you have any questions regarding continuing disclosure compliance, please contact the authors of this Client News brief or an attorney at one of our nine offices located statewide. Lozano Smith serves as bond and disclosure counsel to school districts, community colleges, and other public agencies throughout California and would be happy to provide guidance regarding these developments. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Daniel Maruccia

Partner

Sean B. Mick

Associate

Jennifer Grant

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.