IMF H.B. 980 75(R)BILL ANALYSIS STATE AFFAIRS H.B. 980 By: Junell 4-27-97 Committee Report (Substituted) BACKGROUND During the last interim, the House Committee on Appropriations was charged with reviewing the Efficiency of Funding Through Councils of Governments or Similar Organizations. A thorough review of credit card charges and travel expenses for FY 1995 was conducted on each of the twenty-four regional planning commissions, better known as councils of governments (COGs). The study revealed blatant misuses of taxpayer dollars, and the majority of the committee's findings related to a lack of state guidelines and oversight in distributing state and federal funds to the COGs. In FY 1995, COGs received almost $265 million from all sources. Of that 70.5% was passed through to local governments and private providers and 29.5% was used by COGs for direct service delivery and program administration. Funding consists of local, state and federal funds. Local funds totaled $85 million or 32% of all funds. State administered funds account for 58% of all COG funding and include state revenues and federal dollars passed through a state agency ($153 million). The remaining $26 million is directly funded to the COGs from the federal government. Each COG board is responsible for adopting policies on travel, salaries, purchasing, vacations, insurance, etc. While the Texas Association of Regional Councils (TARC) provides to the COGs models to develop policies, each board adopts its own policies. From COG to COG there is no standardized method for calculating mileage, allowable food expenses, per diem, allowable hotel rates, or salaries. Currently, each COG is required to file with the governor's office an independent financial audit, and each agency granting monies to a COG is responsible for reviewing the audit for allowable expenses when funding a program. However, no single agency or entity reviews the entire budget for overall expenditures, efficiency or performance. Indirect cost charges for travel items are common. Indirect costs became the responsibility of each state in 1995, however Texas has not adopted any allowable indirect expenses and independent auditors generally do not consider these items. COGs' indirect rates for 1994-1995 ranged from 13% to 63%. This bill applies some of the administrative guidelines applicable to state agencies and employees to COGs. This will help ensure that the growing number of state and federal dollars administered at the local level are available for programs and that administrative costs are kept in check. PURPOSE To apply administrative guidelines to the COGs similar to those relating to state employees. Increases gubernatorial oversight over COGs through rulemaking. Allows the governor to withhold funds or appoint a receiver. RULEMAKING AUTHORITY It is the committee's opinion that SECTION 1 (Sec. 391.009 (a), Local Government Code) of the bill expressly grants additional rulemaking authority to the office of the governor. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 391.009, Local Government Code, as follows: (a) instructs the governor to adopt: rules for operation and oversight of a COG; rules on the receipt and expenditure of funds; annual reporting requirements; annual audit requirements; rules by which to evaluate performance and productivity; and guidelines for COGs to carry out the provisions of the chapter. Adds a requirement to subsection (b) that the governor and state agencies provide assistance to ensure compliance with the new rules. SECTION 2. Amends Chapter 391, Local Government Code, by adding Sec. 391.0095 as follows: Requires annual reporting of the amount and source of funds received and expended, methods used to compute indirect costs, performance, projections, results of an independent audit, and any disposed assets. The annual commission audit may be commissioned by the governor's office or by the commission, and shall be paid for from the commission's funds. Allows the governor to appoint a receiver or withhold funds if he/she determines that a commission has failed to comply with this section. Requires the governor to forward to the state auditor, comptroller, and the LBB copies of reports, and to report questionable expenditures to the state auditor for review. SECTION 3. Amends Section 391.011(d), Local Government Code, by deleting language which allows for actual travel reimbursement. SECTION 4. Amends Section 391, Local Government Code, by adding Sections 391.0115 391.0117, restricting specific commission costs as follows: Section 391.0115. Applies state travel regulations to all commissions; prohibits the use of funds for alcoholic beverages or entertainment; applies state purchasing laws to all commission; establishes a maximum indirect cost rate of 15% of total costs; and defines indirect costs. Section 391.0116. Applies state lobbying and nepotism laws to the commissions. Applies lobbying restrictions to commission employees. Section 391.0117. Establishes salary schedules identical to the state's salary schedules for classified positions and delineates which positions may be exempt. This section requires approval by the governor of the commission's salary schedule 45 days before the commissions fiscal year starts. SECTION 5. Effective date: September 1, 1997 SECTION 6. Requires the governor to adopt rules and guidelines as required by this bill no later than January 1, 1998, and for commissions to file initial audits and reports not later than September 1, 1998. SECTION 7. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE SECTION 1: Strikes subsection (c) requiring the governor to appoint one member to each commission. SECTION 2: Adds a new subsection (b) which states that the annual commission audit may be commissioned by the governor's office or by the commission and shall be paid for from the commission's funds. Makes conforming changes. New subsection (d) (2), inserts "appropriated" before the work "funds" to clarify. SECTION 3: No changes. SECTION 4: Changes reference in subsection (c) from Chapters 2155-58, Government Code, to Chapter 252, Local Government Code. Sec. 391.0115 Clarifies restrictions on indirect and direct costs in subsection (d) by striking the current subsection and replacing it with a new subsection that limits commission spending on indirect costs to no more than 15 percent of total direct costs. Further clarifies that the commission's capital expenditures and any subcontracts, pass-through, or subgrants may not be considered in determining total direct costs. "Pass-through funds" are funds that are received by the commission from the federal or state government or other grantor for which the commission serves merely as a cash conduit and has no administrative or financial involvement in the program. If the commission incurs administrative costs for activities and if expenses can be allocated, the commission may allocate those costs in the commission's computation ot total direct costs. In Subsection (e), strikes the second sentence and inserts the requirement that the governor shall use the federal Office of Management and Budget circulars A-87 and A-122 or any rules relating to the determination of indirect costs adopted under Chapter 783, government Code, in administering this section. Limits the restrictions in Section 391.0116, Restrictions on Employment, to employees only. Clarifies subsections (b) through (e) under Section 391.0117, Salary Schedules. SECTION 5: No changes. SECTION 6: No changes. SECTION 7: No changes.