SECTION 2

TECHNICAL TOPICS

Lease‐Leaseback Agreements

• AB2316 Signed by Governor Brown on 9/23/16 made significant changes to Lease‐Leaseback laws.

• Specifically deleted the phrase “without advertising for bid” from Education Code Section 17406 which added a new competitive bidding process to the lease‐leaseback procedure.

Uniform Guidance Procurement Procedures2 FCR Section 200.318 & 200.319• Competition – Full and Open

• Documented Policies – Procurement policies and procedures must be documented. • Are the policies up to date under current laws? • Do they incorporate the changes for uniform guidance?

• Oversight – contractors must be monitored

• Conflicts of Interest – Written conflict of interest policies required.• Must cover both organizational and personal conflict of interest

• Must include disciplinary action for any violations

• Necessary Purchases – Must avoid unnecessary or duplicative purchases.

• Geographical Preferences – Should not be used unless federal statutes specifically mandate or encourage.• Exception – Food products that could spoil can be sourced from local sources

• Records – Entire procurement process, including rationalization for method used or contractor selected must be maintained.

Uniform Guidance Procurement Procedures2 FCR Section 200.318 & 200.319• Micropurchases

• Threshold $3,500 (adjusted periodically for inflation)

• Threshold $2,000 for construction – subject to wage rate requirements

• These purchases may be made without cost or price analysis, quotes/bids, so long as the price is considered to be reasonable.

• Sealed Bids• Purchases greater than Simplified Acquisition Threshold (SAT) – Currently $150,000

• Competitive Proposals – Requests for Proposal (RFP)• Purchases greater than SAT where sealed bids aren’t appropriate. This is the case when price isn’t the only factor in awarding a contract. In general, this results in a fixed‐price or cost‐reimbursement type contract. Certain factors must apply.

• Noncompetitive proposals – Sole Source Solicitation• Certain conditions must apply

Excel Calculator for Net Pension

LiabilityExcel Calculatorfor On Behalf

Payments

On Behalf Payments –GASB 68 vs. GASB 85

• GASB 68• Recognized to proportionate share of the collective pension expense• CalSTRS FAQ’s included a mock calculation that included almost all items, but excluded change in proportionate share. Use of this calculation could yield a material error given that change in proportionate share not considered.

• SSC Calculation utilized the CalSTRS mock calculation• Our calculator includes state’s change in proportionate share and as such is more accurate calculation.

• GASB 85• Recognize proportionate share of amounts paid in by the state• Amount is different than collective pension expense

• Which Statement Applies?• Full Accrual Funds – GASB 68• Modified Accrual Funds – GASB 85• Government‐Wide Financial Statements – GASB 68

• There will be a conversion entry to take from GASB 85 Amounts to GASB 68 Amounts

GASB Statement No. 75:OPEB Plan Accounting (Effective 2017‐18)

• NEW Note Disclosures & RSI• INCREASE in OPEB Liability to FULL ACTUARIALLY DETERMINED AMOUNT • OPEB liability and expenses are reported as employees earn their OPEB benefits by providing services instead of being based on funding requirements

• Actuarial Study will determine amounts

GASB Statement No. 75:OPEB Plan Accounting, Continued• OPEB Liability Determined By:

• Actuarial Valuation as of the OPEB Plan’s most recent fiscal year endOr• Use of update procedures to roll forward to the OPEB plan’s most recent fiscal year‐end amounts from an actuarial valuation as of a date no more than 24 months earlier than the plan’s most recent fiscal year‐end.

• Total OPEB Liability – Plan Fiduciary Net Position = Net OPEB Liability

GASB Statement No. 84 – Fiduciary Activities• Paragraph 10

• “OPEB arrangements [OPEB plans administered through a trust] are fiduciary activities if the government controls the assets of the arrangement”

• Paragraph 12• “A government controls the assets of an activity if the government:A) holds the assetsorB) has the ability to direct the use, exchange, or employment of the assets in a manner that provides benefits to the specified or intended recipients. 

Restrictions from legal or other external restraints that stipulate the assets can be used only for a specific purpose do not negate a government’s control of the assets.”

GASB Statement 87 – Leases (Effective 2020‐21)

•No more operating leases•All leases greater than 12 months will be REQUIRED to show on GSNP•Recorded similar to capital leases currently

FASB ASU 2016‐02 – Leases (Effective 2020‐21) •No more 

operating leases•All leases greater than 12 months will be REQUIRED to show on Balance Sheet•Recorded similar to capital leases currently

FASB ASU 2015‐07 – Fair Value Measurement (Effective 2017‐18)

• Changes fair value hierarchy• Level 1, 2 & 3

• Affects note disclosures and comparability of fair value measurements to previous years

FASB ASU 2016‐14 – Presentation of Financial Statements (Effective 2018‐19)• Statement of Financial Position

• 3 classes of net assets changing to 2 classes of net assets• Net Assets with donor restrictions• Net Assets without donor restrictions

• Required disclosure for board designations that are self‐imposed limits on the use of resources

• New liquidity disclosures• Statement of Activities

• Expenditures reported by nature and function (3 approved locations for function)

• Investment returns reported net of related external and direct internal investment expenses.

• Statement of Cash Flows• If presented under direct method, the reconciliation to indirect method is eliminated

FASB ASU 2017‐07 – Pension Cost & Post Retirement Benefit 

Costs (Effective 2020‐21)

Requires service cost be presented with compensation cost with remaining components being presented as non‐operating.

By Scott E. Huber on October 20, 2016

On September 23, 2016 Governor Brown signed AB2316 which makes significant changes to the Lease-Leasebackconstruction program that school districts have been successfully using for years. The bill arises primarily out ofrecent litigation in Fresno stemming from allegations of corruption and partiality. These new changes, set to takeeffect on January 1, 2017, among other revisions, specifically delete the phrase “without advertising for bid” fromEducation Code §17406 and add a new competitive bidding process to the lease-leaseback procedure.Additionally, it includes a specific provision authorizing contractors used in pre-construction consulting toremain eligible for the award of the project.

Particularly, AB2316 now mandates that each local school board adopt and make public new policies detailing thelease-leaseback solicitation process for bids. Also, the board must adopt criteria that will be used to determinewhat gives the district the “best value”. By establishing this new best value criterion, the district is not locked intosimply using the lowest bidder for the project. Instead, they are still afforded the flexibility of choosing adeveloper or contractor that brings experience and other intangibles to the job.

More specifically,

The school district must solicit sealed bids that include a price estimate, an easy to understand descriptionof any preconstruction services and facilities that may be constructed, a description of the key components ofthe contract, the format any proposal is required to follow, and how those solicitations will be graded againsteach other. A timetable for the district’s decision must also be included with the solicitation.

The notice for proposals must be published according to the regularly accepted practice of usingnewspapers of general circulation. This must be done once a week, for two weeks, ending at least 10 daysbefore the proposals are due. Publication on the school district’s website is also allowed.

All bids must come from developers, contractors, and sub-contractors that are prequalified underCalifornia Public Contract Code section 20116.

The school district may allow proposals to include a price as a lump sum or as a fee for services performed,including any pre-construction services or other work that may be performed related to the construction ofthe facilities.

Whatever form of fee is proposed, the entity must provide verifiable justification for the proposed fees andthose fees shall only be finalized after all preconstruction services are performed and the Department of the

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State Architect has accepted all plans and specifications.

The district must also detail whether each criterion will be graded on a pass-fail basis or if any minimumscore must be attained.

Lastly, upon selecting the successful proposal, the school district must inform the successful entity inwriting, announce the award publicly (as in at a board meeting), and with the announcement the board mustprepare and release a statement relating the basis of the award. This statement, presumably describing, atleast in some detail, why the district believes the proposer offers the “best value” on the project must be ableto satisfy an external audit.

In an effort to preserve the expediency the lease-leaseback process has provided, the law will also allow a districtto contract for preconstruction services before receiving any written approval from the State Architect, providedno work requiring a licensed contractor is performed.

The most controversial portion of AB2316 is meant to deal with the litigation that has surrounded this issue forthe last few years. Following the California Supreme Court’s refusal to take up review of the appellate court’s lastopinion, there was a wide call for fees deemed excessive to be recovered from developers and contractors andforfeited back to the school districts. This situation most prominently involved the Fresno school district.However, AB 2316 specifically provides that for contracts awarded prior to July 1, 2015, entities found to haveacted in good faith may retain payments for services rendered, excluding profits, under the lease-leasebackprovisions in place prior to December 31, 2016. By including such a provision, the legislature has eliminated theneed to review prior lease-leaseback projects.

Attorneys at Cota Cole, LLP can help guide your district through this new policy making venture to ensurecompliance with the new competitive bidding system.

CaliforniaMunicipal Law BlogCota Cole & Huber LLPNorthern State California | Northern California Central Valley | Southern CaliforniaPhone: 916.780.9009Fax: 916.780.9050Copyright © 2018, Cota Cole & Huber LLP. All Rights Reserved.

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December 2017Author: Lindsey Oakley

The Office of Management and Budget (OMB) issued Title 2 U.S. Code of Federal Regulations, Part 200, Uniform

Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) in December2013. Uniform Guidance is applicable to state and local governments, American Indian tribes, higher education institutionsand not-for-profit organizations for all federal awards or funding increments to existing awards made on or after December26, 2014. Due to significant changes in the Uniform Guidance procurement requirements, OMB delayed the requirement toimplement those Uniform Guidance provisions for a full three years from the effective date. For example, if a nonfederalentity has a June 30 year-end, the first year the procurement standards under Uniform Guidance would be applied is fiscalyear 2019 (July 1, 2018, through June 30, 2019).

While there’s a delay in the required implementation date, the effective date is drawing near. Nonfederal entities need toimplement written policies and procedures that align with the regulations to prevent potential noncompliance. Policiesshouldn’t simply reference the Uniform Guidance requirements, but should be specific to the nonfederal entity. For example,the sealed bids and competitive proposal procurement methods require an “adequate” number of bids/proposals. It’s up toeach nonfederal entity to define what “adequate” is for its organization and document that in its procurement policies.

In addition, Appendix II of Uniform Guidance includes certain provisions that must be included in all contracts made by thenonfederal entity, as applicable. Nonfederal entities should review these requirements and adopt policies to ensure therequirements are included in the applicable contracts.

The procurement standards included in Subpart D, Section 200.317–200.326 of Uniform Guidance apply to procurement ofgoods and services directly charged to a federal award; the standards don’t apply to indirect costs or payroll. The standardshave a strong emphasis on procurement methodology to achieve the goals of increased accountability and competition. Thelanguage in the procurement standards has largely been taken from OMB Circular A-102, Grants and Cooperative

Agreements with State and Local Governments, making much of it familiar to state and local governments. However, thosepreviously governed by OMB Circular A-110, Uniform Administrative Requirements for Grants and Agreements With

Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations, will see these standards as more specificand prescriptive. OMB Circular A-102 was stricter in its procurement regulations, while OMB Circular A-110 was vague andused phrases such as “to the extent practical,” “where appropriate,” “some form” and “whenever possible.” The newregulations will use language such as “must” or “should.” In these situations, “must” means required and “should” indicates abest practice.

In reviewing the general procurement standards (§200.318 and §200.319), here are some key items that must be followed:

Competition – A nonfederal entity must provide for full and open competition in procuring goods and services. Thismeans situations must be avoided that may prevent competition, such as placing unreasonable requirements on firmsto qualify noncompetitive pricing practices between firms or affiliated companies or specifying only a “brand name.”Documented policies – Nonfederal entities must document procurement procedures and policies. If proceduresaren’t currently documented, nonfederal entities must make this a priority. If policies already are documented, entitiesshould review those policies and ensure they incorporate and follow applicable regulations. These procedures mustensure all solicitations clearly and accurately describe the requirements of the goods or services to be procured andidentify all requirements that bidders must fulfill and the factors used in evaluating bids. In addition, if policies include aprequalified list of persons, firms or products used in procuring goods and services, the list should be current andinclude enough qualified sources to ensure open competition.Oversight – A nonfederal entity must monitor contractors to ensure they perform in accordance with the terms,conditions and specifications of their contracts or purchase orders. This requirement supplements a similarrequirement in which contracts only are awarded to those that use funds responsibly and in accordance with the

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agreement’s terms.Conflicts of interest – A nonfederal entity must have written policies about conduct of its employees involved in theselection, award and administration of contracts. These policies must cover both organizational and personal conflictof interest to prevent unfair or noncompetitive awards being provided. These policies also must include disciplinaryactions for any violations of the conflict-of-interest standards.Necessary purchases – A nonfederal entity must avoid unnecessary or duplicative purchases. To this end, an entityshould consider the most efficient and effective approach to purchases, e.g., bulk purchasing, lease versus purchase,agreements for use of common or shared goods and services, use of federal excess and surplus property as opposedto purchasing new equipment, etc.Use of state, local or tribal geographical preferences – Unless federal statutes specifically mandate or encouragegeographical preference, a nonfederal entity must prohibit using statutorily or administratively imposed state, local ortribal geographical preferences when conducting procurements.Records – A nonfederal entity must maintain documentation to support the history of the procurement, i.e.,rationalization for method used, contractor selection or rejection, basis for contract price, etc.

After considering the general requirements for procurement, Uniform Guidance specifically outlines five allowable methods(§200.320):

Micropurchases – This method is for purchases in which the aggregate dollar amount doesn’t exceed themicropurchase threshold—currently $3,500, adjusted periodically for inflation, or $2,000 for construction subject to theWage Rate Requirements. Purchases may be made without cost or price analysis or soliciting any quotes or bids if thenonfederal entity considers the price to be reasonable. Under this method, the entity is encouraged to distribute thesepurchases among qualified suppliers. For example, when purchasing supplies, a nonfederal entity might considerrotating purchases between vendors that offer similar rates. When applying the micropurchase threshold, a nonfederalentity should note the threshold applies to the aggregate purchase amount rather than the cost of individual items.For instance, if a purchase is made for multiple kinds of office supplies (computer paper, pens, pencils, ink cartridges,etc.) and the total price is $5,000, this method would not be applicable, because the threshold must be applied to theoverall purchase total and not the price of individual types of supply items purchased.

There have been some recent developments in the federal government that could affect the micropurchase threshold forsome nonfederal entities. The National Defense Authorization Act for Fiscal Year 2016 and the American Innovation and

Competitiveness Act could potentially increase the micropurchase threshold to at least $10,000 for certain nonfederalentities. OMB is in the process of evaluating how these acts affect the Uniform Guidance procurement standards and areexpected to issue guidance in the future.

Small purchase – This method is for purchases above the micropurchase threshold but below the SimplifiedAcquisition Threshold (SAT) as defined by the Federal Acquisition Regulation—currently $150,000, adjustedperiodically for inflation. Price or rate quotations must be obtained from more than one qualified source. This doesn’tmean formal bids and solicitations for quotes must be made—these procedures are meant to be simple and informal.Quotes may be obtained from a variety of simple sources, e.g., internet search, vendor price listing, verbal quotes, etc.Similar to the micropurchase method, no cost or price analysis is required. As with the micropurchase examples, if anonfederal entity purchases a variety of office supplies that total $5,000, this would require consideration for quotes. Anonfederal entity may compare pricing based on an internet search between a local supply store versus a nationalchain and select a vendor based on these quotes.Sealed bids (formal advertising) – This method is for purchases greater than the SAT. Bids are publicly solicited,and a firm fixed-price contract is awarded to a responsible bidder who has the lowest price and conforms to all thematerial terms and conditions of the invitation for bid. Price is a significant factor in this method and generally is thepreferred method for procuring construction. This method is used if bids may be solicited from an adequate number ofsuppliers (two or more), a complete and realistic specification or purchase description is available, the purchaseresults in a firm fixed-price contract and the selection may be made based on price. A cost and price analysis must beperformed for these purchases, and the entity must make independent estimates before receiving bids or proposals.Competitive proposals—requests for proposal (RFP) – This method is for purchases greater than the SAT insituations where sealed bids aren’t appropriate. This may be the case when price isn’t the only factor in awarding acontract. In general, this results in a fixed-price or cost-reimbursement type contract. Under this method, the following

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requirements apply:

RFPs must be publicized and identify all evaluation factors and their relative importanceProposals must be solicited from an adequate number of qualified sourcesThe entity must have a written method for evaluating and selecting recipientsContracts must be awarded to a responsible firm

Similar to sealed bids, a cost and price analysis must be performed for these purchases.

Noncompetitive proposals – This method results in solicitation from a sole source and may be used if one or moreof the following conditions apply:

Item is available from only one sourcePublic emergency won’t permit a delay resulting from competitive solicitationAwarding agency authorizes noncompetitive proposals in response to a written request from the nonfederalentityAfter soliciting a number of sources, competition is determined to be inadequate

Sole-source purchases are applicable at any level when one of the aforementioned criteria is met.

With any of the above methods, the procurement standards also emphasize contracting with small and minority businesses, women’s business enterprises and labor surplus area firms (§200.321). A nonfederal entity must use these firms when possible. Methods for inclusion include placing these businesses on the vendor list, soliciting pricing from them when they’re potential sources, breaking up projects or orders into smaller tasks to permit participation by these firms or requiring contractors to follow these guidelines for subcontracts.

As previously mentioned, regardless of what method is used and decision made, documentation of the procurement must be kept, e.g., maintaining printouts of internet searches for quotes or documenting in a memo the reasons for acceptance or rejection of bidders in sealed bids or competitive proposals.

The Uniform Guidance procurement standards are very prescriptive and may be new for many nonfederal entities. Now’s the time to start implementing the new requirements. Nonfederal entities need to review the standards, align current practices with those standards and provide training to those involved in procurement to help nonfederal entity employees understand the required regulations. A variety of informational resources are available, including the full Uniform Guidance text and Frequently Asked Questions.

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