AMENDED IN SENATE JUNE 18, 2026

AMENDED IN ASSEMBLY APRIL 9, 2026

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

97

Introduced by Assembly Member Hadwick

(Coauthors: Assembly Members Alanis and Ellis)

February 20, 2026

An act to amend Section 17558.5 of the Government Code, relating to state mandates.

Vote: majority   Appropriation: no   Fiscal committee: yes   Local program: no

LEGISLATIVE COUNSEL’S DIGEST

Existing law creates the Commission on State Mandates and establishes procedures for implementing the requirement in the California Constitution that the state reimburse local agencies and school districts for certain costs mandated by the state. Existing law makes a reimbursement claim for actual costs filed by a local agency or school district subject to the initiation of an audit by the Controller and authorizes the Controller to make a field review of a claim after it has been submitted but before it has been reimbursed. Existing law requires the Controller to notify the claimant in writing within 30 days after issuance of a remittance advice of any adjustment to a claim for reimbursement that results from an audit or review.

This bill would, instead, require the Controller to notify the claimant in writing within 30 days of any adjustment that results from an audit or review. The bill would also require the Controller to allow a local agency or school district, at the sole discretion of the local agency or school district, to upon receipt of the notice, to elect, at its discretion, to have the Controller offset any reduced reimbursement, as prescribed, request an adjustment to or to adjust the payment of claims, or to remit funds to the Controller. claims.

The people of the State of California do enact as follows:

SECTION 1.

Section 17558.5 of the Government Code is amended to read:

17558.5.

(a) A reimbursement claim for actual costs filed by a local agency or school district pursuant to this chapter is subject to the initiation of an audit by the Controller no later than three years after the date that the actual reimbursement claim is filed or last amended, whichever is later. However, if no funds are appropriated or no payment is made to a claimant for the program for the fiscal year for which the claim is filed, the time for the Controller to initiate an audit shall commence to run from the date of initial payment of the claim. In any case, an audit shall be completed not later than two years after the date that the audit is commenced.

(b) The Controller may conduct a field review of any claim after the claim has been submitted, before reimbursement of the claim.

(c) The Controller shall notify the claimant in writing within 30 days of adjustment to a claim for reimbursement that results from an audit or review. The notification shall specify the claim components adjusted, the amounts adjusted, interest charges on claims adjusted to reduce the overall reimbursement to the local agency or school district, and the reason for the adjustment. Remittance advices and other notices of payment action shall not constitute notice of adjustment from an audit or review.

(1) Offset any reduced reimbursement identified in subdivision (c) on or after January 1, 2027, from any balances of unpaid claims for reimbursement of state-mandated local costs in chronological order beginning with the earliest claim, attributed to that local agency or school district, whether appropriated or not, to the extent that sufficient unpaid reimbursement claims are determined by the Controller to exist. if those unpaid claims exist. This paragraph shall only apply to claim adjustments that occur after January 1, 2027.

(2) Request an adjustment to Adjust the payment of claims pursuant to subparagraph (C) of paragraph (2) of subdivision (d) of Section 17561.

(e) If the local agency or school district does not exercise its selection option in subdivision (d) by notifying the Controller within 45 days of receiving the adjustment notification pursuant to subdivision (c), the Controller shall first attempt to offset any reduced reimbursement pursuant to paragraph (1) of subdivision (d). If an unpaid reimbursement claims claim does not exist, the Controller shall adjust the payment of claims pursuant to paragraph (2) of subdivision (d).

(f) The interest rate charged by the Controller on reduced claims shall be set at the Pooled Money Investment Account rate and shall be imposed on the dollar amount of the overpaid claim from the time the claim was paid until overpayment is satisfied.

(g) This section does not limit the adjustment of payments if inaccuracies are determined to be the result of the intent to defraud, or if a delay in the completion of an audit is the result of willful acts by the claimant or inability to reach agreement on terms of final settlement.