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AB-961 Education finance: school districts in fiscal distress: remedial actions.(2021-2022)

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Date Published: 02/17/2021 09:00 PM
AB961:v99#DOCUMENT


CALIFORNIA LEGISLATURE— 2021–2022 REGULAR SESSION

Assembly Bill
No. 961


Introduced by Assembly Member McCarty

February 17, 2021


An act to amend Section 42127.6 of the Education Code, relating to education finance.


LEGISLATIVE COUNSEL'S DIGEST


AB 961, as introduced, McCarty. Education finance: school districts in fiscal distress: remedial actions.
Existing law establishes a process in which the county superintendent of schools proposes remedial actions necessary to ensure that those school districts showing fiscal distress can meet their financial obligations. Existing law establishes that if, after taking the remedial actions, the county superintendent determines that a school district will be unable to meet its financial obligations for the current or subsequent fiscal year, the county superintendent must notify specified parties. Existing law provides appeal rights for school districts to challenge a determination that they will be unable to meet their financial obligations.
If an appeal by a school district is denied or not filed, or if the school district has a negative financial certification, existing law requires the county superintendent of schools to take one or more specified remedial actions, and all actions necessary to ensure that the school district meets its financial obligations. Existing law specifies that one of the remedial actions the county superintendent of schools may take is to stay or rescind any action determined to be inconsistent with the school district’s ability to meet its financial obligations. Existing law also authorizes the county superintendent of schools to assist in developing a multiyear financial recovery plan that will enable the school district to meet its future obligations. Existing law requires the school district to pay 75% and the county office of education to pay 25% of administrative expenses incurred in taking certain remedial actions or costs associated with improving the school district’s financial management practices.
This bill also would authorize the county superintendent of schools to stay or rescind any action of a personnel commission for classified school employees. If a school district’s subsequent year’s budget is disapproved by the county superintendent of schools, the bill would specify that the county superintendent of schools’ authority to stay or rescind actions continues without interruption until the next subsequent year’s budget is approved.
If the governing board of a school district fails to adopt or implement a multiyear financial recovery plan, the bill would authorize the county superintendent of schools to impose or implement the multiyear financial recovery plan. If the county superintendent of schools prepares a multiyear financial recovery plan for the school district, the bill would require the county superintendent to consult certain documents and entities, and to hold at least 2 public hearings to receive stakeholder input. The bill would authorize a school district to appeal to the Superintendent a county superintendent of schools’ decision to prepare, adopt, or implement a multiyear financial recovery plan. To the extent the bill would impose additional obligations on school districts and county superintendents of schools, the bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: YES  

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


SECTION 1.

 Section 42127.6 of the Education Code is amended to read:

42127.6.
 (a) (1) A school district shall provide the county superintendent of schools with a copy of a study, report, evaluation, or audit that was commissioned by the school district, the county superintendent, the Superintendent, and state control agencies and that contains evidence that the school district is showing fiscal distress under the standards and criteria adopted in Section 33127, or a report on the school district by the County Office Fiscal Crisis and Management Assistance Team. The county superintendent shall review and consider studies, reports, evaluations, or audits of the school district that contain evidence that the school district is demonstrating fiscal distress under the standards and criteria adopted in Section 33127 or that contain a finding by an external reviewer that the school district is at moderate or high risk of intervention based on the most common indicators of a school district needing intervention, as determined by the County Office Fiscal Crisis and Management Assistance Team. If these findings are made, the county superintendent of schools shall investigate the financial condition of the school district and determine if the school district may be unable to meet its financial obligations for the current or two subsequent fiscal years, or should receive a qualified or negative interim financial certification pursuant to Section 42131. If at any time during the fiscal year the county superintendent of schools determines that a school district may be unable to meet its financial obligations for the current or two subsequent fiscal years or if a school district has a qualified or negative certification pursuant to Section 42131, the county superintendent of schools shall provide a written notice of going concern determination to the governing board of the school district and the Superintendent and the basis for the determination. The notification shall include the assumptions used in making the determination and shall be available to the public. The county superintendent of schools shall report to the Superintendent on the financial condition of the school district and the county superintendent’s proposed remedial actions and shall do at least one of the following and all actions that are necessary to ensure that the school district meets its financial obligations:
(A) Assign a fiscal expert, paid for by the county superintendent of schools, to advise the school district on its financial problems.
(B) Conduct a study of the financial and budgetary conditions of the school district that includes, but is not limited to, a review of internal controls. If, in the course of this review, the county superintendent of schools determines that the county superintendent’s office requires analytical assistance or expertise that is not available through the school district, the county superintendent of schools may employ, on a short-term basis, with the approval of the Superintendent, staff, including certified public accountants, to provide the assistance and expertise. The school district shall pay 75 percent and the county office of education shall pay 25 percent of these staff costs.
(C) Direct the school district to submit a financial projection of all fund and cash balances of the district as of June 30 of the current year and subsequent fiscal years as the county superintendent of schools requires.
(D) Require the district to encumber all contracts and other obligations, to prepare appropriate cashflow analyses and monthly or quarterly budget revisions, and to appropriately record all receivables and payables.
(E) Direct the school district to submit a proposal for addressing the fiscal conditions that resulted in the determination that the school district may not be able to meet its financial obligations.
(F) Withhold compensation of the members of the governing board of the school district and the school district superintendent for failure to provide requested financial information. This action may be appealed to the Superintendent pursuant to subdivision (b).
(G) Assign the County Office Fiscal Crisis and Management Assistance Team to review teacher hiring practices, teacher retention rate, percentage of provision of highly qualified teachers, and the extent of teacher misassignment in the school district, to provide the school district with recommendations to streamline and improve the teacher hiring process, teacher retention rate, extent of teacher misassignment, and provision of highly qualified teachers, and to perform any or all of the duties prescribed in subparagraphs (A) to (C), inclusive, or to further review the causes that led to a finding of moderate or high risk of intervention pursuant to subdivision (a) and recommend corrective action. If a review team is assigned to a school district, the school district shall follow the recommendations of the team, unless the school district shows good cause for failure to do so. The County Office Fiscal Crisis and Management Assistance Team may not recommend an action that would abrogate a contract that governs employment.
(2) Any contract entered into by a county superintendent of schools for the purposes of this subdivision is subject to the approval of the Superintendent.
(3) An employee of a school district who provides information regarding improper governmental activity, as defined in Section 44112, is entitled to the protection provided pursuant to Article 5 (commencing with Section 44110) of Chapter 1 of Part 25.
(b) Within five days of the county superintendent of schools making the determination specified in subdivision (a), a school district may appeal the basis of the determination and any of the proposed actions that the county superintendent of schools has indicated that the county superintendent of schools will take to further examine the financial condition of the school district. The Superintendent shall sustain or deny any or all parts of the appeal within 10 days.
(c) If, after taking the actions identified in subdivision (a), the county superintendent of schools determines that a school district will be unable to meet its financial obligations for the current or subsequent fiscal year, the county superintendent of schools shall notify the governing board of the school district, the superintendent of the school district, each recognized employee organization of the school district, each recognized parent organization of the school district, the Superintendent of Public Instruction, and the president of the state board or the president’s designee in writing of that determination and the basis for that determination. The notification shall include the assumptions used in making the determination.
(d) Within five days of the county superintendent of schools making the determination specified in subdivision (c), a school district may appeal that determination to the Superintendent. The Superintendent shall sustain or deny the appeal within 10 days. If the governing board of the school district appeals the determination, the county superintendent of schools may stay any action of the governing board of the school district that the county superintendent of schools determines is inconsistent with the ability of the school district to meet its financial obligations for the current or subsequent fiscal year until resolution of the appeal by the Superintendent.
(e) If the appeal described in subdivision (d) is denied or not filed, or if the school district has a negative certification pursuant to Section 42131, the county superintendent of schools, in consultation with the Superintendent, shall take at least one of the actions described in paragraphs (1) to (5), inclusive, and all actions that are necessary to ensure that the school district meets its financial obligations and shall make a report to the Superintendent and the president of the state board or the president’s designee about the financial condition of the school district and remedial actions proposed by the county superintendent of schools.
(1) Develop and impose, in consultation with the Superintendent and the governing board of the school district, a budget revision that will enable the school district to meet its financial obligations in the current fiscal year.
(2) Stay or rescind any action of the governing board, or a personnel commission established pursuant to Section 45240, that is determined to be inconsistent with the ability of the school district to meet its obligations for the current or subsequent fiscal year. This includes any actions up to the point that the subsequent year’s budget is approved by the county superintendent of schools. If the subsequent year’s budget is disapproved by the county superintendent of schools, the county superintendent of schools shall continue to have the authority described in this paragraph without interruption until the next subsequent year’s budget is approved by the county superintendent of schools. The county superintendent of schools shall inform the governing board of the school district district, and, if applicable, the personnel commission, in writing of the county superintendent’s justification for any exercise of authority under this paragraph.
(3) (A) Assist in developing, in consultation with the governing board of the school district, a multiyear financial recovery plan that will enable the school district to meet its future obligations. Once the multiyear financial recovery plan is adopted by the governing board of the school district, the plan shall constitute the framework for corrective action during the current and two subsequent fiscal years.
(B) If the governing board of the school district fails to adopt or implement a multiyear financial recovery plan, the county superintendent of schools may, after giving 60 days appropriate advanced written notice to the governing board of the school district, impose a multiyear financial recovery plan, or implement the multiyear financial recovery plan adopted by the governing board of the school district.
(C) In preparing a multiyear financial recovery plan for the school district, the county superintendent of schools shall do all of the following:
(i) Consult the district’s local control and accountability plan prepared and adopted pursuant to Section 52060.
(ii) Consult with the governing board of the school district.
(iii) Consult with each recognized employee organization of the school district.
(iv) Consult with each recognized parent organization of the school district.
(v) Conduct at least two public hearings within the boundaries of the school district to receive stakeholder input.
(4) Assist in developing, in consultation with the governing board of the school district, a budget for the subsequent fiscal year. If necessary, the county superintendent of schools shall continue to work with the governing board of the school district until the budget for the subsequent year is adopted by the governing board of the school district and approved by the county superintendent of schools.
(5) As necessary, appoint a fiscal adviser to perform any or all of the duties prescribed by this section on behalf of the county superintendent of schools.
(f) (1) Any action taken by the county superintendent of schools pursuant to paragraph (1) or (2) of subdivision (e) shall be accompanied by a notification that shall include the actions to be taken, the reasons for the actions, and the assumptions used to support the necessity for these actions.
(2) Within five days of the county superintendent of schools taking one of the actions described in paragraph (3) of subdivision (e), a school district may appeal to the Superintendent any of the proposed actions that the county superintendent of schools has indicated it will take to develop, adopt, and implement a multiyear financial recovery plan. The Superintendent shall sustain or deny any or all parts of the appeal within 10 days.
(g) This section does not authorize the county superintendent of schools to abrogate any provision of a collective bargaining agreement that was entered into by a school district before the date that the county superintendent of schools assumed authority pursuant to subdivision (e).
(h) The school district shall pay 75 percent and the county office of education shall pay 25 percent of the administrative expenses incurred pursuant to subdivision (e) or costs associated with improving the school district’s financial management practices. The Superintendent shall develop and distribute to affected school districts and county offices of education advisory guidelines regarding the appropriate amount of administrative expenses charged pursuant to this subdivision.
(i) Notwithstanding Section 42647 or 42650 or any other law, a county treasurer shall not honor any warrant if, pursuant to Sections 42127 to 42127.5, inclusive, or pursuant to this section, the county superintendent of schools or the Superintendent, as appropriate, has disapproved that warrant or the order on school district funds for which a warrant was prepared.
(j) Effective upon the certification of the election results for a newly organized school district pursuant to Section 35763, the county superintendent of schools may exercise any of the powers and duties of this section regarding the reorganized school district and the other affected school districts until the reorganized school district becomes effective for all purposes in accordance with Article 4 (commencing with Section 35530) of Chapter 3 of Part 21.
(k) The Superintendent shall monitor the efforts of a county office of education in exercising its authority under this section and may exercise any of that authority if the Superintendent finds that the actions of the county superintendent of schools are not effective in resolving the financial problems of the school district. Upon a decision to exercise the powers of the county superintendent of schools, the county superintendent of schools is relieved of those powers assumed by the Superintendent, and shall provide support and assistance to the Superintendent in the exercise of those powers. The Superintendent shall also request that the County Office Fiscal Crisis and Management Assistance Team identify the circumstances that led to the ineffectiveness of the county superintendent of schools in resolving the financial problems of the school district, and shall require the county office of education to demonstrate, in a manner determined by the Superintendent, remediation of those deficiencies. In addition to the actions taken by the county superintendent of schools, the Superintendent shall take further actions to ensure the long-term fiscal stability of the school district. The county office of education shall reimburse the Superintendent for all of the Superintendent’s costs in exercising the Superintendent’s authority under this subdivision. The Superintendent shall promptly notify the county superintendent of schools, the county board of education, the superintendent of the school district, the governing board of the school district, the appropriate policy and fiscal committees of each house of the Legislature, and the Department of Finance of the Superintendent’s decision to exercise the authority of the county superintendent of schools.

SEC. 2.

 If the Commission on State Mandates determines that this act contains costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code.