BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 1874
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          Date of Hearing:   March 24, 2010

                           ASSEMBLY COMMITTEE ON EDUCATION
                                Julia Brownley, Chair
                 AB 1874 (Evans) - As Introduced:  February 16, 2010
           
          SUBJECT  :   Education finance: Vallejo City Unified School  
          District

           SUMMARY  :   Extends the time period within which Vallejo City  
          Unified School District (VCUSD) is authorized to sell district  
          owned property and use the proceeds to reduce or retire its  
          emergency loan from the state.  Specifically,  this bill  :  

          1)Repeals the authority for VCUSD to sell property owned by the  
            district and use the proceeds to reduce or retire its  
            emergency loan from the state between June 1, 2004, and July  
            1, 2010.

          2)Authorizes VCUSD to sell such property and so use the proceeds  
            from January 1, 2011, through January 1, 2015.

          3)Deems VCUSD to be ineligible for financial hardship assistance  
            under the School Facility Program from January 1, 2011 through  
            January 1, 2015.

           EXISTING LAW  :

          1)Requires that emergency loans to districts in fiscal crisis be  
            provided by legislative appropriation.

          2)Requires, upon a district's acceptance of a loan exceeding 200  
            percent of a district's recommended reserve, that the  
            Superintendent of Public Instruction (SPI) assumes all the  
            legal rights, duties and powers of the district governing  
            board, authorizes the SPI to appoint an administrator to act  
            on his or her behalf, and requires that the district governing  
            board become advisory to the administrator.

          3)Authorizes a $60 million emergency loan to VCUSD, and triggers  
            the SPI assumption of powers and appointment of a state  
            administrator in the district.

          4)Authorizes VCUSD, between June 1, 2004 and July 1, 2010, to  
            sell surplus property and to use the proceeds from the sale to  








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            reduce or retire the emergency loan; also deems VCUSD to be  
            ineligible for hardship assistance under the School Facility  
            Program during the same period.

           FISCAL EFFECT  :   Increased ability on the part of VCUSD to repay  
          the state for its emergency loan.

           COMMENTS  :  In February 2004, VCUSD became aware of a negative  
          general fund year-end balance for the 2002-03 fiscal year and of  
          potential deficits in its 2003-04 budget.  The district was  
          projected to run out of cash in June of 2004.  Despite immediate  
          reductions in the 2003-04 fiscal year and actions to reduce the  
          district budget for 2004-05 by more than $7.5 million, the  
          district was projected to continue to have a negative fund  
          balance in the 2003-04 fiscal year of approximately $27 million  
          and was projected to have a negative fund balance at the  
          conclusion of the 2004-05 fiscal year.

          Senate Bill 1190 (Chesbro), Chapter 53, Statutes of 2004, signed  
          into law on June 21, 2004, requires the SPI to assume all the  
          legal rights, duties and powers of the Governing Board of the  
          Vallejo City Unified School District (VCUSD) and to appoint, in  
          consultation with the Solano County Superintendent of Schools,  
          an administrator to act on his behalf in exercising authority  
          over the school district. The bill appropriates $60 million as  
          an emergency loan to the Vallejo City USD, and authorizes the  
          school district, between June 1, 2004 and July 30, 2007, to sell  
          any properties owned by the district and to use the proceeds  
          from the sale to reduce or retire the emergency loan. The bill,  
          except as specified, requires the school district to bear the  
          costs associated with the implementation of the bill's  
          provisions, and prohibited the district from being eligible for  
          financial hardship assistance under the state's School Facility  
          Program from June 2004 through June 2006.

          The district drew down $50 million of the $60 million state loan  
          authorized by SB 1190 on June 23, 2004, within two days of the  
          signing of the legislation. A State Administrator was appointed  
          by the Superintendent of Public Instruction on June 23, 2004 and  
          started full-time in the district in July 2004.  The district  
          drew down the remaining $10 million of the $60 million  
          authorized loan amount on May 29, 2007, placing those funds in a  
          special reserve fund to be used only for the payment of  
          unresolved audit findings. The district has indicated that it  
          plans to pay off this portion of the loan within a few years, or  








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          earlier, if pending audit findings are resolved.

          In June 2007, the SPI, consistent with recommendations made by  
          the Fiscal Crisis Management Assistance Team (FCMAT), returned  
          three of five operational areas, Community Relations/Governance,  
          Student Achievement, and Personnel Management, to the control of  
          the local governing board; the areas of Financial Management and  
          Facilities Management remained under the control of the State  
          Administrator.  Partial control over Facilities Management was  
          returned to the governing board in December 2008; the State  
          Administrator retained control over the sale of surplus property  
          and specified leases.  Three months after the initial return of  
          control to the governing board, the district hired a  
          superintendent; within two years that superintendent was  
          released, though the district continues to be liable for salary  
          and benefit payments under that individual's contract through  
          the end the current fiscal year.  An interim superintendent,  
          subsequently elevated to Superintendent in February 2010, now  
          serves the district.  The district continues to face outstanding  
          fiscal issues including unpaid and unresolved audit findings,  
          declining enrollment, and loss of revenue due to state budget  
          actions; according to the author, "Since the State takeover, the  
          school district has made over $31 million in budget reductions  
          on a base unrestricted General Fund budget of $95 million.  This  
          amount includes $11 million in reductions made in the current  
          year budget?"


          VCUSD was one of nineteen school districts in the state that  
          received a negative certification of its financial status at the  
          2008-09 Second Interim Report provided by the California  
          Department of Education; the district continued to be certified  
          negative at the 2009-10 First Interim Report.  A negative  
          certification is assigned to a school district or county office  
          of education when it is determined that, based upon current  
          projections, the school district or county office of education  
          will not meet its financial obligations for the current or  
          following fiscal year.

          As noted above, the school district has had the authority,  
          between June 1, 2004 and July 1, 2010, to sell property owned by  
          the district and to use the proceeds from the sale to reduce or  
          retire the emergency loan.  VCUSD made use of this authorization  
          in 2006 to sell an 18 acre parcel, known as the Rollingwood  
          property, to KB Home for a minimum price of $17 million (the  








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          price was set as a minimum in that it could have increased over  
          time depending on revenues generated by the developer, with the  
          district sharing up to $23.5 million from any increased  
          proceeds, based on a specified formula).  Payments on this sales  
          agreement were to be made as the developer moved through the  
          City approval process.  Two payments of $3 million each were  
          made to the district; however, KB Home defaulted on this  
          agreement on June 23, 2008.  At this time, the status of this  
          sale remains uncertain; after attempts at mediation, the  
          district is now pursuing legal action to either force payment of  
          the balance of funds by KB Home or to clarify that the district  
          retains clear title.  At the same time, KB Home is seeking to  
          recover the $6 million already paid.  The district also has  
          plans for future sales of property, including four parcels that  
          the district has moved toward sale and development over the last  
          three years, additional unused portions of sites, and the  
          possibility of consolidating and selling surplus school sites  
          resulting from continued and projected future declining  
          enrollment.  

          If this bill is enacted, the proceeds of these future sales will  
          be used to reduce or retire the remaining emergency loan balance  
          ($48.3 million as of the start of the current fiscal year).   
          There is precedent in extending the authorization on the sale of  
          property for districts in order to allow those districts to  
          reduce the balance of their emergency loans.  SB 512 (Committee  
          on Education), Chapter 677, Statutes of 2005, extended Oakland  
          Unified School District's (OUSD) authority to sell property  
          owned by the district and to use the proceeds from the sale to  
          reduce or retire their emergency loan.  Existing law at the time  
          provided this authority to OUSD from June 1, 2003, to June 30,  
          2005; SB 512 extended this authorization for OUSD to June 30,  
          2007.  In the same way, AB 1948 (Evans), Chapter 636, Statutes  
          of 2008, extends VCUSD's authority to sell property owned by the  
          district and to use the proceeds from the sale to reduce or  
          retire the emergency loan through July 1, 2010.  This bill  
          proposes to further extend this authority to the period between  
          January 1, 2011 and January 1, 2015.

          It should also be noted that under the budget flexibility  
          provisions enacted by AB 2 X4 (Evans), Chapter 2, Statutes of  
          2009-10 Fourth Extraordinary Session, all school districts are  
          currently authorized through January 1, 2012, to sell surplus  
          property not purchased with state funds and to use the proceeds  
          from such a sale for any one-time general fund purpose.








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           Committee amendments  :  Committee staff recommends, and the  
          author has accepted, the following amendments:

          1)Move the ending date of this authorization for VCUSD to June  
            30, 2015 rather than January 1, 2015.  Since this  
            authorization is fiscal in nature, ending the authority at the  
            end of a fiscal year makes administrative sense.

          2)Extend the requirement that proceeds received in a later  
            fiscal year from sales of property made between June 1, 2004  
            and July 1, 2010 be used to reduce or retire VCUSD's emergency  
            loan; currently this bill inadvertently repeals that  
            requirement.  This can be accomplished by amending the bill to  
            also include the past term of authorization and requirements,  
            as well as the extended term (June 1, 2004 through June 30,  
            2015).

          3)Clarify that under the provisions of this bill, the district  
            will be ineligible for  hardship assistance  under the School  
            Facility Program pursuant to Article 8 of Chapter 12.5 of Part  
            10, and not  financial hardship assistance  .

          Previous legislation  :  AB 1948 (Evans), Chapter 636, Statutes of  
          2008, extends VCUSD's authority to sell property owned by the  
          district and to use the proceeds from the sale to reduce or  
          retire the emergency loan through July 1, 2010.  SB 1190  
          (Chesbro), Chapter 53, Statutes of 2004, appropriates $60  
          million for an emergency loan to VCUSD, requires the  
          Superintendent of Public Instruction to assume all the rights,  
          duties, and powers of the governing board of the district and to  
          appoint an administrator to serve during the term of the loan.  

          AB 1554 (Keene), Chapter 263, Statutes of 2004, requires that  
          existing emergency loans for the West Contra Costa Unified  
          School District (WCCUSD), Oakland Unified School District (OUSD)  
          and VUSD, be refinanced through I-Bank, with any difference  
          between interest paid on the existing loans and the costs of  
          refinancing those loans paid by the state.  AB 1303 (Daucher),  
          Chapter 97, Statutes of 2005, revises statutes and terms  
          pertaining to the lease financing that the state is using to  
          replace General Fund financing of school district emergency  
          loans.  

          SB 512 (Committee on Education), Chapter 677, Statutes of 2005,  








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          extended Oakland Unified School District's (OUSD) authority to  
          sell property owned by the district and to use the proceeds from  
          the sale to reduce or retire their emergency loan.  Existing law  
          at the time provided this authority to OUSD from June 1, 2003,  
          to June 30, 2005.  This bill extended the time period during  
          which OUSD was thus authorized to June 30, 2007.  SB 39  
          (Perata), Chapter 14, Statutes of 2003, provides Oakland Unified  
          School District with a $100 million loan; a state administrator  
          was appointed in the district, an administrator is still serving  
          in that capacity.  AB 38 (Reyes), Chapter 1, Statutes of 2002,  
          provides a $2 million emergency loan to West Fresno Elementary  
          School District; a state administrator was appointed in the  
          district.

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          Superintendent of Public Instruction Jack O'Connell (Sponsor)

           Opposition 
           
          None on file
           
          Analysis Prepared by  :    Gerald Shelton / ED. / (916) 319-2087