BILL ANALYSIS Ó AB 751 Page 1 Date of Hearing: May 11, 2011 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair AB 751 (Furutani) - As Amended: April 26, 2011 Policy Committee: Education Vote:7-3 Urgency: No State Mandated Local Program: No Reimbursable: No SUMMARY This bill makes the following changes to the local education agency fiscal oversight process conducted by county offices of education (COE) and the Superintendent of Public Instruction (SPI): 1)Requires the SPI, a county superintendent (CS), and the governing board of a school district to clearly distinguish between a district that is assigned a qualified certification because it may not meet its financial obligations only for the second subsequent fiscal year (FY) following the current FY and a district that is otherwise assigned a qualified certification. Provides these same requirements for COEs. 2)Requires the governing board of a school district that chooses to propose reductions to expenditures in the current year, after being assigned a qualified certification because it may not meet its financial obligations only for the second subsequent FY, to present that proposal and provide for public comment at an open meeting held prior to the meeting in which the board takes action to reduce expenditures. 3)Authorizes the SPI to waive any reporting, certification, and intervention requirements based on the second subsequent FY following the current FY for a COE and a school district if all of the following conditions are met: a) The CS acting for the COE or the governing board of the school district requests that the waiver be approved, as specified. b) In the instance where the school district requests a AB 751 Page 2 waiver, the CS of the county where the district is located provides a letter supporting the waiver. c) The SPI determines the COE or the school district will meet its financial obligations for the second subsequent FY following the current FY, as specified. FISCAL EFFECT 1)Minor, absorbable GF/98 costs to COEs and minor, absorbable GF costs to the SPI to comply with the requirements of this measure. COEs are currently required to review and approve school district budgets for fiscal certification purposes. The SPI is required to do the same for COEs. This bill requires districts, COEs, and SPI to provide more information to the general public regarding the reasons for a qualified fiscal certification, particularly if the certification is due to projections regarding the third budget year, as specified. 2)The state is required to pay approximately $359,000 GF/98 in annual state reimbursable mandated costs for the financial compliance and oversight process conducted by local education agencies. This bill modifies this process, as specified. COMMENTS 1)Background . AB 1200 (Eastin), Chapter 1213, Statutes of 1991, provides that the CS has fiscal oversight responsibility over school districts in the county and SPI has fiscal oversight responsibility over COEs. The CS has authority to disapprove a school district's budget, or at any time, to declare a district in jeopardy of meeting its financial obligations through the financial reporting process. Current law requires school districts and COEs to file two interim reports annually on their financial status with the SDE. The first interim report is due to the state by January 15 of each FY and the second interim report is due by April 15 each year. As a part of these reports, school districts and COEs must certify whether they are able to meet their financial obligations, as determined by standards and criteria for fiscal stability adopted by the State Board of Education, their budget (as revised to reflect current adopted state budget information), property tax revenues, and ending balances for the preceding FY. The certifications are AB 751 Page 3 classified as positive, qualified, or negative. a) A positive certification is assigned when a school district or COE will meet its financial obligations for the current and two subsequent FY. b) A qualified certification is assigned when a district or COE may not meet its financial obligations for the current and two subsequent FY. c) A negative certification is assigned when a school district or COE will not meet their financial obligations in the current year or in the subsequent FY. If a COE disapproves a school district's budget or determines the district has a negative or qualified certification, statute provides the COE with authority to conduct various forms of intervention, including assigning external consultants, requiring a district fiscal recovery plan, or even disallowing certain district expenditures. The SPI has similar authority to intervene in fiscal matters of the county office of education. 2)Purpose . According to the Legislative Analyst Office (LAO), K-12 education has experienced a 6.6% , $5.8 billion, decline in programmatic funding from the 2007-08 FY, including the loss of federal American Recovery and Reinvestment Act funds. K-12 programmatic spending has been reduced by $542 per pupil during this same time period. Likewise, the LAO reports the state has a $9.5 billion Proposition 98 (K-14 schools) maintenance factor obligation entering into the 2011-12 FY. This obligation is due to the reductions the state has recently implemented, including providing no cost-of-living adjustment for three years and suspending Proposition 98 in 2009. Also, the state is currently deferring $9.2 billion (20%) of GF/98 funding. School districts contend the current fiscal oversight process does not account for the amount of reductions they have taken in a short period of time or the constant uncertainty of the state budget process. Specifically, they argue making budgetary decisions in this fiscal environment based on a three year projection is neither practical nor fair. According to the author, "Revenues consistently have come in lower than estimates, causing the state to impose additional cuts to school districts mid-year. Mid-year cuts to school AB 751 Page 4 districts create chaos because fiscal planning assumptions are invalidated by the drop in revenues, much of which is ongoing into subsequent budget years." This bill, sponsored by the Los Angeles Unified School District, changes the fiscal oversight process for school districts and COEs to provide more information to the general public, as specified. 3)Current fiscal reporting information . According to SDE, at the 2011 first interim report, 97 districts received a qualified rating and 13 districts received a negative rating. There are approximately 1,021 school districts and COEs in the state. Between the 2007-08 FY and the 2008-09 FY, the number of districts receiving a qualified rating increased by more than 50%. Each year thereafter, these numbers have continued to grow due to the state's fiscal situation. According to the Fiscal Crisis Management Assistance Team, an agency established by the state to provide technical assistance to school districts and COEs regarding financial issues, preliminary estimates indicate there will continue to be 13 districts with a negative certification and 124 school districts with a qualified certification at the Second Interim Report. Analysis Prepared by : Kimberly Rodriguez / APPR. / (916) 319-2081