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