BILL ANALYSIS Ó
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UNFINISHED BUSINESS
Bill No: SB 533
Author: Wright (D), et al.
Amended: 8/24/12
Vote: 27 - Urgency
PRIOR VOTES NOT RELEVANT
ASSEMBLY FLOOR : Not available
SUBJECT : Inglewood Unified School District: emergency
loan
SOURCE : Author
DIGEST : This bill appropriates $29 million for an
emergency loan to the Inglewood Unified School District
(IUSD) and authorizes an additional $26 million of lease
financing through the California Infrastructure and
Economic Development Bank (I-Bank). It also requires the
Superintendent of Public Instruction (SPI) to assume all
the rights, duties, and powers of the governing board of
IUSD and, in consultation with the Los Angeles County
Superintendent of Schools, appoint an administrator to
serve in the district, as specified.
Assembly Amendments delete the version of the bill that
passed the Senate and insert the above language.
ANALYSIS : Existing law provides for emergency loans to
school districts that are unable to meet their current
CONTINUED
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operating expenses. Such loans are provided by legislation
enacted at the request of the district. Existing law
requires districts that request and agree to receive an
emergency loan to agree to statutory terms and conditions
regarding repayment of the loan and the steps to be taken
to return the district to financial solvency.
If a district receives an emergency loan of up to 200% of
its recommended budget reserve, then the SPI is required to
appoint a trustee who has the authority to stay and rescind
any action of the district governing board and who serves
until the loan is repaid and the district has adequate
fiscal systems and controls in place. If a district
receives an emergency loan of more than 200% of its
recommended budget reserve, then the Academic Performance
Index is required to assume all legal rights, duties, and
powers of the governing board and to appoint an
administrator to act on his or her behalf in exercising
this authority. The SPI may return power to the governing
board after specified conditions are met. The costs of the
trustee and administrator and other related oversight and
monitoring activities are borne by the district. Currently
four districts-Oakland Unified, Vallejo City Unified, and
King City Joint Union High School District (formerly South
Monterey County Joint Union High School District)-have
emergency loans outstanding.
Appropriates $29 million for an emergency loan to the IUSD
and authorizes an additional $26 million of lease financing
through the California I-Bank. It also requires the SPI to
assume all the rights, duties, and powers of the governing
board of IUSD and, in consultation with the Los Angeles
County Superintendent of Schools, appoint an administrator
to serve in the district, as specified. Specifically, this
bill:
1. Requires the IUSD to enter into bank financing with the
I-Bank upon terms the bank deems necessary or
appropriate for the purpose of financing or refinancing
the emergency apportionment.
2. Provides that the financing or refinancing of the
emergency apportionment shall include funds necessary
for reserves, capitalized interest, credit enhancements
and costs of issuance.
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3. Requires the SPI and the state administrator to maintain
control of the district until specified provisions are
met, including: one fiscal year has elapsed and the
administrator determines that future compliance by IUSD
with the improvement plan is probable; the SPI has
approved all recovery plans and the Fiscal Crisis
Management and Assistance Team (FCMAT) completes the
improvement plan; the state administrator certifies that
all necessary collective bargaining agreements are
consistent with the terms of the recovery plans; and,
the SPI determines that future compliance by the
district with the recovery plan is probable.
4. Requires FCMAT to provide assistance to the state
administrator in the development of the first annual
multiyear financial recovery plan and adopted budget, as
specified. This bill also requires FCMAT to recommend
to the SPI any studies or activities that should be
undertaken by the state administrator to enhance revenue
or achieve cost savings.
5. Requires IUSD to bear 100% of all costs associated with
implementing this measure, including the activities of
FCMAT. This bill also requires FCMAT to continue
assisting the district until it is certified as positive
(as determined through the annual local budget process)
or until all legal rights, duties, and powers are
returned to IUSD's governing board (whichever is first).
6. Requires the improvement plan for personnel management
to include training for members of IUSD's governing
board in fiscal management from the California School
Boards Association, as specified. This bill requires
FCMAT, after it completes its first written report, to
file subsequent reports annually, as determined by the
SPI.
7. Requires the State Controller, for each year that loan
apportionments are disbursed to the district, to conduct
an audit of the district's books and accounts, as
specified. This bill also requires the costs of these
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audits to be borne by IUSD.
8. Requires IUSD to repay the emergency loan as a straight
line loan amortized over a 20-year term. This bill also
requires the loan amount to be repaid by the district,
plus interest calculated at a rate equal to the rate
earned by the Pooled Money Investment Account on the
date this bill becomes effective, for a period not to
exceed 20 years.
9. Requires IUSD to enter into a lease financing agreement
with I-Bank for the purpose of financing the emergency
apportionment, including a repayment to the General Fund
(GF) of the $29 million appropriated in this bill.
10.Authorizes the school district to sell property owned by
the district and use the proceeds from the sale to
reduce or retire the emergency loan, provided that the
district will be ineligible for financial hardship
assistance under the state school facilities program
from June 1, 2012 to June 30, 2015.
Comments
IUSD is located in Los Angeles County and enrolled
approximately 15,000 pupils in 26 schools in the 2010-11
school year. In April 2012, the Los Angeles County Office
of Education (LACOE) certified IUSD's fiscal status as
negative, which means (based upon current projections); the
school district will not meet its financial obligations for
the 2011-12 or 2012-13 fiscal years (FYs). According to
LACOE, the district's financial information reflected "a
negative GF ending balance of $1.51 million for the 2011-12
FY resulting in a negative 1.21% reserve for economic
uncertainties."
LACOE further stated the positive financial projections the
district made for the 2012-13 and 2013-14 FY were
overstated due to assuming more average daily attendance
funding than it will receive (i.e., the number of pupils
attending school in the district) and the reduction of
furlough days for certificated staff from 10 to five.
Likewise, the county office of education also noted a
projected operating deficit of $4.86 million, representing
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3.89% of IUSD's projected expenditures for the 2011-12 FY.
According to FCMAT's latest analysis, IUSD is projected to
have a negative cash flow balance of $8 million by March
2013, ending the 2012-13 FY with a negative cash balance of
approximately $28.9 million. FCMAT projects that, based on
current trends, the district's deficit spending will be $24
million in 2013-14 and $ 36.29 million in 2014-15. This
bill makes the statutory changes necessary to provide a $55
million emergency loan to IUSD.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: Yes
According to the Assembly Appropriations Committee,
appropriates $29 million from the GF to the SPI for
apportionment to IUSD, as specified. This allocation is
expected to be reimbursed to the GF within one year via the
sale of bonds by the I-Bank. This bill authorizes IUSD to
augment the $29 million emergency loan with an additional
$26 million of lease financing through the I-Bank in order
to increase the emergency loan to a total of no more than
$55 million. Also, this bill authorizes funds to be
disbursed from the proceeds of the loan only if the state
administrator and FCMAT jointly determine the disbursement
is necessary to support the immediate cash flow needs of
the district.
SUPPORT : (Verified 8/28/12)
Inglewood Unified School District
ARGUMENTS IN SUPPORT : The author argues, "Unfortunately
Inglewood is in a dire financial situation. Inglewood
Unified School District has received a negative
certification by the CDE and current estimates put the
district at a multi-million dollar deficit next year. The
budget analysis conducted by the Los Angeles County Office
of Education indicates that the district is deficit
spending, is unable to maintain its reserve for economic
uncertainty, and will have a negative fund balance for at
least the current and two subsequent fiscal years. This
has been exacerbated by the declining enrollment the
district has been experiencing in recent years. FCMAT
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reports that the district will need a loan. An emergency
appropriation from the state is going to be necessary to
allow the district to make payroll and other financial
obligations."
PQ:k 8/28/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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