BILL ANALYSIS Ó AB 280 Page 1 Date of Hearing: May 8, 2013 ASSEMBLY COMMITTEE ON EDUCATION Joan Buchanan, Chair AB 280 (Alejo) - As Amended: April 11, 2013 SUBJECT : Local agency employment contracts: maximum cash settlement SUMMARY : Reduces the maximum cash settlement that can be provided to a school district superintendent and other high-level district officials who are terminated before their contracts expire and limits the amount that can be paid for a leave of absence, as specified. Specifically, this bill : 1)Provides that in the case of a voluntary termination of the employment contract of a district superintendent, deputy superintendent, assistant superintendent, or associate superintendent of schools the maximum cash settlement shall be three times the monthly salary, regardless of the number of months left in the contract. 2)Provides that in the case of an involuntary termination of the employment contract of a district superintendent, deputy superintendent, assistant superintendent, or associate superintendent of schools the maximum cash settlement shall be six times the monthly salary, regardless of the number of months left in the contract. 3)Provides that the maximum cash settlement shall be one month's salary in the case of a district superintendent, deputy superintendent, assistant superintendent, or associate superintendent of schools who the district believes, and subsequently confirms, pursuant to an independent audit, has engaged in fraud, misappropriation of funds, or other illegal fiscal practices. 4)Provides that if a school district places a district superintendent, deputy superintendent, assistant superintendent, or associate superintendent of schools on a paid leave of absence, the maximum pay during the leave shall be the employee's monthly salary multiplied by an unspecified number. 5)States that the formula for determining the maximum pay during AB 280 Page 2 a leave of absence is a maximum and not a target amount to be paid. 6)Requires the employee on leave to exhaust all of his or her accrued sick leave and vacation time before receiving pay under the formula. 7)Applies these provisions to contracts negotiated on or after January 1, 2014. EXISTING LAW authorizes the cash settlement of a terminated school district superintendent to be equal to the monthly salary of the superintendent multiplied by the number of months left on the unexpired term of the contract, not to exceed 18, and limits the cash settlement in the case of termination for fraud or other illegal fiscal practices to three month's salary. FISCAL EFFECT : This bill is keyed non-fiscal. COMMENTS : According to the author's office, there is an ongoing problem with school district superintendent turnover, and it is becoming extremely costly to school districts due to the size of cash settlements of terminated superintendents. The author's office states that "By placing limits on cash settlements for superintendents, we can save money for students, begin to improve our schools [sic] administrative processes, and demonstrate fiscal discipline in the administration of taxpayer dollars." Arguments in support . Supporters of the bill argue point to a 2012 report in the Sacramento Bee showing that the annual pay for the highest paid school district superintendents ranged from $265,773 to $322,159, which would translate into an 18-month severance pay of $398,599 to $483,238. Supporters also state that, between 2006 and 2009, 45% of all superintendents and 71% of superintendents in the largest districts left their jobs. They do not indicate, however, how many left their job because of retirement or transfer out (without a buyout) vs. how many received a settlement for unexpired months in their contracts. Arguments in opposition . Opponents of the bill address three issues: voluntary termination, involuntary termination, and paid leaves of absence. Regarding involuntary terminations, opponents argue that if the unexpired term of the contract is more than six months, then termination amounts to a breach of AB 280 Page 3 contract, and the district should be required to pay up to the current statutory maximum of 18 months. According to the Small School Districts' Association (SSDA), this bill's "contract provision would penalize school superintendents who are hired by a school board, relocate to the school district and then, for reasons that are not related to fraud, misappropriation of funds or other illegal practices, are fired by the school board without notice and prior to the end of their mutually bargained and agreed upon contract. SSDA believes contracts should be honored and, if unilaterally broken, then there should be a significant penalty for breaking the contract." Opponents also argue that the cost of unilaterally terminating a contract serves as a disincentive for terminating a superintendent for political, and not job performance-related, purposes. Although the author's office argues that this bill is in response to "an ongoing problem with school district superintendent turnover," this bill could actually increase turnover by reducing the penalty to districts for terminating contracts before their terms expire. Regarding voluntary terminations, The Association of California School Administrators (ACSA) argues that voluntary terminations are sometimes negotiated in order to avoid an involuntary termination. This can save the district money. For example, a negotiated voluntary termination with six month's pay would be less expensive than an involuntary termination with 12 month's pay. This bill would eliminate this cost-saving tool. Regarding paid leaves of absence, opponents argue that paid leaves of absence are sometimes provided for legal or employment reasons and sometimes must remain confidential, and should not be subject to arbitrary limitations. If a superintendent is falsely accused of wrong-doing, for example, he or she may be put on a leave of absence pending an investigation. Even if exonerated, the superintendent would not be entitled to pay if the investigation and leave exceed the limit imposed by this bill. Rather than imposing a statewide, arbitrary cap, the committee may wish to consider requiring school districts to adopt policies regarding leaves of absence and to include in the policy the requirement that paid leaves must be approved by the governing board in a public hearing. In general, this bill could have four major unintended consequences. First, it could increase superintendent turnover by reducing the penalty districts pay for terminations prior to AB 280 Page 4 the fulfillment of a contract. Second, it could cost districts money by limiting the ability to negotiate lower-cost voluntary terminations in lieu of involuntary terminations. Third, it could result in limitations on paid leaves of absence that could unfairly punish superintendents. Fourth, it could have a chilling effect on the willingness of highly-qualified individuals to seek top-level district positions by increasing the financial uncertainty of assuming such positions. Accordingly, staff recommends that the bill be amended to strike its current provisions and insert a provision requiring school district governing boards to adopt a policy governing paid leaves of absence and requiring the policy to include the requirement that paid leaves must be approved by the governing board in a public hearing. Related legislation . AB 2155 (Hueso) in 2011, among other things, limited the cash settlement for terminated school superintendents to 12 month's salary. That bill died in Assembly Appropriations. REGISTERED SUPPORT / OPPOSITION : Support California Federation of Teachers Opposition Association of California School Administrators California Association of School Business Officials California School Boards Association Small School Districts' Association Analysis Prepared by : Rick Pratt / ED. / (916) 319-2087