Amended in Assembly April 16, 2015

Amended in Assembly March 26, 2015

California Legislature—2015–16 Regular Session

Assembly Bill No. 625

Introduced by Assembly Member Bonta

February 24, 2015

An act to amend Section begin delete 42127.3 end delete begin insert 41320.1 end insert of the Education Code, relating to begin delete schools. end delete begin insert school finance. end insert

LEGISLATIVE COUNSEL’S DIGEST

AB 625, as amended, Bonta. School finance: begin delete school district budgets. end delete begin insert emergency apportionments: compliance audits. end insert

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Existing law authorizes the governing board of a school district to request an emergency apportionment through the Superintendent of Public Instruction if the governing board of the school district determines during a fiscal year that its revenues are less than the amount necessary to meet its current year expenditure obligations. Under existing law, if a school district accepts an emergency apportionment, that acceptance constitutes agreement by the school district to numerous conditions, among which is an agreement that the Controller, or his or her designee, shall conduct an annual audit of the books and accounts of the school district, as specified. This provision requires these audits to continue until the Controller determines, in consultation with the Superintendent, that the school district is financially solvent, but in no event earlier than one year following the implementation of the school district’s fiscal plan or later than the time the apportionment is repaid, including interest.

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This bill would require the Controller and the Superintendent, or their respective designees, to meet before each audit undertaken under this provision, develop an audit plan, and coordinate the audit.

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(1) Existing law requires a school district to adopt a budget for the subsequent fiscal year, as specified. Existing law requires the county superintendent of schools to examine the adopted budget, make certain determinations related to the adopted budget, and approve, conditionally approve, or disapprove the adopted budget for each school district, as specified.

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If the adopted budget is conditionally approved or disapproved, existing law specifies a process for revising the budget. If the county superintendent of schools disapproves the revised budget, existing law requires him or her to call for the formation of a budget review committee, as specified. Existing law requires the budget review committee to review the proposed budget of the school district and the underlying fiscal policies of the school district and to transmit to the Superintendent of Public Instruction, the county superintendent of schools, and the governing board of the school district either a recommendation that the school district budget be approved or a report disapproving the school district budget and setting forth recommendations for revisions to the school district budget, as specified.

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If the budget review committee disapproves the school district budget, existing law authorizes the governing board of the school district to submit a response to the Superintendent, as specified, and, based upon the recommendations of the budget review committee and any response to those recommendations provided by the governing board of the school district, requires the Superintendent to either approve or disapprove the budget. If the Superintendent disapproves the budget, existing law requires the Superintendent to notify the governing board of the school district in writing of the reasons for that disapproval and requires the county superintendent of schools to take certain actions as necessary, including, among others, determining whether there are any financial problem areas and employing, subject to approval by the Superintendent, a certified public accounting firm to investigate financial problem areas.

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This bill would add appointing a fiscal adviser to perform specified duties of the county superintendent of schools to the list of actions a county superintendent of schools is required to take as necessary. To the extent this bill would impose additional duties on a county superintendent of schools, the bill would impose a state-mandated local program. The bill would also make various nonsubstantive changes.

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(2)The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

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This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to these statutory provisions.

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Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program:  begin delete yes end delete begin insert no end insert .

The people of the State of California do enact as follows:

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begin insert SECTION 1. end insert   

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begin insert Section 41320.1 of the end insert begin insert Education Code end insert begin insert is amended
to read: end insert

41320.1.  

Acceptance by the school district of the
apportionments made pursuant to Section 41320 constitutes the
agreement by the school district to all of the following conditions:

(a) The Superintendent shall appoint a trustee who has
recognized expertise in management and finance and may employ,
on a short-term basis, staff necessary to assist the trustee, including,
but not limited to, certified public accountants, as follows:

(1) The expenses incurred by the trustee and necessary staff
shall be borne by the school district.

(2) The Superintendent shall establish the terms and conditions
of the employment, including the remuneration of the trustee. The
trustee shall serve at the pleasure of, and report directly to, the
Superintendent.

(3) The trustee, and necessary staff, shall serve until the school
district has adequate fiscal systems and controls in place, the
Superintendent has determined that the school district’s future
compliance with the fiscal plan approved for the school district
under Section 41320 is probable, and the Superintendent decides
to terminate the trustee’s appointment, but in no event, for less
than three years. The Superintendent shall notify the county
superintendent of schools, the Legislature, the Department of
Finance, and the Controller no less than 60 days before the time
that the Superintendent expects these conditions to be met.

(4) Before the school district repays the loan, including interest,
the recipient of the loan shall select an auditor from a list
established by the Superintendent and the Controller to conduct
an audit of its fiscal systems. If the fiscal systems are deemed to
be inadequate, the Superintendent may retain the trustee until the
deficiencies are corrected. The cost of this audit and any additional
cost of the trustee shall be borne by the school district.

(5) Notwithstanding any other law, all reports submitted to the
trustee are public records.

(6) To facilitate the appointment of the trustee and the
employment of necessary staff, for purposes of this section, the
Superintendent is exempt from the requirements of Article 6
(commencing with Section 999) of Chapter 6 of Division 4 of the
Military and Veterans Code and Part 2 (commencing with Section
10100) of Division 2 of the Public Contract Code.

(7) Notwithstanding any other law, the Superintendent may
appoint an employee of the department to act as trustee for up to
the duration of the trusteeship. The salary and benefits of that
employee shall be established by the Superintendent and paid by
the school district. During the time of appointment, the employee
is an employee of the school district, but shall remain in the same
retirement system under the same plan as if the employee had
remained in the department. Upon the expiration or termination
of the appointment, the employee shall have the right to return to
his or her former position, or to a position at substantially the same
level as that position, with the department. The time served in the
appointment shall be counted for all purposes as if the employee
had served that time in his or her former position with the
department.

(b) (1) The trustee appointed by the Superintendent shall
monitor and review the operation of the school district. During the
period of his or her service, the trustee may stay or rescind an
action of the governing board of the school district that, in the
judgment of the trustee, may affect the financial condition of the
school district.

(2) After the trustee’s period of service, and until the loan is
repaid, the county superintendent of schools that has jurisdiction
over the school district may stay or rescind an action of the
governing board of the school district that, in his or her judgment,
may affect the financial condition of the school district. The county
superintendent of schools shall notify the Superintendent, within
five business days, if he or she stays or rescinds an action of the
governing board of the school district. The notice shall include,
but not be limited to, both of the following:

(A) A description of the governing board of the school district’s
intended action and its financial implications.

(B) The rationale and findings that support the county
superintendent of school’s decision to stay or rescind the action
of the governing board of the school district.

(3) If the Superintendent is notified by the county superintendent
of schools pursuant to paragraph (2), the Superintendent shall
report to the Legislature, on or before December 30 of every year,
whether the school district is complying with the fiscal plan
approved for the school district.

(4) The Superintendent may establish timelines and prescribe
formats for reports and other materials to be used by the trustee to
monitor and review the operations of the school district. The trustee
shall approve or reject all reports and other materials required from
the school district as a condition of receiving the apportionment.
The Superintendent, upon the recommendation of the trustee, may
reduce an apportionment to the school district in an amount up to
two hundred dollars ($200) per day for each late or unacceptable
report or other material required under this part, and shall report
to the Legislature a failure of the school district to comply with
the requirements of this section. If the Superintendent determines,
at any time, that the fiscal plan approved for the school district
under Section 41320 is unsatisfactory, he or she may modify the
plan as necessary, and the school district shall comply with the
plan as modified.

(c) At the request of the Superintendent, the Controller shall
transfer to the department, from an apportionment to which the
school district would otherwise have been entitled pursuant to
Section 42238, the amount necessary to pay the expenses incurred
by the trustee and associated costs incurred by the county
superintendent of schools.

(d) For the fiscal year in which the apportionments are disbursed
and every year thereafter, the Controller, or his or her designee,
shall cause an audit to be conducted of the books and accounts of
the school district, in lieu of the audit required by Section 41020.
At the Controller’s discretion, the audit may be conducted by the
Controller, his or her designee, or an auditor selected by the school
district and approved by the Controller. The costs of these audits
shall be borne by the school district. These audits shall be required
until the Controller determines, in consultation with the
Superintendent, that the school district is financially solvent, but
in no event earlier than one year following the implementation of
the plan or later than the time the apportionment made is repaid,
including interest. begin insert The Controller and the Superintendent, or their
respective designees, shall meet before each audit, develop an
audit plan, and coordinate the audit. end insert In addition, the Controller
shall conduct quality control reviews pursuant to subdivision (c)
of Section 14504.2.

(e) For purposes of errors and omissions liability insurance
policies, the trustee appointed pursuant to this section is an
employee of the local educational agency to which he or she is
assigned. For purposes of workers’ compensation benefits, the
trustee is an employee of the local educational agency to which
he or she is assigned, except that a trustee appointed pursuant to
paragraph (7) of subdivision (a) is an employee of the department
for those purposes.

(f) Except for an individual appointed by the Superintendent as
trustee pursuant to paragraph (7) of subdivision (a), the
state-appointed trustee is a member of the State Teachers’
Retirement System, if qualified, for the period of service as trustee,
unless the trustee elects in writing not to become a member. A
person who is a member or retirant of the State Teachers’
Retirement System at the time of appointment shall continue to
be a member or retirant of the system for the duration of the
appointment. If the trustee chooses to become a member or is
already a member, the trustee shall be placed on the payroll of the
school district for the purpose of providing appropriate
contributions to the system. The Superintendent may also require
that an individual appointed as trustee pursuant to paragraph (7)
of subdivision (a) be placed on the payroll of the school district
for purposes of remuneration, other benefits, and payroll
deductions. For purposes of workers’ compensation benefits, the
state-appointed trustee is deemed an employee of the local
educational agency to which he or she is assigned, except that a
trustee who is appointed pursuant to paragraph (7) of subdivision
(a) is an employee of the department for those purposes.

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SECTION 1.  

Section 42127.3 of the Education Code is
amended to read:

42127.3.  

(a) If the budget review committee established
pursuant to Sections 42127.1 and 42127.2 recommends approval
of the school district budget, the county superintendent of schools
shall accept the recommendation of the budget review committee
and approve the budget.

(b) If the budget review committee established pursuant to
Sections 42127.1 and 42127.2 disapproves the school district
budget, the governing board of the school district, not later than
five working days after receipt of the report described in paragraph
(2) of subdivision (b) of Section 42127.2, may submit a response
to the Superintendent, including any revisions to the adopted final
budget and any other proposed actions to be taken as a result of
the recommendations of the budget review committee. Based upon
the recommendations of the budget review committee and any
response to those recommendations provided by the governing
board of the school district, the Superintendent shall either approve
or disapprove the budget. If the Superintendent disapproves the
budget, he or she shall notify the governing board of the school
district in writing of the reasons for that disapproval and, until the
county superintendent of schools certifies the school district’s first
interim report pursuant to Section 42131, the county superintendent
of schools shall do the following as necessary:

(1) Not later than November 30, develop and adopt, in
consultation with the Superintendent and the governing board of
the school district, a fiscal plan and budget that will govern the
school district and will allow the school district to meet its financial
obligations, both in the current fiscal year and with regard to the
school district’s multiyear financial commitments. The
Superintendent may extend the date by which the county
superintendent of schools is required to develop and adopt a fiscal
plan and budget. The governing board of the school district shall
govern the operation of the school district for the current fiscal
year in accordance with that adopted budget.

(2) Cancel purchase orders, prohibit the issuance of nonsalary
warrants, and otherwise stay or rescind any action that is
inconsistent with the budget adopted pursuant to paragraph (1).
The county superintendent of schools shall inform the governing
board of the school district in writing of his or her justification for
any exercise of authority under this paragraph.

(3) Monitor and review the operation of the school district.

(4) Appoint a fiscal adviser to perform any or all of the duties
of the county superintendent of schools prescribed by this section.

(5) Determine the need for additional staff and may employ,
subject to approval by the Superintendent, short-term analytical
assistance or expertise to validate financial information if the
school district staff does not have the expertise or staff.

(6) Require the school district to encumber all contracts and
other obligations, to prepare appropriate cashflow analyses and
monthly or quarterly budget revisions, and to appropriately record
all receivables and payables.

(7) Determine whether there are any financial problem areas
and may employ, subject to approval by the Superintendent, a
certified public accounting firm to investigate financial problem
areas.

(8) Withhold compensation of the members of the governing
board of the school district and the superintendent of the school
district for failure to provide requested financial information. A
forfeiture may be appealed to the Superintendent pursuant to
subdivision (b) of Section 42127.6.

(c) If, during the selection of the budget review committee or
during the committee’s review of the budget, an agreement is
reached between the governing board of the school district and the
county superintendent of schools, and the school district revises
its budget to comply with this agreement, the county superintendent
of schools shall approve the school district budget and the budget
review committee selection, or its review of the budget, shall be
canceled.

(d) The school district shall pay 75 percent and the county office
of education shall pay 25 percent of the actual administrative
expenses incurred pursuant to subdivision (b), or costs associated
with improving the school district’s financial management
practices. The Superintendent shall develop, and distribute to
affected school districts and county offices of education, advisory
guidelines regarding the appropriate amount of any fees charged
pursuant to this subdivision.

(e) This section shall not be construed to authorize the county
superintendent of schools to abrogate any provision of a collective
bargaining agreement that was entered into by a school district
before the date upon which the county superintendent of schools
disapproved the budget of the school district pursuant to
subdivision (b).

SEC. 2.  

If the Commission on State Mandates determines that
this act contains costs mandated by the state, reimbursement to
local agencies and school districts for those costs shall be made
pursuant to Part 7 (commencing with Section 17500) of Division
4 of Title 2 of the Government Code.

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