BILL ANALYSIS                                                                                                                                                                                                    Ó




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          |SENATE RULES COMMITTEE            |                        AB 625|
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                                      CONSENT 


          Bill No:  AB 625
          Author:   Bonta (D)
          Amended:  7/1/15 in Senate
          Vote:     21  

           SENATE EDUCATION COMMITTEE:  9-0, 6/24/15
           AYES:  Liu, Runner, Block, Hancock, Leyva, Mendoza, Monning,  
            Pan, Vidak

          SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

           ASSEMBLY FLOOR:  76-0, 5/26/15 - See last page for vote

           SUBJECT:   School finance:  emergency apportionments:   
                     compliance audits


          SOURCE:    Superintendent of Public Instruction


          DIGEST:  This bill requires the State Controller, the  
          Superintendent of Public Instruction (SPI), and the school  
          district superintendent to meet before each audit of a school  
          district that has received an emergency apportionment to discuss  
          the terms of the audit and the timeline under which it will  
          proceed.


          ANALYSIS:   


          Existing law:

          1)Provides the authority for emergency loans to be given to  
            school districts that are unable to meet their current  








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            operating expenses.  Such loans are provided by legislation  
            enacted at the request of the district.  Existing law requires  
            districts that 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. 

          2)Requires, if a district receives an emergency loan of up to  
            200% of its recommended budget reserve, the SPI to appoint a  
            trustee who has the authority to stay and rescind any action  
            of the school district governing board.  Further, the  
            appointed trustee serves until the loan is repaid and the  
            district has adequate fiscal systems and controls in place.  

          3)Requires, if a school district receives an emergency loan of  
            more than 200% of its recommended budget reserve, the SPI 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.  
             Since 1991, nine school districts have received emergency  
            loans, including: Oakland Unified, Vallejo City Unified, King  
            City Joint Union High School District (formerly South Monterey  
            County Joint Union High School District), West Fresno, and  
            most recently, Inglewood Unified.

          4)Requires an annual audit for a school district that has  
            received an emergency apportionment due to an inability to  
            meet its financial obligations.


          5)Provides that the audit may be conducted by the State  
            Controller or his or her designee or an auditor selected by  
            the school district and approved by the State Controller.


          6)Requires the SPI, in the case of an appeal, to either approve  
            or disapprove of the school district's budget. 










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          7)Requires the SPI, if he or she disapproves the budget, to  
            notify the school district in writing of the decision.


          8)Requires the county superintendent of schools, in the case of  
            a district with a disapproved budget, and until the county  
            superintendent of schools certifies the district's first  
            interim report, to do the following as necessary:


             a)   Develop and adopt, by November 30, in consultation with  
               the SPI and the district governing board, a fiscal plan and  
               budget that will govern the district and allow the district  
               to meet its financial obligations, both in the current  
               fiscal year and with regard to the district's multiyear  
               financial commitments;


             b)   Cancel purchase orders, prohibit the issuance of  
               non-salary warrants, and otherwise stay or rescind any  
               action that is inconsistent with the budget;


             c)   Monitor and review the operation of the district;


             d)   Determine the need for additional staff and may employ,  
               subject to approval by the SPI, short-term analytical  
               assistance or expertise to validate financial information  
               if the district staff does not have the expertise or staff;


             e)   Require the school district to encumber all contracts  
               and other obligations, to prepare appropriate cash flow  
               analyses and monthly or quarterly budget revisions, and to  
               appropriately record all receivables and payables;


             f)   Determine whether there are any financial problem areas  
               and may employ, subject to approval by the SPI, a certified  
               public accounting firm to investigate financial problem  
               areas; and








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             g)   Withhold compensation of the members of the governing  
               board of the district and the superintendent of the  
               district for failure to provide requested financial  
               information.


          This bill requires the State Controller, the SPI, and the school  
          district superintendent, or their respective designees, to meet  
          before each audit of a school district that has received an  
          emergency apportionment to discuss the terms of the audit and  
          the timeline under which it will proceed. 


          Comments


          Need for the bill.  According to the author's office, the annual  
          audit process for school districts that have been taken over by  
          the state and received an emergency apportionment has been a  
          recent point of contention.  In prior years, because of the  
          unique difficulties posed by school audits and the exceptional  
          workload placed upon the State Controller, audits took  
          consistently longer than their private sector counterparts and  
          were more expensive.  While a single late audit would be a  
          surmountable challenge, the delay of subsequent audits had the  
          effect of compounding the adverse impacts and increasing the  
          burden on the audited district.  

          Late audits.  The author's office indicates that of 38 audits  
          for five different school districts in receivership, only four  
          have been completed by the due date.  The others have been late  
          by periods ranging from 43 to 961 days.  Late audits may occur  
          for several reasons such as problems with locating old records  
          or failure for school districts to submit information.  The late  
          audits can cause several problems for districts, including a  
          lower credit rating resulting in higher interest rates,  
          difficulties in projecting financial needs because the current  
          financial condition is not known, and compounded audit  
          exceptions because problems are not identified in time to be  
          corrected prior to the next year's audit.  








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          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   No


          SUPPORT:   (Verified7/7/15)


          Superintendent of Public Instruction (source)
          Oakland Unified School District


          OPPOSITION:   (Verified7/7/15)


          None received

          ARGUMENT IN SUPPORT: The sponsor of this measure, the  
          Superintendent of Public Instruction, has indicated its intent  
          to establish communication between the State Controller prior to  
          an audit to develop a plan, establish coordination, and help  
          ensure that needed documentation is available and shared in  
          order to meet the audit's deadline.
          
          ASSEMBLY FLOOR:  76-0, 5/26/15
          AYES:  Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bonilla,  
            Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau,  
            Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd,  
            Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia,  
            Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray,  
            Grove, Hadley, Roger Hernández, Holden, Irwin, Jones,  
            Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,  
            Maienschein, Mayes, McCarty, Medina, Melendez, Mullin,  
            Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea,  
            Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,  
            Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,  
            Wilk, Williams, Wood, Atkins
          NO VOTE RECORDED:  Bloom, Chávez, Harper, Mathis


          Prepared by:Lenin Del Castillo / ED. / (916) 651-4105








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          7/8/15 10:30:33


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