Amended in Assembly August 30, 2016

Amended in Assembly August 20, 2015

Amended in Assembly June 25, 2015

Amended in Senate April 20, 2015

Senate Bill No. 799

Introduced by Senators Hill and Glazer

(Coauthors: Senators Allen, Block, Galgiani, Pavley, Roth, and Wolk)

(Coauthors: Assembly Members Bonilla, Brown, Calderon, Cooper, Gray, Irwin, Olsen, Salas, and Ting)

March 18, 2015

An act to amend Sections 42127 and 42127.01 of the Education Code, relating to school finance.

LEGISLATIVE COUNSEL’S DIGEST

SB 799, as amended, Hill. School finance: school districts: annual budgets: reserve balance.

Existing law requires the governing board of a school district, on or before July 1 of each year, to hold a hearing on, and adopt a budget for, the subsequent fiscal year. Existing law requires the governing board of a school district that proposes to adopt a budget that includes a combined assigned and unassigned ending fund balance in excess of the minimum recommended reserve for economic uncertainties adopted by the State Board of Education to provide specified information for public review and discussion.

This bill would instead require the governing board of a school district that proposes to adopt a budget that includes unassigned ending balances in the school district’s general fund and special reserve fund for other than capital outlay projects in excess of the minimum recommended reserve for economic uncertainties to provide specified information for public review and discussion. The bill would also require the governing board of a school district to adopt a policy establishing procedures for reporting the fund balances as reflected in the school district’s governmental fund financial statements, as specified. By imposing additional duties on school districts, the bill would impose a state-mandated local program.

Existing law limits the amount of the combined assigned or unassigned ending fund balance contained in a school district’s annual budget in any fiscal year immediately after a fiscal year in which a transfer is made into the Public School System Stabilization Account. Existing law establishes formulas for calculating the maximum amount allowable for school districts with less than 400,000 units of average daily attendance and for school districts with more than 400,000 units of average daily attendance, as specified. Existing law authorizes the county superintendent of schools to grant an exemption from those requirements if the school district provides documentation indicating extraordinary fiscal circumstances substantiate the need for a combined assigned or unassigned ending fund balance that is in excess of the minimum recommended reserve for economic uncertainties, as specified.

This bill would instead provide that the school district’s budget shall not contain unassigned ending balances in the school district’s general fund and special reserve fund for other than capital outlay projects in excess of begin delete 17% end delete begin insert 15% end insert of those funds, and would require a county superintendent of schools to grant a school district an exemption if the school district provides documentation indicating extraordinary fiscal circumstances substantiate the need for those fund balances, as specified. The bill would begin delete also end delete require begin delete each county superintendent of schools to adopt a policy establishing the procedures for submitting exemption requests and the criteria to be used to determine whether extraordinary fiscal circumstances exist. end delete begin insert the governing board of a school district to report in a public meeting its assigned and unassigned fund balances in the school district’s general fund and special reserve fund for other than capital outlay projects, as specified. end insert

Because the bill would impose additional duties on school districts and county superintendents of schools, the bill would impose a state-mandated local program.

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.

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.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

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

SECTION 1.  

Section 42127 of the Education Code is amended
to read:

42127.  

(a) On or before July 1 of each year, the governing
board of each school district shall accomplish the following:

(1) Hold a public hearing conducted in accordance with Section
42103 on the budget to be adopted for the subsequent fiscal year.
The budget to be adopted shall be prepared in accordance with
Section 42126. The agenda for that hearing shall be posted at least
72 hours before the public hearing and shall include the location
where the budget will be available for public inspection.

(2) (A) Adopt a budget. Not later than five days after that
adoption or by July 1, whichever occurs first, the governing board
of the school district shall file that budget with the county
superintendent of schools. The budget and supporting data shall
be maintained and made available for public review. If the
governing board of the school district does not want all or a portion
of the property tax requirement levied for the purpose of making
payments for the interest and redemption charges on indebtedness
as described in paragraph (1) or (2) of subdivision (b) of Section
1 of Article XIII A of the California Constitution, the budget shall
include a statement of the amount or portion for which a levy shall
not be made. For the 2014-15 fiscal year and each fiscal year
thereafter, the governing board of the school district shall not adopt
a budget before the governing board of the school district adopts
a local control and accountability plan, if an existing local control
and accountability plan or annual update to a local control and
accountability plan is not effective for the budget year. The
governing board of a school district shall not adopt a budget that
does not include the expenditures necessary to implement the local
control and accountability plan or the annual update to a local
control and accountability plan that is effective for the budget year.

(B) (i) Commencing with budgets adopted for the 2016-17
fiscal year, the governing board of a school district that proposes
to adopt a budget that includes unassigned ending balances in the
school district’s general fund and special reserve fund for other
than capital outlay projects that are in excess of the minimum
recommended reserve for economic uncertainties adopted by the
state board pursuant to subdivision (a) of Section 33128 shall, at
the public hearing held pursuant to paragraph (1), provide all of
the following for public review and discussion:

(I) The minimum recommended reserve for economic
uncertainties for each fiscal year identified in the budget.

(II) The unassigned ending balances in the school district’s
general fund and special reserve fund for other than capital outlay
projects that are in excess of the minimum recommended reserve
for economic uncertainties for each fiscal year identified in the
budget.

(III) A statement of reasons explaining the unassigned ending
balances in the school district’s general fund and special reserve
fund for other than capital outlay projects that are in excess of the
minimum recommended reserve for economic uncertainties for
each fiscal year that the school district identifies any unassigned
ending fund balances that are in excess of the minimum
recommended reserve for economic uncertainties, as identified
pursuant to subclause (II).

(ii) Commencing with the 2016-17 fiscal year, the governing
board of a school district shall adopt a policy establishing
procedures for reporting the fund balances as reflected in the school
district’s governmental fund financial statements. The policy shall
outline how the school district’s fund balances are intended to
ensure that adequate financial resources are available to address
revenue shortfalls, unanticipated expenditures, planned future
one-time expenses, and any other financial or educational needs
of the district. The policy shall include a requirement for an annual
report to the governing board of the school district in a public
meeting at the same meeting as budget adoption.

(C) The governing board of a school district shall include the
information required pursuant to subparagraph (B) in its budgetary
submission at the time it files an adopted begin insert or revised end insert budget with
the county superintendent of schools. The information required
pursuant to subparagraph (B) shall be maintained and made
available for public review.

(b) The county superintendent of schools may accept changes
in any statement included in the budget, pursuant to subdivision
(a), of the amount or portion for which a property tax levy shall
not be made. The county superintendent of schools or the county
auditor shall compute the actual amounts to be levied on the
property tax rolls of the school district for purposes that exceed
apportionments to the school district pursuant to Chapter 6
(commencing with Section 95) of Part 0.5 of Division 1 of the
Revenue and Taxation Code. Each school district shall provide all
data needed by the county superintendent of schools or the county
auditor to compute the amounts. On or before August 15, the
county superintendent of schools shall transmit the amounts
computed to the county auditor who shall compute the tax rates
necessary to produce the amounts. On or before September 1, the
county auditor shall submit the rate computed to the board of
supervisors for adoption.

(c) The county superintendent of schools shall do all of the
following:

(1) Examine the adopted budget to determine whether it
complies with the standards and criteria adopted by the state board
pursuant to Section 33127 for application to final local educational
agency budgets. The county superintendent of schools shall
identify, if necessary, technical corrections that are required to be
made to bring the budget into compliance with those standards
and criteria.

(2) Determine whether the adopted budget will allow the school
district to meet its financial obligations during the fiscal year and
is consistent with a financial plan that will enable the school district
to satisfy its multiyear financial commitments. In addition to his
or her own analysis of the budget of each school district, the county
superintendent of schools shall review and consider studies, reports,
evaluations, or audits of the school district that were commissioned
by the school district, the county superintendent of schools, the
Superintendent, and state control agencies and that contain
evidence that the school district is showing fiscal distress under
the standards and criteria adopted in Section 33127 or that contain
a finding by an external reviewer that more than 3 of the 15 most
common predictors of a school district needing intervention, as
determined by the County Office Fiscal Crisis and Management
Assistance Team, are present. The county superintendent of schools
shall either conditionally approve or disapprove a budget that does
not provide adequate assurance that the school district will meet
its current and future obligations and resolve any problems
identified in studies, reports, evaluations, or audits described in
this paragraph.

(3) Determine whether the adopted budget includes the
expenditures necessary to implement the local control and
accountability plan or annual update to the local control and
accountability plan approved by the county superintendent of
schools.

(4) Verify that the school district complied with the requirements
of subparagraphs (B) and (C) of paragraph (2) of subdivision (a).

(d) (1) On or before September 15, the county superintendent
of schools shall approve, conditionally approve, or disapprove the
adopted budget for each school district. For the 2014-15 fiscal
year and each fiscal year thereafter, the county superintendent of
schools shall disapprove a budget if the county superintendent of
schools determines that the budget does not include the
expenditures necessary to implement a local control and
accountability plan or an annual update to the local control and
accountability plan approved by the county superintendent of
schools. If the governing board of a school district does not submit
a budget to the county superintendent of schools, the county
superintendent of schools shall develop, at school district expense,
a budget for that school district by September 15 and transmit that
budget to the governing board of the school district. The budget
prepared by the county superintendent of schools shall be deemed
adopted, unless the county superintendent of schools approves any
modifications made by the governing board of the school district.
The budget prepared by the county superintendent of schools shall
also comply with the requirements of subparagraph (B) of
paragraph (2) of subdivision (a). The approved budget shall be
used as a guide for the school district’s priorities. The
Superintendent shall review and certify the budget approved by
the county superintendent of schools. If, pursuant to the review
conducted pursuant to subdivision (c), the county superintendent
of schools determines that the adopted budget for a school district
does not satisfy paragraph (1), (2), (3), or (4) of that subdivision,
he or she shall conditionally approve or disapprove the budget
and, not later than September 15, transmit to the governing board
of the school district, in writing, his or her recommendations
regarding revision of the budget and the reasons for those
recommendations, including, but not limited to, the amounts of
any budget adjustments needed before he or she can approve that
budget. The county superintendent of schools may assign a fiscal
adviser to assist the school district to develop a budget in
compliance with those revisions. In addition, the county
superintendent of schools may appoint a committee to examine
and comment on the county superintendent of schools’ review and
recommendations, subject to the requirement that the committee
report its findings to the county superintendent of schools no later
than September 20.

(2)  Notwithstanding any other provision of this article, for the
2014-15 fiscal year and each fiscal year thereafter, the budget
shall not be adopted or approved by the county superintendent of
schools before a local control and accountability plan or update to
an existing local control and accountability plan for the budget
year is approved.

(3) If the adopted budget of a school district is conditionally
approved or disapproved pursuant to paragraph (1), on or before
October 8, the governing board of the school district, in conjunction
with the county superintendent of schools, shall review and respond
to the recommendations of the county superintendent of schools
at a regular meeting of the governing board of the school district.
The response shall include any revisions to the adopted budget
and other proposed actions to be taken, if any, as a result of those
recommendations.

(e) On or before October 22, the county superintendent of
schools shall provide a list to the Superintendent identifying all
school districts for which budgets may be disapproved.

(f) (1) The county superintendent of schools shall examine the
revised budget as provided in paragraph (3) of subdivision (d) to
determine whether it (A) complies with the standards and criteria
adopted by the state board pursuant to Section 33127 for
application to final local educational agency budgets, (B) allows
the school district to meet its financial obligations during the fiscal
year, (C) satisfies all conditions established by the county
superintendent of schools in the case of a conditionally approved
budget, (D) is consistent with a financial plan that will enable the
school district to satisfy its multiyear financial commitments, and,
not later than November 8, shall approve or disapprove the revised
budget, and (E) whether the revised budget complies with the
requirements of subparagraph (B) of paragraph (2) of subdivision
(a). If the county superintendent of schools disapproves the budget,
he or she shall call for the formation of a budget review committee
pursuant to Section 42127.1, unless the governing board of the
school district and the county superintendent of schools agree to
waive the requirement that a budget review committee be formed
and the department approves the waiver after determining that a
budget review committee is not necessary. Upon the grant of a
waiver, the county superintendent of schools immediately has the
authority and responsibility provided in Section 42127.3. Upon
approving a waiver of the budget review committee, the department
shall ensure that a balanced budget is adopted for the school district
by December 31. If no budget is adopted by December 31, the
Superintendent may adopt a budget for the school district. The
Superintendent shall report to the Legislature and the Director of
Finance by January 10 if any school district, including a school
district that has received a waiver of the budget review committee
process, does not have an adopted budget by December 31. This
report shall include the reasons why a budget has not been adopted
by the deadline, the steps being taken to finalize budget adoption,
the date the adopted budget is anticipated, and whether the
Superintendent has or will exercise his or her authority to adopt a
budget for the school district.

(2) Notwithstanding any other law, for the 2014-15 fiscal year
and each fiscal year thereafter, if the county superintendent of
schools disapproves the budget for the sole reason that the county
superintendent of schools has not approved a local control and
accountability plan or an annual update to the local control and
accountability plan filed by the governing board of the school
district pursuant to Section 52070, the county superintendent of
schools shall not call for the formation of a budget review
committee pursuant to Section 42127.1.

(g) Not later than November 8, the county superintendent of
schools shall submit a report to the Superintendent identifying all
school districts for which budgets have been disapproved or budget
review committees waived. The report shall include a copy of the
written response transmitted to each of those school districts
pursuant to paragraph (1) of subdivision (d).

(h) Not later than 45 days after the Governor signs the annual
Budget Act, the school district shall make available for public
review any revisions in revenues and expenditures that it has made
to its budget to reflect the funding made available by that Budget
Act.

(i) Any school district for which the county board of education
serves as the governing board of the school district is not subject
to subdivisions (c) to (h), inclusive, but is governed instead by the
budget procedures set forth in Section 1622.

SEC. 2.  

Section 42127.01 of the Education Code is amended
to read:

42127.01.  

(a) In a fiscal year immediately after a fiscal year
in which a transfer is made into the Public School System
Stabilization Account, a school district budget that is adopted begin insert or
revised end insert pursuant to Section 42127 shall not contain unassigned
ending balances in the school district’s general fund and special
reserve fund for other than capital outlay projects in excess of begin delete 17 end delete
begin insert 15 end insert percent of those funds.

(b) A county superintendent of schools shall grant a school
district under its jurisdiction an exemption from the requirements
of subdivision (a) for up to two consecutive fiscal years within a
three-year period if the school district provides documentation
indicating that extraordinary fiscal circumstances, including, but
not limited to, multiyear infrastructure or technology projects,
substantiate the need for unassigned ending balances in the school
district’s general fund and special reserve fund for other than
capital outlay projects in excess of the amount described in
subdivision (a).

begin delete

(c) Each county superintendent of schools shall adopt a policy
establishing the procedures for submitting exemption requests and
the criteria by which the county superintendent of schools shall
determine whether extraordinary fiscal circumstances exist.

end delete begin insert

(c) The governing board of a school district, at budget adoption
and as part of the reports required in Article 3 (commencing with
Section 42130), shall report in a public meeting its assigned and
unassigned fund balances in the school district’s general fund and
special reserve fund for other than capital outlay projects. The
report shall include a description of the amounts and intended
purpose for each assignment of funds, the date or time period when
those funds are expected to be expended, and any changes from
the previous report.

end insert

(d) This section shall not apply to school districts with fewer
than 2,501 units of average daily begin delete attendance or to basic aid school
districts, defined as those school districts that do not receive
funding from the state pursuant to Section 42238.02 or 42238.03. end delete

begin insert attendance. end insert

SEC. 3.  

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.