BILL ANALYSIS
AB 1377
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Date of Hearing: May 6, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 1377 (Swanson) - As Amended: April 22, 2009
Policy Committee: Education
Vote:6-1
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill requires the Superintendent of Public Instruction
(SPI) to allow a school district under receivership (where a
trustee has been appointed and a financial audit is conducted) a
period of 180 days from the date upon which the final audit
report is received to implement corrections before the district
is required to repay or to pay a penalty arising from an audit
finding, as specified. Specifically, this bill:
1)Requires the school district to only be liable for the part of
the audit exception or finding remaining after corrections
were made (based on an initial audit finding) by the district
within the 180 day period.
2)Specifies the school district is only required to repay
penalties of audit findings that are determined to be from the
fiscal year (FY) the district received its emergency loan or
the prior FY.
3)Determines the "clock" for the 180 days begins on the date the
school district receives a final audit report, as specified.
FISCAL EFFECT
Loss of GF/98 funding, likely between $900,000 and $1.4 million,
to limit the amount of repayments based on audit findings by a
school district that receives an emergency loan, as specified.
According to the State Department of Education (SDE), the first
audit conducted by the State Controller (SC) on Oakland Unified
School District (OUSD) in 2002-03 disallowed $32 million GF/98.
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After completing the appeals process, OUSD final repayment total
was reduced to approximately $900,000 GF/98.
In 2003-04, the SC conducted an audit of Vallejo City Unified
School District (VCUSD) based on statute governing school
districts that receive an emergency loan. The initial audit
disallowed $4.4 million GF/98. SDE reports that $1 million
GF/98 of the total disallowed funds is still under appeal and
other findings were resolved or paid. Therefore, VCUSD owes the
state a total of $1.4 million GF/98 based on audit findings.
COMMENTS
1)Purpose . Due to school districts becoming financially
insolvent, the state developed a process (AB 1200, Chapter
1213, Statutes of 1991) that outlined the duties and
responsibilities of both the state and school districts when
emergency loans need to be granted to districts. The process
provides that if the state makes a loan to a school district
the SPI shall assume all legal rights, duties, and powers of
the governing board of the school district. The SPI may
appoint an administrator to act on his or her behalf in
exercising specified authority over the district and may, on a
short-term basis, assign any staff necessary to assist the
administrator.
When a school district receives an emergency loan, existing
law requires the SC to conduct an audit of the district's
accounts and books in the FY the district received the loan
apportionment and each FY thereafter. The costs of the audits
are borne by the school district. Statute further requires
the audits to continue until the SC, in consultation with the
SPI, determines that the district is financially solvent, as
specified.
If the SC issues an audit finding that requires the district
to repay funding or pay a penalty, the district must comply.
The repayments or penalties may be made as a direct payment to
the state or the state can offset the district's future GF/98
apportionment payments.
Prior to payment, the school district has the following
options to respond to the audit findings: seek a waiver from
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the State Board of Education; request a summary review of the
Education Audit Appeals Panel (EAAP); appeal to the EAAP; take
the case to the Office of Administrative Hearings; request a
repayment plan; and make corrections to information provided
to the SC on which the audit was based.
According to the author, "According to recent reports by
districts that have entered receivership in the last ten
years, these audit findings often uncover the same
irregularities repeated over the course of several years. Each
instance is treated as a separate 'finding', and the district
is fined for each of these irregularities accordingly. These
penalties can accumulate to levels that further jeopardize the
district's recovery, as well as the State's investment in the
district." This bill revises the audit process for school
districts with an emergency loan in order to limit repayments
and penalties, as specified.
2)Current school districts with an outstanding emergency loan .
According to the Fiscal Crisis Management Team, there are five
school districts with outstanding emergency apportionments in
the state (see table below). This bill would apply to all
school districts that have received an emergency loan.
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aAmounts in millions
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Analysis Prepared by : Kimberly Rodriguez / APPR. / (916)
319-2081