BILL ANALYSIS
AB 1476
Page 1
Date of Hearing: April 29, 2009
ASSEMBLY COMMITTEE ON EDUCATION
Julia Brownley, Chair
AB 1476 (Cook) - As Amended: April 16, 2009
SUBJECT : School facilities: material inaccuracies
SUMMARY : Requires the State Allocation Board (SAB) to, upon a
finding by the Superintendent of Public Instruction (SPI) that
repayment of funds for committing material inaccuracy has caused
or will cause a school district an extreme financial hardship,
extend the repayment period by an additional period of up to
five years, based on a school district repayment plan approved
by the Superintendent.
EXISTING LAW :
1)Requires, under the Leroy F. Greene School Facilities Act of
1998, the SAB to allocate to applicant school districts,
prescribed per-unhoused-pupil state funding for construction
and modernization of school facilities, including hardship
funding, and supplemental funding for site development and
acquisition.
2)Prohibits the SAB from apportioning funds to any school
district unless the applicant school district has certified to
the SAB that it has obtained the written approval of the
California Department of Education (CDE) that the site
selection, and the building plans and specifications comply
with the standard adopted by the CDE.
3)Specifies that if any certified eligibility or funding
application related information is found to have been falsely
certified by school districts, architects or design
professionals, referred to as a material inaccuracy, the
Office of Public School Construction (OPSC) shall notify the
SAB and the SAB shall require repayment of the funds along
with interest at the rate paid on moneys in the Pooled Money
Investment Account or at the highest rate of interest for the
most recent issue of state general obligation bonds within no
more than five years. Requires the SAB to prohibit the school
district from self certifying certain project information for
any subsequent applications for project funding for up to five
years following the date of the finding of material
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inaccuracy.
FISCAL EFFECT : Unknown
COMMENTS : Background . The School Facility Program (SFP) is
administered by the SAB, comprised of ten members, and provides
state education bond funding to local educational agencies
(LEAs) for the construction of new school facilities and
modernization or rehabilitation of existing school facilities.
The SFP prescribes procedures and eligibility for funding,
including a required 50% match for new construction projects and
40% match for modernization funding. Prior to an apportionment,
a LEA is required to first obtain approval from the CDE, to
ensure that the site selected is safe and conducive to learning
(e.g., the school will not be built near high-voltage power
transmission lines or high-pressure natural gas lines) and the
building specifications support the school's education plan, and
the Division of State Architect, to ensure that the
architectural design plans meet fire, life and safety
requirements; Field Act requirements; and access requirements
under the Americans with Disability Act. The SFP also
prescribes specified timelines to ensure progress is made on the
proposed project, including timeframes for submission of various
forms.
The SFP utilizes a process whereby the applicant LEA self
certifies that it meets certain requirements. The information
certified by the applicant LEA is verified by the OPSC during
the closeout audit at the conclusion of the project. During the
closeout audit, if the OPSC discovers that a district's
certifications are not consistent with actual actions, it must
provide notification to the SAB of potential material
inaccuracy.
Material Inaccuracy . SFP regulation defines a material
inaccuracy as any falsely certified application that allowed a
district an advantage in the funding process. In other words,
due to the certification of the applicant that it had met
various requirements and timelines, an apportionment was made
and the applicant received funds it was not eligible to receive,
or funds were released prematurely. A LEA applicant need not
have committed the false certification intentionally in order to
be charged with a material inaccuracy. Material inaccuracy is a
statement of fact. If funds had been disbursed to the
applicant, current law requires the SAB to require repayment
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within five years, with interest. There is no financial penalty
if no funds had been disbursed. Since statute does not specify
how to calculate the interest penalty, the SAB has discretion to
determine the appropriate interest calculation. The SAB is
currently deliberating the adoption of policy on that issue.
Since the inception of the SFP in 1998, seven districts have
been found to have committed material inaccuracies. In March,
2004, Fresno Unified School District (FUSD) agreed, in a written
agreement, to pay the state $3 million in interest penalty for
material inaccuracies. In 2008, the district filed a lawsuit
against the SAB charging that the SAB calculated their interest
penalty for a longer duration than the interest penalty
calculated for districts since March, 2004. Specifically,
FUSD's interest penalty was calculated from the time the
district received funds prematurely to the time the SAB took
action in March, 2004. Other districts have been assessed a
penalty calculated from the time the district received funds
prematurely to the time it met statutory requirements. It is
unclear which of the seven districts have outstanding payments
to the state currently.
This bill is sponsored by Val Verde Unified School District
(District), located in Riverside county, which was found to have
committed material inaccuracy when it failed to disclosed
certificates of participation (COP), a form of lease purchasing
using property as collateral, when it applied for and received
financial hardship funding from the SFP. Districts are eligible
for financial hardship, which provides up to 100% project
funding, when they are found to be unable to provide local
matching funds. The SAB, at its September 2007 meeting,
directed the District to repay, within five years, $11.8 million
for funds it would not have received had the District disclosed
the COP funds and $674,560 in interest, calculated from the date
of the apportionment through the September 2007 board meeting.
The District had filed a lawsuit against the SAB charging that
the grant levels for school facilities funding are inadequate
and therefore the District was justified in using COPs to make
up funding needs. The courts found the lawsuit unjustified.
According to the author, the District paid the first payment of
$3 million in March 2008. However, the District has been unable
to pay the next scheduled payment of $2.9 million that was due
on March 14, 2009. The District has filed an appeal with the
SAB, which has not yet been scheduled for a SAB hearing, but it
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is unlikely the SAB will be able to provide assistance, as the 5
years repayment period is a statutory requirement. The author
states, "The District cannot make the current repayment schedule
due to a convergence of fiscal factors that have had a severe
impact on the District's budget for the foreseeable future. The
District board recently self-certified a 'negative' 2009-10
budget, based upon state budget criteria that require such a
certification if a district is unable to meet its budget
obligations over a three-year budget cycle."
According to the District, the District has severe budget
problems partially due to a significant and unanticipated
decline in enrollment (570 students over the last 18 months) and
a sharp drop in developer fees (from several million dollars
annually to only $100,000 in the current year) due to the
housing crisis. The District also has $87 million in
outstanding COP debt. State deferrals and budget cuts
exacerbated the fiscal conditions. The District is working
closely with the Riverside County Office of Education to develop
solutions to keep the district solvent, including severe staff
layoffs. The Riverside County Office of Education concurred
with the District's negative budget self certification on April
15, 2009.
Current law requires a county superintendent of schools to
determine whether he/she agrees with a district's self
certification of "positive, qualified, or negative." A district
has a positive certification when it is anticipated to meet its
financial obligations for the current fiscal year and subsequent
two fiscal years. A district has a qualified certification when
the school district may not meet its financial obligations for
the current fiscal year or two subsequent fiscal years. A
negative certification means that the district is unable to meet
its financial obligations for the remainder of the fiscal year
or the subsequent fiscal year.
This bill requires the SAB to extend the repayment period by up
to another five years, based on a school district repayment plan
approved by the SPI, upon a finding by the SPI that the
repayment has caused, or will cause, the school district an
extreme financial hardship.
Committee amendments . The SFP is administered by the SAB and
the authority to extend repayments beyond five years should
remain with the SAB. Staff recommends deleting the proposed
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language in the bill and instead authorize the SAB to extend the
repayment period for up to five years under the following
conditions:
1)The county office of education has assigned the district
seeking a repayment extension a negative budget certification;
and,
2)The SAB finds that the district has no available capital
facilities funds for repayment.
Arguments in Support . The Riverside County Superintendent of
Schools states, "AB 1476 would ensure that the state receives
its full repayment with full interest as calculated over the
longer time window. It will give the SAB the latitude to
structure such repayments to optimize LEA ability to duly meet
their repayment obligations without undue harm to educational
programs and local fiscal stability. Finally, this change
addresses the state's overarching interest in protecting the
state general fund from the state costs associated with
districts that struggle with insolvency, especially in difficult
economic times."
REGISTERED SUPPORT / OPPOSITION :
Support
Kenn Young, Riverside County Superintendent of Schools
Opposition
None on file
Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087