BILL ANALYSIS
AB 1874
Page 1
Date of Hearing: March 24, 2010
ASSEMBLY COMMITTEE ON EDUCATION
Julia Brownley, Chair
AB 1874 (Evans) - As Introduced: February 16, 2010
SUBJECT : Education finance: Vallejo City Unified School
District
SUMMARY : Extends the time period within which Vallejo City
Unified School District (VCUSD) is authorized to sell district
owned property and use the proceeds to reduce or retire its
emergency loan from the state. Specifically, this bill :
1)Repeals the authority for VCUSD to sell property owned by the
district and use the proceeds to reduce or retire its
emergency loan from the state between June 1, 2004, and July
1, 2010.
2)Authorizes VCUSD to sell such property and so use the proceeds
from January 1, 2011, through January 1, 2015.
3)Deems VCUSD to be ineligible for financial hardship assistance
under the School Facility Program from January 1, 2011 through
January 1, 2015.
EXISTING LAW :
1)Requires that emergency loans to districts in fiscal crisis be
provided by legislative appropriation.
2)Requires, upon a district's acceptance of a loan exceeding 200
percent of a district's recommended reserve, that the
Superintendent of Public Instruction (SPI) assumes all the
legal rights, duties and powers of the district governing
board, authorizes the SPI to appoint an administrator to act
on his or her behalf, and requires that the district governing
board become advisory to the administrator.
3)Authorizes a $60 million emergency loan to VCUSD, and triggers
the SPI assumption of powers and appointment of a state
administrator in the district.
4)Authorizes VCUSD, between June 1, 2004 and July 1, 2010, to
sell surplus property and to use the proceeds from the sale to
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reduce or retire the emergency loan; also deems VCUSD to be
ineligible for hardship assistance under the School Facility
Program during the same period.
FISCAL EFFECT : Increased ability on the part of VCUSD to repay
the state for its emergency loan.
COMMENTS : In February 2004, VCUSD became aware of a negative
general fund year-end balance for the 2002-03 fiscal year and of
potential deficits in its 2003-04 budget. The district was
projected to run out of cash in June of 2004. Despite immediate
reductions in the 2003-04 fiscal year and actions to reduce the
district budget for 2004-05 by more than $7.5 million, the
district was projected to continue to have a negative fund
balance in the 2003-04 fiscal year of approximately $27 million
and was projected to have a negative fund balance at the
conclusion of the 2004-05 fiscal year.
Senate Bill 1190 (Chesbro), Chapter 53, Statutes of 2004, signed
into law on June 21, 2004, requires the SPI to assume all the
legal rights, duties and powers of the Governing Board of the
Vallejo City Unified School District (VCUSD) and to appoint, in
consultation with the Solano County Superintendent of Schools,
an administrator to act on his behalf in exercising authority
over the school district. The bill appropriates $60 million as
an emergency loan to the Vallejo City USD, and authorizes the
school district, between June 1, 2004 and July 30, 2007, to sell
any properties owned by the district and to use the proceeds
from the sale to reduce or retire the emergency loan. The bill,
except as specified, requires the school district to bear the
costs associated with the implementation of the bill's
provisions, and prohibited the district from being eligible for
financial hardship assistance under the state's School Facility
Program from June 2004 through June 2006.
The district drew down $50 million of the $60 million state loan
authorized by SB 1190 on June 23, 2004, within two days of the
signing of the legislation. A State Administrator was appointed
by the Superintendent of Public Instruction on June 23, 2004 and
started full-time in the district in July 2004. The district
drew down the remaining $10 million of the $60 million
authorized loan amount on May 29, 2007, placing those funds in a
special reserve fund to be used only for the payment of
unresolved audit findings. The district has indicated that it
plans to pay off this portion of the loan within a few years, or
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earlier, if pending audit findings are resolved.
In June 2007, the SPI, consistent with recommendations made by
the Fiscal Crisis Management Assistance Team (FCMAT), returned
three of five operational areas, Community Relations/Governance,
Student Achievement, and Personnel Management, to the control of
the local governing board; the areas of Financial Management and
Facilities Management remained under the control of the State
Administrator. Partial control over Facilities Management was
returned to the governing board in December 2008; the State
Administrator retained control over the sale of surplus property
and specified leases. Three months after the initial return of
control to the governing board, the district hired a
superintendent; within two years that superintendent was
released, though the district continues to be liable for salary
and benefit payments under that individual's contract through
the end the current fiscal year. An interim superintendent,
subsequently elevated to Superintendent in February 2010, now
serves the district. The district continues to face outstanding
fiscal issues including unpaid and unresolved audit findings,
declining enrollment, and loss of revenue due to state budget
actions; according to the author, "Since the State takeover, the
school district has made over $31 million in budget reductions
on a base unrestricted General Fund budget of $95 million. This
amount includes $11 million in reductions made in the current
year budget?"
VCUSD was one of nineteen school districts in the state that
received a negative certification of its financial status at the
2008-09 Second Interim Report provided by the California
Department of Education; the district continued to be certified
negative at the 2009-10 First Interim Report. A negative
certification is assigned to a school district or county office
of education when it is determined that, based upon current
projections, the school district or county office of education
will not meet its financial obligations for the current or
following fiscal year.
As noted above, the school district has had the authority,
between June 1, 2004 and July 1, 2010, to sell property owned by
the district and to use the proceeds from the sale to reduce or
retire the emergency loan. VCUSD made use of this authorization
in 2006 to sell an 18 acre parcel, known as the Rollingwood
property, to KB Home for a minimum price of $17 million (the
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price was set as a minimum in that it could have increased over
time depending on revenues generated by the developer, with the
district sharing up to $23.5 million from any increased
proceeds, based on a specified formula). Payments on this sales
agreement were to be made as the developer moved through the
City approval process. Two payments of $3 million each were
made to the district; however, KB Home defaulted on this
agreement on June 23, 2008. At this time, the status of this
sale remains uncertain; after attempts at mediation, the
district is now pursuing legal action to either force payment of
the balance of funds by KB Home or to clarify that the district
retains clear title. At the same time, KB Home is seeking to
recover the $6 million already paid. The district also has
plans for future sales of property, including four parcels that
the district has moved toward sale and development over the last
three years, additional unused portions of sites, and the
possibility of consolidating and selling surplus school sites
resulting from continued and projected future declining
enrollment.
If this bill is enacted, the proceeds of these future sales will
be used to reduce or retire the remaining emergency loan balance
($48.3 million as of the start of the current fiscal year).
There is precedent in extending the authorization on the sale of
property for districts in order to allow those districts to
reduce the balance of their emergency loans. SB 512 (Committee
on Education), Chapter 677, Statutes of 2005, extended Oakland
Unified School District's (OUSD) authority to sell property
owned by the district and to use the proceeds from the sale to
reduce or retire their emergency loan. Existing law at the time
provided this authority to OUSD from June 1, 2003, to June 30,
2005; SB 512 extended this authorization for OUSD to June 30,
2007. In the same way, AB 1948 (Evans), Chapter 636, Statutes
of 2008, extends VCUSD's authority to sell property owned by the
district and to use the proceeds from the sale to reduce or
retire the emergency loan through July 1, 2010. This bill
proposes to further extend this authority to the period between
January 1, 2011 and January 1, 2015.
It should also be noted that under the budget flexibility
provisions enacted by AB 2 X4 (Evans), Chapter 2, Statutes of
2009-10 Fourth Extraordinary Session, all school districts are
currently authorized through January 1, 2012, to sell surplus
property not purchased with state funds and to use the proceeds
from such a sale for any one-time general fund purpose.
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Committee amendments : Committee staff recommends, and the
author has accepted, the following amendments:
1)Move the ending date of this authorization for VCUSD to June
30, 2015 rather than January 1, 2015. Since this
authorization is fiscal in nature, ending the authority at the
end of a fiscal year makes administrative sense.
2)Extend the requirement that proceeds received in a later
fiscal year from sales of property made between June 1, 2004
and July 1, 2010 be used to reduce or retire VCUSD's emergency
loan; currently this bill inadvertently repeals that
requirement. This can be accomplished by amending the bill to
also include the past term of authorization and requirements,
as well as the extended term (June 1, 2004 through June 30,
2015).
3)Clarify that under the provisions of this bill, the district
will be ineligible for hardship assistance under the School
Facility Program pursuant to Article 8 of Chapter 12.5 of Part
10, and not financial hardship assistance .
Previous legislation : AB 1948 (Evans), Chapter 636, Statutes of
2008, extends VCUSD's authority to sell property owned by the
district and to use the proceeds from the sale to reduce or
retire the emergency loan through July 1, 2010. SB 1190
(Chesbro), Chapter 53, Statutes of 2004, appropriates $60
million for an emergency loan to VCUSD, requires the
Superintendent of Public Instruction to assume all the rights,
duties, and powers of the governing board of the district and to
appoint an administrator to serve during the term of the loan.
AB 1554 (Keene), Chapter 263, Statutes of 2004, requires that
existing emergency loans for the West Contra Costa Unified
School District (WCCUSD), Oakland Unified School District (OUSD)
and VUSD, be refinanced through I-Bank, with any difference
between interest paid on the existing loans and the costs of
refinancing those loans paid by the state. AB 1303 (Daucher),
Chapter 97, Statutes of 2005, revises statutes and terms
pertaining to the lease financing that the state is using to
replace General Fund financing of school district emergency
loans.
SB 512 (Committee on Education), Chapter 677, Statutes of 2005,
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extended Oakland Unified School District's (OUSD) authority to
sell property owned by the district and to use the proceeds from
the sale to reduce or retire their emergency loan. Existing law
at the time provided this authority to OUSD from June 1, 2003,
to June 30, 2005. This bill extended the time period during
which OUSD was thus authorized to June 30, 2007. SB 39
(Perata), Chapter 14, Statutes of 2003, provides Oakland Unified
School District with a $100 million loan; a state administrator
was appointed in the district, an administrator is still serving
in that capacity. AB 38 (Reyes), Chapter 1, Statutes of 2002,
provides a $2 million emergency loan to West Fresno Elementary
School District; a state administrator was appointed in the
district.
REGISTERED SUPPORT / OPPOSITION :
Support
Superintendent of Public Instruction Jack O'Connell (Sponsor)
Opposition
None on file
Analysis Prepared by : Gerald Shelton / ED. / (916) 319-2087