BILL ANALYSIS
SENATE COMMITTEE ON EDUCATION
Gloria Romero, Chair
2009-2010 Regular Session
BILL NO: SB 130
AUTHOR: Denham
AMENDED: April 13, 2009
FISCAL COMM: Yes HEARING DATE: April 29, 2009
URGENCY: Yes CONSULTANT: James Wilson
SUBJECT : Emergency Loan: King City High School District
SUMMARY
This bill, an urgency measure, appropriates thirteen
million dollars ($13,000,000) from the State General Fund
to the Superintendent of Public Instruction (SPI) for
apportionment as an emergency loan to the King City Joint
Union High School District, and transfers authority over
the district from its board of trustees to the SPI who is
required to appoint an administrator for the district..
BACKGROUND
Current law requires that emergency loans be provided by
legislative appropriation and that acceptance of a loan
that exceeds 200% of a district's recommended reserve
requires that the State Superintendent of Public
Instruction (SPI) to assume all the legal rights, duties
and powers of the district governing board. The SPI may
appoint an administrator to act on behalf of the SPI and
the district governing board becomes advisory to the
administrator.
.
The King City Union High School District has about 2,000
pupils attending three high schools and one continuation
school. The district had 2007-08 revenues of $19 million
and expenditures of $20.7 million. A beginning balance of
$1.7 million allowed the district to end the year with a
$10 thousand balance. The district's reserve requirement
(3%) should be close to $500 thousand. The Monterey County
Office of Education declared the King City Joint Union High
School District to not be a "going concern" in December of
2007, and the district was projected to run out of cash in
March 2009.
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In order to provide an emergency loan that exceeds 200
percent of the district's reserve, current law requires the
SPI to assume all the legal rights, duties, and powers of
the governing board. The SPI then appoints a state
administrator to act for SPI and the local board becomes
advisory to the state administrator. The authority of the
SPI and state administrator continues until specified
benchmarks are achieved, allowing the SPI to appoint a
trustee to replace the administrator. Under a trustee the
district board regains its authority, but the trustee has
the authority to stay and rescind any action of the board.
The authority of the SPI and the state-appointed trustee
continues until the loan has been repaid, the district has
adequate fiscal controls in place and the SPI determines
that the district's future compliance with the fiscal plan
approved for the district is probable.
ANALYSIS
This bill, an urgency measure , appropriates thirteen
million dollars ($13,000,000) from the State General Fund
to the Superintendent of Public Instruction (SPI) for
apportionment to the King City Joint Union High School
District for the purpose of an emergency loan. And further:
1) Provides that in order to qualify for the loan, the
district shall comply with current law except as
otherwise specified in the bill.
2) Requires that the SPI assume all rights, duties, and
powers of the King City governing board and appoint a
state administrator, in consultation with the county
superintendent, and provides for the authority of the
SPI and the state administrator to continue until all
of the following occur:
a) After one year, the state administrator and
the SPI determine that future compliance by the
district with recovery plans is probable.
b) The SPI has approved all of the recovery
plans legally required.
c) The County Office Fiscal Crisis and
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Management Assistance Team (FCMAT) completes the
improvement plans required under current law, and
has completed at least two reports on district
progress in implementing the improvement plans.
d) The state administrator certifies that
collective bargaining agreements have been
ratified, consistent with the recovery plans.
e) The King City district has completed all
reports required by the SPI and the state
administrator.
f) The state administrator certifies that the
members of the school board and specified
district personnel have successfully completed
the training specified by this bill (see #6
below).
3) The SPI may return power to the governing board for
any of the following five areas if performance under
the recovery plan for that area has been demonstrated
to the satisfaction of the SPI.
a) Financial management.
b) Pupil achievement.
c) Personnel management.
d) Facilities management.
e) Community relations.
4) Declares intent that the Superintendent of Public
Instruction (SPI) and state administrator work with
the district to do all of the following:
a) Improve achievement, attendance, dropout
rates, and parent involvement.
b) Attract and retain quality teachers, and
manage fiscal resources.
c) Maintain core educational reforms that will
lead to improvement of academic achievement.
d) Consider the unification of the King City
Joint Union High School District with the King
City Elementary School District, or any other
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school district within the general attendance
area.
5) Specifies the duties of the County Office Fiscal
Crisis and Management Assistance Team (FCMAT) and
provides that the district shall bear 100 percent of
the costs associated with the activities of the FCMAT.
6) Provides that the improvement plan for personnel
management should include training for:
a) Members of the governing board including
training in their fiduciary responsibilities as
board member and in financial management
practices provided by the California School
Boards Association.
b) All personnel with management, policymaking,
and advisory responsibilities who report directly
to the state administrator, to ensure they have
the knowledge and skills to effectively
administer their areas of responsibility.
7) Provides that the emergency loan may be disbursed only
if the state administrator and FCMAT jointly determine
that it is necessary to support the immediate cash
flow needs of the district.
8) Requires that an annual audit of the books and
accounts of the district be conducted consistent with
current law but provides that the county
superintendent may allows the Controller to conduct
the audit, or select a local auditor from the
directory of certified public accountants deemed
qualified by the Controller to conduct audits of local
educational agencies.
9) Requires the King City Joint Union High School
District to repay the emergency loan amortized over a
20-year term, including the usual interest calculated
at a rate equal to the rate earned by the Pooled Money
Investment Account in the state treasury.
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10) Requires the district to enter into lease financing
with the California Infrastructure and Economic
Development Bank for the purpose of financing the
emergency loan.
11) Provides that the Director of Finance may amend the
payment schedule if the director concludes that the
amendment is warranted and is in the best interests of
both the state and the district, provided that the
Director of Finance gives 90-day notice to the Joint
Legislative Budget Committee.
12) From June 1, 2009, to June 30, 2012, authorizes the
district to sell property owned by the district and
use the proceeds from the sale to reduce or retire the
emergency loan
STAFF COMMENTS
1) Mandated costs . The Legislative Counsel has found
that this bill imposes new duties, and thus state
mandated costs, on the County Office Fiscal Crisis and
Management Assistance Team (FCMAT). This mandate is
identified even though no reimbursement is required
for the King City High School District because the
district requested the bill.
2) Financing the emergency loan . As with previous
emergency loan's, this measure proposes to advance $13
million from the State General Fund and then reimburse
the General Funds with lease financing through the
state's Infrastructure Bank . Given the state's dire
fiscal condition at this time, it seems prudent to
minimize the impact on the General Fund. Therefore
staff recommends amendments to reduce the initial
appropriation from the General Fund to $5 million,
which should be sufficient to allow the district to
close out the 2008-2009 fiscal and school year. This
General Fund portion of the loan would then be
reimbursed with Infrastructure Bank financing and an
additional $8 million, providing the balance of the
$13 million estimated to be needed for the emergency
loan, could be financed directly from the
Infrastructure Bank.
3) Controller audit. One provision of the bill
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[subdivision (d) of Section 8], supersedes current law
by authorizing the county superintendent to choose to
have the annual audit of the district be conducted by
either the State Controller, or any CPA chosen from
the list of local auditors certified to perform school
district audits. The Controller's office is
sufficiently concerned about the potential loss of
state oversight over the emergency loan that the
Controller took the rare step of issuing a letter
declaring their intent to oppose the bill unless it is
amended to restore the current law practice of having
the Controller conduct the audits, or choose an
auditor. Staff recommends that subdivision (d) of
Section 8 of the bill be amended to cross reference
current law (subdivision (d) of EC Sec 41320.1) so
that the Controller may either conduct the audit or
choose the auditor.
SUPPORT
California Teachers Association
OPPOSITION
None received.
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Proposed Amendments
SEC. 8. (a) The sum of five thirteen million
dollars ($5,000,000) ($13,000,000) is hereby appropriated
from the General Fund to the Superintendent of Public
Instruction for apportionment to the King City Joint Union
High School District for the purpose of an emergency loan.
In order to qualify for the loan, the district shall comply
with Article 2 (commencing with Section 41320) and Article
2.5 (commencing with Section 41325) of Chapter 3 of Part 24
of Division 3 of Title 2 of the Education Code to the
extent those provisions are consistent with the conditions
specified in this act.
(b) Funds may be disbursed from the proceeds of the loan
only if the administrator and the County Office Fiscal
Crisis and Management Assistance Team jointly determine
that the disbursement is necessary to support the immediate
cash flow needs of the district.
(c) Based on the needs of the district to meet its
obligations, the Superintendent of Public Instruction may
direct the Controller to disburse, on a monthly basis,
specific amounts of the emergency loan before the approval
of all of the conditions established by this act.
(d) For the fiscal year in which the loan moneys are
disbursed and each fiscal year thereafter, the county
superintendent of schools shall cause an audit to be
conducted of the books and accounts of the district, that
is consistent with the audit required by Section 41020 of
the Education Code. At the discretion of the county
superintendent, the audit may be conducted by the
Controller, or an
auditor selected by the county superintendent from the
directory of certified public accountants and public
accountants deemed by the Controller to be qualified to
conduct audits of local educational agencies, as provided
in paragraph (1) of subdivision (f) of Section 41020 of the
Education Code . The costs of the audit shall be paid by
the district. The audits shall be performed until the
Superintendent of Public Instruction, in consultation with
the county superintendent, determines that the district is
financially solvent
(d) For the fiscal year in which the apportionments are
disbursed and each year thereafter, the Controller, or his
or her designee, shall cause an audit to be conducted of
the books and accounts of the district, in lieu of the
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audit required by Section 41020 of the Education Code. At
the Controller's discretion, the audit may be conducted by
the Controller, his or her designee, or an auditor selected
by the district and approved by the Controller. The costs
of these audits shall be borne by the district. These
audits shall be required until the Controller determines,
in consultation
with the Superintendent, that the district is financially
solvent, but in no event earlier than one year following
the implementation of the plan or later than the time the
apportionment made is repaid, including interest.
SEC. 9. (a) The King City Joint Union High School
District shall repay the emergency loan incurred pursuant
to Section 8 of this act as a straight line loan amortized
over a 20-year term. This amount shall be repaid by the
district, plus interest calculated at a rate equal to the
rate earned by the Pooled Money Investment Account on the
date this act becomes effective, for a period not to exceed
20 years.
(b) If a required payment is not made within 60 days
after a scheduled date, the Controller shall pay the
defaulted loan payment of principal and interest by
withholding that amount from the next available payment
that would otherwise be made to the county treasurer on
behalf of the district pursuant to Section 14041 of the
Education Code. However, subject to the approval of the
Department of Finance, the amount withheld may be in
monthly amounts as determined by an agreement between the
King City Joint Union High School District and the
Controller during the period beginning with the next
available apportionment through the month preceding the
next scheduled payment.
(c) The school district shall enter into a lease
financing with the California Infrastructure and Economic
Development Bank for the purpose of financing the emergency
apportionment, including a repayment to the General Fund of
the amount advanced pursuant to Section 8 In addition to
the amount advanced pursuant to Section 8, the school
district may augment the emergency loan with an additional
eight million dollars of lease financing in order to
increase the emergency loan to a total of no more than
thirteen million dollars ($13,000.000). . In addition to
the emergency apportionment, the lease financing may
include funds necessary for reserves, capitalized interest,
credit enhancements and costs of issuance. The bank shall
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issue bonds for that purpose pursuant to the powers granted
pursuant to the Bergeson-Peace Infrastructure and Economic
Development Bank Act as set forth in Division 1 (commencing
with Section 63000) of Part 6.7 of the Government Code. The
term of the lease shall not exceed 20 years, except that if
at the end of the lease term any rent payable is not fully
paid, or if the rent payable has been abated, the term of
the lease shall be extended for a period not to exceed 10
years.
(d) The Director of Finance may amend the payment
schedule set forth in subdivision (a) if the director
concludes that the amendment is warranted and is in the
best interests of both the state and the King City Joint
Union High School District education program. Upon that
determination, the director shall notify the Joint
Legislative Budget Committee that the payment scheduled
will be changed on the date that is 90 days from the date
of notification if the Legislature is in session. If the
90-day period ends during a recess of the Legislature or
while the Legislature is not in session, the 90-day period
shall be extended until the Legislature reconvenes.
Amendments to the payment schedule shall defer the unpaid
portion of a repayment of the earliest fiscal year in which
no other repayment is scheduled. Interest shall accrue on
the unpaid portion of a
repayment from the scheduled due date until the time the
payment is actually made. The interest charge shall be the
rate equal to the daily investment rate of the Pooled Money
Investment Account on the date the pay schedule is changed.
(e) The school district may repay its loan obligation
without incurring any prepayment penalties.