BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
130 (Denham)
Hearing Date: 05/11/2009 Amended: 05/06/2009
Consultant: Dan Troy Policy Vote: ED 9-0
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BILL SUMMARY: SB 130, an urgency measure, would appropriate $5
million from the General Fund to the King City Joint Union High
School District (KCJUHSD) as an emergency loan and specify
procedures for the repayment of the loan. Additionally, the
bill would authorize the district to augment the emergency loan
with an additional $8 million of lease financing to effectively
increase the loan to $13 million. The bill would require the
district to enter into a lease financing arrangement through the
California Infrastructure and Economic Development Bank for the
purpose of financing the emergency apportionment, including a
restoration of the initial General Fund apportionment. The bill
would authorize the district to sell property and use the
proceeds to reduce or retire the loan, and would make the
district ineligible for financial hardship assistance under the
Leroy F. Greene Facilities Act of 1998.
The bill would also provide that through the request by KCJUHSD
for the emergency loan, that all legal rights, duties, and
powers of the district's governing board shall be assumed by the
Superintendent of Public Instruction who, in consultation with
the Monterey county superintendent, shall appoint an
administrator to act on his behalf. The bill would specify
circumstances under which powers may be returned to the district
governing board.
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Fiscal Impact (in thousands)
Major Provisions 2008-09 2009-10 2010-11 Fund
Emergency Loan $5,000 General
I-Bank lease financing ($5,000) General
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
In 1992, the Richmond Unified School District (now the West
Contra Costa Unified School District) announced that it would
close its schools 6 weeks early due to financial hardship. The
court (Butt v. State of California, 1992) ruled that the state
constitution and previous case law made the state ultimately
responsible for ensuring that public education was equitably
provided to all California students. As a result of the court
ruling, the state provided an emergency loan to the district
(ultimately totaling $28.5 million) in order to keep the doors
open and assigned a trustee to oversee the district.
Subsequent legislation has established a process for districts
in this situation in which a request for an emergency loan
results in the forfeiture of local school board authority in
favor of a state administrator appointed by the Superintendent
of Public Instruction (SPI). The board may regain control of
responsibilities based on district progress
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SB 130 (Denham)
measured against recovery benchmarks and the SPI's determination
that the district's future compliance with approved recovery
plans is probable. Districts that have received emergency loans
after Richmond are: Coachella Valley USD ($7.3M), Compton USD
($19.9M), Emery USD ($1.3M), West Fresno ESD ($1.3M), Oakland
USD ($100M), and Vallejo City USD ($60M).
According to information provided by the Fiscal Crisis
Management and Assistance Team (FCMAT), which has been involved
with the district since last October, and the Monterey County
Superintendent of Schools, the King City Joint Union High School
District has had longstanding fiscal difficulties that date back
to a formula-driven salary and benefits package negotiated in
2000-01. Apparently, the district did not fully understand the
implications of the agreement, which led to disputes between
management and the bargaining unit as to what salary payments
were owed. Ultimately, the disputes went to an Administrative
Law Judge which sided with the bargaining unit, a judgment
affirmed by PERB Board in 2005. This judgment found that the
district owed $5.2 million in back pay to employees. The
parties ultimately agreed to a $1.2 million payment to settle
the issue in 2007. Payment of this amount, however, required
the district to borrow funds from the Monterey County Board of
Education. The district has been in fiscal peril ever since
that time, too frequently leading to the reduction or leaving
vacant of key administrative positions (the CBO position went
unfilled for 6 months, at one point) or leaving responsibilities
in the hands of those with insufficient qualifications or
experience to adequately handle the job.
In February of 2008, a county fiscal advisor identified $3.9
million of reductions which would bring the district's budget
into balance. Of that amount, $2.8 million required negotiating
new agreements with bargaining units.
Earlier this year, the district negotiated a tentative 3-year
Memorandum of Understanding (MOU) with the local teachers
association. While the MOU reduced some of the district's
expected cost obligations over that 3-year timeframe, it was
clearly insufficient to bring the district's budget into
balance. Regardless, the district governing board ratified the
MOU in March. The decision was stayed by the county office, so
the ongoing effect is that the district has expenditure
obligations that cannot be met with it's anticipated revenues.
For the 2008-09 fiscal year, the district is $3.9 million out of
balance, and, left unabated, the deficit will grow to $7.6
million and $12.3 million over the next two years.
Once the emergency loan is accepted by the district, the SPI
will assume all legal rights, duties, and powers of the
governing board. In accordance with both statute and recent
practice, this bill specifies actions to be taken by the SPI,
including the appointment of an administrator to act on his
behalf, the development of district recovery plans, working with
the district staff and governing board to identify procedures
and programs that will improve district performance in key
areas, and maintain core educational reforms to the extent
allowed by district finances. This bill also includes a
provision requiring the consideration of consolidating the
district with the King City Elementary School District and other
district in the high school's attendance area.
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SB 130 (Denham)
The bill also assigns a significant role for the Fiscal Crisis
and Management Assistance Team (FCMAT) in assisting with and
measuring the district's progress toward recovery. FCMAT would
be required to produce an improvement plan and provide at least
two reports identifying the district's progress in implementing
those plans. FCMAT would also provide assistance to the
appointed state administrator in developing the multiyear
recovery plan and the district's budget and interim reports.
The bill also provides that the State Controller's Office shall
be responsible for conducting the district's annual audits until
the Controller determines, in consultation with the SPI, that
the district is financially solvent.
By appropriating $5 million to the district, this bill will
result in an immediate loss to the General Fund. Given this
bill's urgency clause, staff assumes the cost will occur in the
current fiscal year, though the timing is dependent on when the
bill is signed into law. By requiring the district to enter
into a lease financing arrangement through the California
Infrastructure and Economic Development Bank (I-Bank) for the
purpose of financing the emergency apportionment, it is
anticipated that the state's initial appropriation will be
restored, likely in the 2009-10 fiscal year. The lease
financing arrangement allows for the sale of bonds backed by the
district's facilities to repay the $5 million to the state and
to provide up to an additional $8 million for the district.
Bonds are repaid with interest through an intercept of the
district's general apportionment. This arrangement has been to
finance (or refinance) the loans made to Oakland, Vallejo, and
West Contra Costa.