BILL ANALYSIS
SB 130
Page 1
Date of Hearing: June 24, 2009
ASSEMBLY COMMITTEE ON EDUCATION
Julia Brownley, Chair
SB 130 (Denham) - As Amended: May 6, 2009
SENATE VOTE : 30-3
SUBJECT : King City Joint Union High School District
SUMMARY : Creates an urgency statute that appropriates five
million dollars ($5,000,000) and authorizes lease financing up
to thirteen million dollars ($13,000,000) as an emergency loan
for the King City Joint Union High School District (KCJUHSD).
Specifically, this bill :
1)Makes findings and declarations regarding KCJUHSD's impending
insolvency.
2)States legislative intent to provide emergency appropriation
assistance to KCJUHSD in line with current law, unless
otherwise specified.
3)Requires that the Superintendent of Public Instruction (SPI)
assume all rights, duties, and powers of the KCJUHSD 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 a minimum of 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 required recovery plans,
and the County Office Fiscal Crisis and Management
Assistance Team (FCMAT) completes the improvement plans
required under current law and has completed at least two
annual reports on district progress in implementing the
improvement plans.
c) The state administrator certifies that collective
bargaining agreements have been ratified, consistent with
the recovery plans.
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d) KCJUHSD has completed all reports required by the SPI
and the state administrator.
e) The state administrator certifies that the members of
the school board and specified district personnel have
successfully completed training required by this bill.
4)Authorizes the SPI to return power to the governing board for
each of the functions of financial management, pupil
achievement, personnel management, facilities management or
community relations, if performance under the recovery plan
for that area has been demonstrated to the satisfaction of the
SPI.
5)States legislative intent that, within the fiscal constraints
of the district, the SPI and the state administrator:
a) Bring about comprehensive reform in the areas of pupil
achievement, attendance, dropout rates, parent involvement,
teacher quality, fiscal management and program evaluation,
and report these findings to the education committees of
both houses of the Legislature.
b) Consider the unification of KCJUHSD with the King City
Elementary School District, with any other school district
within the general attendance area, or both.
6)Specifies the duties, consistent with current law, of FCMAT
with respect to KCJUHSD, and provides that the district shall
bear 100 percent of the costs associated with the activities
of FCMAT.
7)Specifies that the required improvement plan for personnel
management includes, with all costs borne by KCJUHSD, training
for:
a) Members of the governing board, including training in
their fiduciary responsibilities as board members and in
financial management practices; at a minimum this is
required to include governance training provided by the
California School Boards Association.
b) All personnel with management, policymaking or advisory
responsibilities, who report directly to the state
administrator, to ensure they have the knowledge and skills
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to effectively administer their areas of responsibility.
8)Appropriates five million dollars ($5,000,000) from the
General Fund to the SPI for this emergency loan, and specifies
that the funds 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.
9)Requires KCJUHSD to enter into a lease financing agreement
with the California Infrastructure and Economic Development
Bank (I-Bank) for not less than the amount necessary to repay
the General Fund for the funds appropriated in this act, and
not more than thirteen million dollars ($13,000,000); requires
the district to repay the General Fund appropriation, and
allows the additional lease financing funds to be used for
reserves, capitalized interest, credit enhancements, and costs
of issuance. Also requires the I-Bank to issue bonds for this
purpose with a term of lease not to exceed 20 years, with the
possibility of a 10 year extension under specified
circumstances.
10)Requires the State Controller (SCO), his or her designee, or
an auditor selected by the district and approved by the SCO
conducts an audit of the books and accounts of the district
for the fiscal year in which the emergency apportionments are
disbursed and for each fiscal year until the SCO and SPI
determine that the district is solvent; this audit is to be
conducted in lieu of the required annual school district
audit.
11)Establishes the emergency loan as a straight line loan, and
requires KCJUHSD to repay the loan over 20 years with interest
calculated at the rate earned by the state's Pooled Money
Investment Account on the date these provisions are enacted;
also authorizes the district to repay this obligation on a
faster repayment schedule without prepayment penalty.
12)Authorizes the SCO to withhold the amount of any defaulted
payment as an offset against the next available payment of
state funds to KCJUHSD, and authorizes the Director of Finance
to amend the loan's payment schedule if the director concludes
that the amendment is warranted and is in the best interests
of both the state and the district; requires the Director of
Finance to give 90-day notice to the Joint Legislative Budget
Committee in this event.
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13)Authorizes the district, between June 1, 2009 and June 30,
2012, to sell property owned by the district and use the
proceeds from the sale to reduce or retire the emergency loan,
and makes KCJUHSD ineligible for financial hardship assistance
under the state's school facilities program from June 1, 2009
to June 30, 2014, inclusive.
EXISTING LAW :
1)Establishes a process for state oversight and financial
assistance for school districts in financial trouble.
2)Authorizes the governing board of a school district that
determines that its revenues are insufficient to meet its
current year obligations to request an emergency apportionment
(loan) from the state through the SPI.
3)Requires that the acceptance of an emergency loan that exceeds
two hundred percent of a district's recommended reserve
constitutes agreement by the school district to specified
conditions, including the following:
a) The SPI assumes all the legal rights, duties, and powers
of the governing board of the district, and is authorized
to appoint an administrator to act on behalf of the SPI.
b) The school district governing board becomes advisory
only.
c) The State Controller (SCO), his or her designee, or an
auditor selected by the district and approved by the SCO
conducts an audit of the books and accounts of the district
for the fiscal year in which the emergency apportionments
are disbursed, in lieu of the required annual school
district.
d) The authority of the SPI and the state-appointed
administrator continues until specified conditions have
been met, including SPI determination that future
compliance with recovery plans is probable.
FISCAL EFFECT : Appropriates five million dollars ($5,000,000) in
General Fund to initially fund an emergency loan; also requires
the district to secure lease financing up to thirteen million
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dollars ($13,000,000), the first five million of which would
repay the General Fund. The loan would be repaid with interest
over 20 years.
COMMENTS : As a result of court decisions (see Butt v. State of
California, 1992) placing the ultimate responsibility for
ensuring the equitable provision of public education to all
pupils, including those in financially failing school districts,
and the resulting early experiences with districts on the verge
of insolvency, the state developed a process for providing
financial oversight to school districts, and for providing
financial assistance and financial recovery to school districts
in financial trouble. This process is commonly referred to as
the AB 1200 process - a reference to the initial authorizing
legislation, AB 1200 (Eastin), Chapter 1213, Statutes of 1991.
The potential end result of this process, the granting of an
emergency loan to the school district and the requirement that
the district accept accompanying conditions including assumption
of control of the district by the SPI and the completion of a
SCO conducted audit, has been reached in seven cases: Vallejo
City Unified School District (USD), Oakland USD, West Fresno
Elementary School District (ESD), Emery USD, Compton USD,
Coachella Valley USD, and West Contra Costa (formerly Richmond)
USD. In many other cases the oversight, advice and assistance
provided by county offices of education and other fiscal
advisors under the AB 1200 process has been sufficient to pull
the school district out of immediate financial trouble and to
provide time for the governing board of the district to take
those actions necessary to begin a return to a more stable
fiscal condition.
KCJUHSD is located in Monterey County, and has an enrollment of
approximately 2,100 pupils in three high schools and one
continuation school. More than 86% of the district's enrollment
is Hispanic, and 36% are English Learners. The district has a
2008 base Academic Performance Index (API) of 635; of the two
schools with a valid API, one is in statewide Rank 2, the other
in Rank 3. 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 $10,000
balance, well below the district's 3% reserve requirement of
approximately $500,000. The district's 2008-09 General Fund
Second Interim Report revenues were projected to be $17,464,958,
but expenses were projected to be $21,358,833, which yields a
total General Fund deficit projected at <$3,893,875> in the
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current year. KCJUHSD, along with 15 other school districts
including King City Union Elementary School District, received a
negative budget certification earlier this year, meaning that
projections showed that the district will not meet its financial
obligations for the 2008-09 or 2009-10 fiscal year. 74
districts received a qualified certification, meaning that the
district may not meet its financial obligations in the 2008-09,
2009-10, or 2010-11 fiscal years. Budget circumstances for
school districts have worsened as this year has progressed.
KCJUHSD's current fiscal problems can be traced back to 2001-02,
when a dispute developed over a formula driven compensation
schedule for teachers that had existed since 1987 and that had
been renegotiated in 2000-01. This dispute led to a complaint
and decision issued by the state Public Employment Relations
Board (PERB) that awarded back pay to staff amounting to
approximately $5.2 million dollars, including interest. The
district and the local bargaining unit subsequently reached a
$1.2 million settlement over this dispute, which PERB approved
in February 2007; the settlement agreement also guaranteed cost
of living adjustments on the salary schedule in future years.
The cost of this settlement agreement was paid with the proceeds
of a $1.2 million loan from the Monterey County Office of
Education (MCOE) to the district; the loan was authorized by the
County Board of Education in June 2006, but not dispersed until
after the PERB approval of the settlement.
From 2006 to 2008, the district also experienced significant
staffing issues, particularly in the key positions of
Superintendent and Chief Business Officer; the district had both
rapid turnover and long-term vacancies in both of these
positions. This appears to have acted to inhibit any fiscal
reform that the district might have undertaken in order to
improve its financial standing; this staffing problem was
exacerbated by the fact that these administrative positions have
responsibilities to both KCJUHSD and the King City Union
Elementary School District.
As a result of deepening budget problems stemming from the
settlement agreement and inaction with respect to addressing
budget problems, the MCOE declared KCJUHSD to not be a "going
concern" in December of 2007, assigned a negative certification
to the district's budget, and assumed a more active role in the
fiscal issues of the district pursuant to the county office of
education's responsibilities as defined by AB 1200. Part of
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this role included establishing FCMAT as a fiscal advisor to the
district, and facilitating the identification of budget
reductions by a budget advisory committee. Separately, the
district negotiated budget reductions with the local bargaining
unit representing teachers, and these parties developed a
tentative agreement to make these reductions in February 2009.
On February 25, 2009, the Monterey County Superintendent of
Schools wrote to the president of the KCJUHSD governing board,
stating that the amount of reductions proposed in the tentative
agreement was not sufficiently adequate, and that the MCOE did
not support approval of the Agreement; the district governing
board took action on March 2, 2009 to approve the tentative
agreement. On March 3, 2009, the County Superintendent, under
authorities granted by AB 1200, ordered a stay of the governing
board's decision until information prepared by the District
could be evaluated, and issued an extension of that stay on
March 17, 2009, in order to consider additional information
provided by the district and the California Teachers
Association; the County Superintendent stated that additional
review was particularly necessary in light of the state's, and
thus the district's, deteriorating revenue picture. On May 8,
2009, the County Superintendent notified the KCJUHSD governing
board that, "I am hereby rescinding the Board's action approving
the tentative agreement/MOU.", and also stated that, "I believe
that this action is necessary to reasonably ensure the District
will have a continued ability to further reduce District
expenditures so they are realistically in line with revenues.
Further I believe that this action is necessary and appropriate
to ultimately achieve the District's fiscal solvency."
The district's General Fund exhausted all cash reserves at the
end of February 2009; however, temporary borrowing from the
district's (capital) building fund, which had a balance of
approximately $3.6 million, has been used to support the general
fund. These funds must be repaid to the state Office of Public
School Construction in 2009-10. The MCOE approval to borrow from
the building fund was predicated on repayment of the temporary
loans from the first draw of an emergency appropriation. The
district is projected to borrow $3.3 million from the building
fund by June 30, 2009 in order to end this fiscal year with a
minimum cash balance of $202,000 in the general fund.
Looking forward into 2009-10, FCMAT projects that the district,
in the absence of significant realignment of its operating
expenditures, will require a minimum of $7 million before June
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2010 in order to repay the temporary loans and close the 2009-10
year with a minimal cash balance. FCMAT's cash flow projection
for 2009-10 does not incorporate additional cash deferrals or
funding reductions that impact current or budget year projected
revenues and that may result from state budget actions taken in
the near future in response to the state's current fiscal
situation.
This bill makes use of current law and practice that has evolved
through the seven previous cases where an emergency loan has
been granted to a fiscally troubled school district. The bill
appropriates five million dollars ($5,000,000) in General Fund
to effectively serve as bridge funding to allow KCJUHSD to
remain solvent into the 2009-10 fiscal year and until the
district is able to enter into a lease financing agreement with
the I-Bank for not less than the amount necessary to repay the
General Fund for the funds appropriated in this act, and not
more than thirteen million dollars ($13,000,000). The full
amount of the emergency loan, up to this thirteen million dollar
cap, is required to be used to repay the state's General Fund
appropriation, repay the temporary loans from the district's
building fund approved by the MCOE, and remain solvent under the
control of the SPI and the state administrator. During all of
this time the district's fiscal situation will be monitored by
the MCOE and FCMAT, which will provide specified reports. As in
the other recent cases where an emergency loan was granted, the
SPI will return control of the district to the local governing
board in a phased manner, as the district proves its ability to
return from insolvency and meets various conditions specified in
this legislation and current statute.
Previous legislation: SB 1190 (Chesbro), Chapter 53, Statutes of
2004, appropriated $60 million for an emergency loan to Vallejo
City Unified School District, and requires the SPI to assume all
the rights, duties, and powers of the governing board of the
district; this is the most recently approved emergency loan.
The table below shows previous legislation providing emergency
loans. AB 1554 (Keene), Chapter 263, Statutes of 2004, requires
that existing emergency loans for the West Contra Costa USD,
Oakland USD and Vallejo City USD 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
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emergency loans. AB 1200 (Eastin), Chapter 1213, Statutes of
1991, established the AB 1200 process for fiscal oversight of
school districts.
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| School District | Legislation | Loan Authorized |
|--------------------+---------------------------+-----------------|
|Vallejo City |SB 1190, Ch.53, Stat. of | $60,000,000 |
|Unified |2004 | |
|--------------------+---------------------------+-----------------|
|Oakland Unified |SB 39, Ch.14, Stat. of | $100,000,000 |
| |2003 | |
|--------------------+---------------------------+-----------------|
|West Fresno |AB 38, Ch 1, Stat. of 2003 | $2,000,000 |
|Elementary | | |
|--------------------+---------------------------+-----------------|
|Emery Unified |AB 96, Ch.135, Stat. of | $2,300,000 |
| |2001 | |
|--------------------+---------------------------+-----------------|
|Compton Unified |AB 657, Ch.78, Stat. of | $19,951,259 |
| |1993; amended by AB 1708, | |
| |Ch.924, Stat. of 1993 | |
|--------------------+---------------------------+-----------------|
|Coachella Valley |SB 1278, Ch.59, Stat. of | $7,300,000 |
|Unified |1992 | |
|--------------------+---------------------------+-----------------|
|Richmond Unified / |AB 1202, Ch.171, Stat. of |$28,525,000 |
|West Contra Costa |1990 | |
|Unified | | |
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REGISTERED SUPPORT / OPPOSITION :
Support
California Teachers Association
Opposition
None on file
Analysis Prepared by : Gerald Shelton / ED. / (916) 319-2087
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