BILL ANALYSIS
SB 130
Page 1
Date of Hearing: July 1, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
SB 130 (Denham) - As Amended: May 6, 2009
Policy Committee: Education
Vote:10-1
Urgency: Yes State Mandated Local Program:
Yes Reimbursable: Yes
SUMMARY
This bill appropriates $5 million for an emergency loan to the
King City Joint Union High School District (KCJU District) and
authorizes an additional $8 million of lease financing through
the California Infrastructure and Economic Development Bank
(I-Bank). It also requires the Superintendent of Public
Instruction (SPI) to assume all the rights, duties, and powers
of the governing board of KCJU District and, in consultation
with the Monterey County Superintendent of Schools, to appoint
an administrator to serve in the district, as specified.
Specifically, this bill:
1)Requires the SPI and the state administrator to maintain
control of the district until specified provisions are met,
including: one fiscal year has elapsed and the administrator
determines that future compliance by KCJU District with the
improvement plan is probable; the SPI has approved all
recovery plans and the Fiscal Crisis Management Assistance
Team (FCMAT) completes the improvement plan; the state
administrator certifies that all necessary collective
bargaining agreements are consistent with the terms of the
recovery plans; and the SPI determines that future compliance
by the district with the recovery plan is probable.
2)Requires FCMAT to provide assistance to the state
administrator in the development of the first annual multiyear
financial recovery plan and adopted budget, as specified.
This bill also requires FCMAT to recommend to the SPI any
studies or activities that should be undertaken by the state
administrator to enhance revenue or achieve cost savings.
SB 130
Page 2
3)Requires KCJU District to bear 100% of all costs associated
with implementing this measure, including the activities of
FCMAT. This bill also requires FCMAT to continue assisting
the district until it is certified as positive (as determined
through the annual local budget process) or until all legal
rights, duties, and powers are returned to KCJU's governing
board (whichever is first).
FISCAL EFFECT
Appropriates $5 million from the GF to the SPI for apportionment
to KCJU District, as specified. This allocation is in the 2009
Budget Act and it is expected to be reimbursed to the GF within
one year via the sale of bonds by I-Bank. This bill authorizes
KCJU District to augment the $5 million emergency loan with an
additional $8 million of lease financing through the I-Bank in
order to increase the emergency loan to a total of no more than
$13 million. Also, this measure authorizes funds to be
disbursed from the proceeds of the loan only if the state
administrator and FCMAT jointly determine that the disbursement
is necessary to support the immediate cash flow needs of the
district.
SUMMARY CONTINUED :
4)Requires the improvement plan for personnel management to
include training for members of KCJU District's governing
board in fiscal management from the California School Boards
Association, as specified. This measure requires FCMAT, after
it completes its first written report, to file subsequent
reports annually, as determined by the SPI.
5)Requires the State Controller, for each year that loan
apportionments are disbursed to the district, to conduct an
audit of the district's books and accounts, as specified.
This bill also requires the costs of these audits to be borne
by KCJU District.
6)Requires KCJU District to repay the emergency loan as a
straight line loan amortized over a 20-year term. This
measure also requires the loan amount to be repaid by the
district, plus interest calculated at a rate equal to the rate
SB 130
Page 3
earned by the PMI on the date this bill becomes effective, for
a period not to exceed 20 years.
7)Requires KCJU District to enter into a lease financing
agreement with I-Bank for the purpose of financing the
emergency apportionment, including a repayment to the GF of
the $5 million appropriated in this bill. This bill also
authorizes the lease financing agreement to include funds
necessary for reserves, capitalized interest, credit
enhancements, and costs of issuance.
8)Authorizes the school district to sell property owned by the
district and use the proceeds from the sale to reduce or
retire the emergency loan, provided that the district will be
ineligible for financial hardship assistance under the state
school facilities program from June 1, 2009 to June 30, 2014.
COMMENTS
1)Background . KCJU District, located in Monterey County,
enrolled 2,184 pupils in four schools in 2007-08.
In 2001, KCJU District negotiated a collective bargaining
agreement with certificated staff based on a formula-driven
calculation. After the enactment of this agreement, a dispute
arose between the district and the bargaining unit over how
this formula was calculated. Subsequently, the bargaining
unit filed a complaint in June 2002 with the Pubic Employee
Relations Board (PERB) alleging that KCJU District
unilaterally changed policies related to the formula
calculation.
In February 2004, an administrative law judge ruled in favor
of the certificated bargaining unit and ordered KCJU to
recalculate the formula, which resulted in the district owing
approximately $5.2 million to certificated staff. The
bargaining unit and the district negotiated a lower settlement
amount of $1.2 million.
In order to pay the $1.2 million settlement obligation, KCJU
received a loan from the Monterey County Board of Education in
June 2007, with the condition that the Monterey County Office
of Education (MCOE) be required to provide fiscal oversight
regarding the district's ability to repay the loan.
SB 130
Page 4
Since this period of time, KCJU District has experienced
severe fiscal and administrative staff turnover that has
contributed to its inability to adequately manage its
finances. Likewise, MCOE reports "the district developed a
recent pattern of large deficit spending starting in the
2006-07 fiscal year (FY) after the implementation of the PERB
settlement."
In 2008-09, KCJU District's GF second interim report (required
as part of the local budget process) revealed that revenues
for the district are at $17.5 million. Expenditures, however,
are reported at $21.4 million, a $3.9 million deficit. FCMAT
reports the district will experience a GF shortfall of $7.7
million by the 2009-10 FY and $12.33 million in the 2010-11
FY.
2)Current law . Due to school districts becoming financially
insolvent, the state developed a process (AB 1200, Chapter
1213, Statutes of 1991) that outlines the duties and
responsibilities of both the state and school districts when
emergency loans need to be granted to districts. The process
provides that if the state makes a loan to a school district
the SPI shall assume all legal rights, duties, and powers of
the governing board of the school district. The SPI may
appoint an administrator to act on his or her behalf in
exercising specified authority over the district and may, on a
short-term basis, assign any staff necessary to assist the
administrator. The following table details the current school
districts with outstanding emergency loans.
-------------------------------------------------------
SB 130
Page 5
Analysis Prepared by : Kimberly Rodriguez / APPR. / (916)
319-2081