BILL ANALYSIS �
AB 609
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Date of Hearing: May 27, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 609 (Swanson) - As Amended: May 11, 2011
Policy Committee: Education
Vote:8-2
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill releases Oakland Unified School District (OUSD) from
paying any fines or penalties imposed as a result of audits
performed by the State Controller (part of the emergency loan
requirements) in any fiscal year between June 16, 2003 and June
28, 2009.
FISCAL EFFECT
1)Loss of GF/98, federal, or special fund proceeds from audit
findings, of at least $3.25 million, to release OUSD from
paying fines and penalties, as specified. This includes $2.7
million OUSD has paid and a minimum of $550,827, pending
resolution of an audit appeal. This cost could increase
significantly when the State Controller (SC) finishes audits
for the 2007-08 and 2008-09 FYs. The proceeds of an audit
finding become unappropriated funds to schools, which may be
GF/98, federal, or special funds depending on the funding
source of the audit violation.
According to the State Department of Education (SDE), OUSD has
paid approximately $2.7 million in penalties, disallowances,
and fines for audits conducted for the 2002-03 through the
2006-07 FY. In addition, the district is currently appealing
an audit finding for the 2006-07 FY, which may result in an
additional penalty between $550,827 and $1.3 million. The SC
has yet to release audit findings for the 2007-08 and 2008-09
FYs. It is likely that when these findings are released OUSD
may owe additional fines and penalties in the hundreds of
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thousands to low millions.
2)As of July 2010, OUSD's emergency loan balance is $73.6
million. In 2003, the school district chose to utilize only
$65 million of the original $100 million appropriation.
However, in June 2006, OUSD drew down the remaining $35
million. To date, the district has paid $35.6 million on its
loan, with an annual payment of approximately $6 million.
3)OUSD received a "qualified" certification of its financial
status at the 2010-11 First Interim Report (January 15) issued
by the State Department of Education (SDE). This "qualified"
certification is given to a local education agency that may
not meet its financial obligations in the 2010-11, 2011-12, or
2012-13 fiscal years (FYs), as determined by the Fiscal Crisis
Management and Assistance Team (based on current revenue
projections). The second interim report is due to SDE by April
15 of each year; however, additional time is needed for SDE to
certify the report.
COMMENTS
1)Purpose . SB 39 (Perata), Chapter 14, Statutes of 2003,
appropriated $100 million for an emergency loan to OUSD and
required the Superintendent of Public Instruction (SPI) to
assume all the rights, duties, and powers of the governing
board of OUSD and appoint an administrator to serve during the
term of the loan.
Current law, as part of the emergency loan process, requires
the SC to conduct an audit of the school district for each FY
it receives loan apportionments and each FY thereafter.
Statute also requires the school district to bear the cost of
the audit.
OUSD, sponsor of this bill, argues it should not be required
to pay audit fines and penalties because at the time the
audits were conducted, a state administrator, placed by the
SPI, was in charge of the district, including all financial
matters.
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According to OUSD, "These fines do nothing to ensure proper
governance or accounting in the district, and only make it
harder for us to 'get back on our feet' as we work to rebuild.
�This bill] is a common sense bill that holds OUSD
responsible for all corrections by the SC audits while simply
relieving the district of unintended fines that have also
resulted, inadvertently, from this oversight."
2)Status of OUSD governance . Beginning in 2007, the SPI
gradually returned powers and duties to OUSD in areas of
facilities, personnel, community relations, and governance. In
December 2008, the governing board was given authority over
the remaining two areas: pupil achievement and financial
management. OUSD has hired a superintendent; however, a state
trustee remains in the district.
3)AB 1200, Chapter 1213, Statutes of 1991 established a process
that delineates the duties and responsibilities of both the
state and the school district when emergency loans need to be
granted to school districts due to insolvency. Chapter 1213
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.
As of July 2010, there are five school districts (excluding
OUSD) that have an outstanding emergency loan balance with the
state: Emery Unified School District ($903,000), Kings City
Joint Union High School District ($14.3 million), Vallejo City
Unified School District ($45.5 million), West Contra Cost
Unified School District ($10.6 million), and West Fresno
Unified School District ($550,000).
4)Related legislation . AB 677 (Skinner), pending on the
Assembly Floor, reestablishes OUSD's authority, from January
1, 2012 to June 30, 2016, to sell surplus property and use the
proceeds from the sale to reduce or retire its emergency loan.
Analysis Prepared by : Kimberly Rodriguez / APPR. / (916)
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