BILL ANALYSIS �
AB 677
Page 1
Date of Hearing: April 13, 2011
ASSEMBLY COMMITTEE ON EDUCATION
Julia Brownley, Chair
AB 677 (Skinner) - As Introduced: February 17, 2011
SUBJECT : Education finance: Oakland Unified School District:
sale of surplus property
SUMMARY : Reestablishes and extends the time period within
which the Oakland Unified School district (OUSD) is authorized
to sell district owned property and use the proceeds to reduce
or retire its emergency loan from the state. Specifically, this
bill :
1)Reestablishes and extends the time period, through June 30,
2016 and with the same exemptions as historically provided,
within which the Oakland Unified School district (OUSD) is
authorized to sell district owned property and use the
proceeds to reduce or retire its emergency loan from the
state.
2)Makes OUSD ineligible for financial hardship assistance
facilities funding, through June 30, 2016.
3)Exempts OUSD, through June 30, 2016, from the requirement that
the district governing board appoint an advisory committee to
advise on the development of district-wide policies and
procedures governing the use or disposition of school
property, prior to the sale any excess real property.
EXISTING LAW :
1)Requires that emergency loans requested by a school district
in fiscal crisis be provided by legislative appropriation.
2)Requires upon a district's acceptance of an emergency loan
exceeding 200 percent of a district's recommended reserve that
the Superintendent of Public Instruction (SPI) assumes all the
legal rights, duties and powers of the district governing
board, authorizes the SPI to appoint an administrator to act
on his or her behalf, and requires that the district governing
board become advisory to the administrator.
3)Authorizes a $100 million emergency loan, with specified
AB 677
Page 2
conditions, to OUSD; also triggers the SPI assumption of
powers and appointment of a state administrator and eventually
a state trustee in the district.
FISCAL EFFECT : Both the Assembly and Senate Appropriations
Committees in analyses of a substantially similar bill relating
to another school district in 2008 commented that the ability of
the school district to repay the state's emergency
appropriation might be enhanced if the limit on the use of
proceeds from the sale of surplus property is extended as
proposed.
COMMENTS : This bill proposes to extend the time period within
which OUSD is authorized to sell district owned property and use
the proceeds to reduce or retire its emergency loan from the
state, and thus relax a condition that was placed on the
district as a part of OUSD's emergency loan from the state.
According to the author, "While OUSD has responsibly made
payments throughout the duration of the loan period, the State's
severe fiscal crisis and looming budget shortfalls for OUSD
necessitates that OUSD continue to have every tool available to
manage its budget and repay its emergency loan obligations."
Background on school district emergency loans: The granting of
an emergency loan to a 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 eight
cases; six of those loans still have outstanding balances. The
table below summarizes the status of emergency loans as reported
by the California Department of Education (CDE) on July 2, 2010.
----------------------------------------------------------------------
| District | Year |Loan authorized |Balance owed | Rate |
| | Authorized | | | |
|---------------+---------------+----------------+-------------+-------|
|King City | 2009 | up to | $5,000,000 | 1.00% |
|JUHSD | | $13,000,000| | |
|---------------+---------------+----------------+-------------+-------|
|Vallejo City | 2004 | $60,000,000| $45,480,517| 1.50% |
|USD | | | | |
|---------------+---------------+----------------+-------------+-------|
|Oakland USD | 2003 | $100,000,000| $73,754,847| 1.78% |
|---------------+---------------+----------------+-------------+-------|
|West Fresno | 2003 | $2,000,000| $549,988| 1.93% |
AB 677
Page 3
|ESD | | | | |
|---------------+---------------+----------------+-------------+-------|
|Emery USD | 2001 | $2,300,000| $902,924| 4.19% |
|---------------+---------------+----------------+-------------+-------|
|W. Contra | 1990 | $28,525,000| $10,627,181| 1.53% |
|Costa USD | | | | |
|---------------+---------------+----------------+-------------+-------|
|Compton USD | 1993 | $19,951,259| $0| n/a |
|---------------+---------------+----------------+-------------+-------|
|Coachella | 1992 | $7,300,000| $0|n/a |
|Valley USD | | | | |
----------------------------------------------------------------------
Once an emergency loan is made to a school district, the SPI
appoints an individual as the administrator over the district.
The state appointed administrator effectively functions as both
the district superintendent and the district governing board;
the district governing board stays in place, but is authorized
to act only in an advisory manner. Due to the nature of the
issues facing districts in this situation, as well as the large
state interest in the form of the outstanding emergency loan,
state-appointed administrators are charged with returning the
district to fiscal health and generally stay in place for a
number of years. There is an existing process in statute that
triggers a transitional return of powers to the local governing
board; however, even after the full return of powers to the
board a state presence, in the form of a state-appointed trustee
with stay and rescind powers, is kept in the district until the
emergency loan is fully repaid.
Background on OUSD's fiscal condition: According to OUSD in
2003, district officials became aware of a negative general fund
balance for the 2001-02 fiscal year, and of potential deficits
in its 2002-03 budget, in August 2001. The district projected at
the time that it would run out of cash in May of 2003 and be
unable to pay school employees. In 1999, OUSD had negotiated a
24.4% teacher salary increase to be phased in over three years,
and had also been, from 1999 to 2003, suffering declining
enrollment that translated to a loss of between $15 and $22
million in annual revenues. Despite making budget cuts for the
2002-03 fiscal year that the district believed would save
approximately $31 million, the district continued to project a
negative fund balance at the close of the 2002-03 fiscal year;
at that point the OUSD governing board requested an emergency
loan from the state.
AB 677
Page 4
SB 39 (Perata), Chapter 14, Statutes of 2003, appropriated $100
million for an emergency loan to OUSD, and required the SPI to
assume all the rights, duties, and powers of the governing board
of the district and to appoint an administrator to act on behalf
of the SPI in exercising authority over the school district. The
bill authorized the administrator, with the approval of the SPI,
to enter into agreements on behalf of the school district and to
change any existing district rules, policies, or practices, as
provided; the authority of the SPI and the administrator over
the school district were to continue until certain conditions
were met, including the completion of an improvement plan for
the district. The bill required the Kern County Office Fiscal
Crisis and Management Assistance Team (FCMAT) to prepare an
improvement plan for the school district by July 1, 2003, and to
report on the implementation of the plan in written progress
reports until September 2004; budget actions subsequently
extended these reports through 2008. The bill required the
district to repay the loan as a straight line loan amortized
over a 20-year term, with interest as provided, and required the
district, except as specified, to bear 100% of all costs
associated with implementing its provisions. In its Sixth
Progress Report issued in December 2008, FCMAT found that the
district had met the required conditions, and recommended that
the SPI consider returning the remaining operational areas to
control of the governing board. By mid-2009, the SPI had acted
on those recommendations from FCMAT and returned all operational
areas to the control of the OUSD governing board; a
state-appointed trustee remains in the district.
OUSD was one of 97 local educational agencies in the state that
received a qualified certification of its financial status at
the 2010-11 First Interim Report provided by the California
Department of Education. A qualified certification is assigned
to a school district or county office of education when it is
determined that, based upon current projections, the school
district or county office of education may not meet its
financial obligations for current or two subsequent fiscal
years. Thirteen school districts received a negative
certification, which is assigned to a school district or county
office of education when it is determined that, based upon
current projections, the school district or county office of
education will not meet its financial obligations for the
current and/or next fiscal year.
AB 677
Page 5
SB 39 also authorized OUSD, between June 1, 2003 and July 30,
2005, to sell surplus property owned by the district and to use
the proceeds from the sale to reduce or retire the emergency
loan; the bill also prohibited the district from being eligible
for financial hardship assistance under the state's school
facilities program over the same time period. This bill
proposes to re-establish these two provisions and extend them
through the 2015-16 fiscal year.
There are precedents for extending the authorization on the sale
of surplus property for districts with emergency loans. SB 512
(Committee on Education), Chapter 677, Statutes of 2005,
previously extended Oakland Unified School District's (OUSD)
authority to sell property owned by the district and to use the
proceeds from the sale to reduce or retire their emergency loan.
Existing law at the time provided this authority to OUSD from
June 1, 2003, to June 30, 2005; SB 512 extended this
authorization for OUSD to June 30, 2007. Similar extensions
were provided by the Legislature to Vallejo City Unified School
District (VCUSD) in AB 1874 (Evans), Chapter 147, Statutes of
2010, and 1948 (Evans), Chapter 636, Statutes of 2008.
This bill also exempts OUSD, during the same time period, from a
current requirement in Section 17388 of the Education Code that
the district governing board appoint an advisory committee to
provide the district with advice on the development of
district-wide policies and procedures governing the use or
disposition of school property; the appointment of this advisory
committee is required prior to the sale any excess real
property. Though previous legislation, as well as this bill,
extending the authority to sell district property in order to
pay down an emergency loan, have all exempted the district from
numerous requirements on the sale of that property (in the
interest of streamlining the process), none of that previous
legislation has included an exemption from the provision that
requires the appointment of a district advisory committee. This
Committee has long shown an interest in transparency and public
involvement in local governing board decisions; in addition, it
is clear, in OUSD as well as other districts, that school
closures and the sale of school property is an issue of great
interest to the community as a whole. An exemption from the
requirement to appoint an advisory board on these issues would
appear to be contrary to an interest in transparency and public
AB 677
Page 6
involvement in an issue of great community importance.
OUSD, however, has recently embarked on an effort to conduct a
complete inventory and analysis of all real property held by the
district. This effort has been transparent and inclusive, and
has included numerous opportunities for public input to be
provided in open, public meetings. This district/community
process will provide the informational foundation for decisions
on the sale of district property that might occur during the
period of time authorized by this bill. This process, and the
fact that any final decisions on property sales will have to be
made in an open, public meeting of the district governing board,
appears to meet the Legislative intent behind Section 17388 of
the Education Code - that the sale of district owned property be
done in a transparent manner that involves input from the
community.
According to OUSD, the district has no pending sales of district
property, but plans, in the context of continuing budget
reductions, to use the information developed through their
inventory and analysis process to determine whether property
sales would be a feasible tool to use both to pay down the
outstanding emergency loan balance and to deal with future
budget uncertainties.
Committee amendments : Committee staff recommends that,
consistent with the treatment of all existing statute governing
emergency appropriations made to school districts and the
conditions placed on those districts, the provisions of this
bill be uncodified.
Previous legislation :
AB 1874 (Evans), Chapter 147, Statutes of 2010, and 1948
(Evans), Chapter 636, Statutes of 2008, further extended the
authorization for the sale of surplus property for Vallejo City
Unified School District (VCUSD) for the purposes of repaying its
emergency loan. SB 512 (Committee on Education), Chapter 677,
Statutes of 2005; Section 51 of the annual Education Omnibus
bill extended Oakland Unified School District's (OUSD) authority
to sell property owned by the district and to use the proceeds
from the sale to reduce or retire their emergency loan.
Existing law at the time provided this authority to OUSD from
June 1, 2003, to June 30, 2005; this bill extended the time
period during which OUSD was thus authorized to June 30, 2007.
SB 39 (Perata), Chapter 14, Statutes of 2003, provides Oakland
AB 677
Page 7
Unified School District with a $100 million loan; a state
administrator was appointed in the district, an administrator is
still serving in that capacity.
REGISTERED SUPPORT / OPPOSITION :
Support
Oakland Unified School District (Sponsor)
Opposition
None on file
Analysis Prepared by : Gerald Shelton / ED. / (916) 319-2087