BILL ANALYSIS �
SENATE COMMITTEE ON EDUCATION
Alan Lowenthal, Chair
2011-2012 Regular Session
BILL NO: AB 751
AUTHOR: Furutani
AMENDED: April 26, 2011
FISCAL COMM: Yes HEARING DATE: June 22, 2011
URGENCY: No CONSULTANT: Daniel Alvarez
SUBJECT : Education Finance.
SUMMARY
Provides for a modified fiscal oversight process for school
districts and county offices of education (COEs) where a
"qualified" certification status is assigned based on the
review of the second fiscal year following the current
fiscal year, and provides for additional information on and
a potential waiver of related actions.
BACKGROUND
Current law :
1) Provides for external financial oversight of COEs
by the Superintendent of Public Instruction (SPI), and
of school districts by county superintendents.
2) Requires local educational agency's (LEAs) to adopt
a budget prior to July 1 of each year, and requires
that budget to be approved by the county
superintendent (for districts) or the SPI (for COEs)
by October 8; also requires specified oversight and
interventions if the budget is not approved by that
date.
(Education Code � 42127)
3) Requires LEAs to provide two interim reports each
fiscal year by specified due dates, and requires each
LEA to self-certify as to whether the LEA will meet or
may not meet its financial obligations for the current
and two subsequent fiscal years, or will be unable to
do so for the current and one subsequent year; also
requires specified oversight and interventions if a
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LEA may not meet or will be unable to meet its
financial obligations. (Education Code � 42130 et.
seq.)
ANALYSIS
This bill provides for a modified fiscal oversight process
for school districts and county offices of education where
a "qualified" certification status is assigned based on the
review of the second fiscal year following the current
fiscal year, and provides for additional information on and
a potential waiver of related actions. Specifically, this
bill:
1) Requires the Superintendent of Public Introduction
(SPI), county superintendents and school districts to
distinguish between school districts and COE that
receive qualified certification only on the basis of
the second subsequent year following the current year
from those that are qualified on the basis of the
current year or first subsequent year.
2) Requires any school district, choosing to make budget
reductions as a result of it being assigned a
qualified certification solely on the basis of the
second subsequent year following the current year, to
hear those cuts as an information item and allow
public comment on that item at an open meeting held
prior to the meeting at which the board takes action
on the proposed cuts.
3) Authorizes the SPI to waive the requirements on any
school district or COE to provide and report budget
projections and interim projections for the second
subsequent year following the current year, as well as
the requirement that the local educational agency
(LEA) self-certify interim status on the basis of that
third year, if all of the following are met:
a) The school district or COE requests that
such a waiver be approved and provides any
information requested that is needed by the
California Department of Education (CDE) to
analyze that request;
b) In the case of a school district, the county
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superintendent of the county within which that
district is located recommends that the SPI
approves the requested waiver; and,
c) The SPI determines with reasonable
certainty, based on the requestor's fiscal
history, current financial status and budget
projections, and from the SPI's expectations
concerning future funding levels, that the
requestor would meet its financial obligations
for the second subsequent year following the
current year.
STAFF COMMENTS
1) Need for the bill . According to the author, due to
the uncertainty of the state's current fiscal climate,
the third year of multi-year projections (as required
under the AB 1200 process) are made even more
uncertain. In recent years it is unlikely that
third-year revenue projections that LEAs have made
have been accurate - having nothing to do with the
school district, but rather with the imperfection of
the state budget process. And current law does not
distinguish when a school district is given a
"qualified" certification as a result of possible
issues in the third year of a multi-year projection or
rather in the immediate upcoming fiscal year. This
measure would provide a more reasonable approach to
dealing with "qualified' certifications in the second
fiscal year following the current fiscal year.
2) State's financial oversight of LEAs. The AB 1200
process establishes an "early warning" system with
respect to LEAs that are in financial distress; this
early warning capability is important in terms of both
protecting the state's interests (i.e., minimizing the
number of emergency apportionments that are requested
from the state) and protecting the fiscal health of
districts.
Under the AB 1200 process, each school district and
COE is required to adopt a budget by July 1 of each
year. County superintendents are required to review
and approve (or disapprove) each school district's
adopted budget - in the case of COE budgets, the SPI
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is the approver - for compliance with fiscal criteria
and standards, and to determine whether the budget
will allow the LEA to meet current and subsequent year
financial obligations. If an LEA's budget remains
disapproved by October 8, then the county
superintendent or SPI, as appropriate, is required to
make specified interventions with respect to financial
actions of the LEA, including developing a budget plan
that will guide the LEA through the fiscal year.
LEAs are also required to file two interim financial
reports during each fiscal year; these reports provide
for a self-assessment of the status of the LEA's
financial health over a three-year time period. This
self-assessment results in a certification of whether
or not the LEA is able to meet its financial
obligations; each LEA's certification is classified as
positive, qualified, or negative.
A positive certification is assigned to a
LEA that will meet its financial obligations for
the current and two subsequent fiscal years;
A qualified certification is assigned
when the LEA may not meet its financial
obligations for the current or two subsequent
fiscal years; and
A negative certification is assigned
when a LEA will be unable to meet its financial
obligations for the remainder of the current year
or for the subsequent fiscal year.
Qualified or negative certification results in various
forms of additional oversight or interventions on the
part of the county superintendent or SPI, including
assigning external consultants, requiring a district
fiscal recovery plan, or even disallowing certain
expenditures through a stay and rescind of governing
board actions. For the period ending January 31,
2011, the CDE reported that 113 LEAs in the state
received a qualified certification of its financial
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status at the 2010-11 Second Interim Report and 13
LEAs received a negative certification.
If a LEA is assigned a qualified certification as a
result of its fiscal status in the current or
subsequent year, then that district may be facing an
immediate threat to its fiscal health in that changes
within this fiscal year or within the budget that will
have to be adopted by the end of this fiscal year may
be necessary.
3) Supporters and opponents of this bill make much the
same argument, when they cite the fiscal uncertainty
in which local educational agencies are currently
operating, yet results in two different approaches -
the need to provide either a reasonable accommodation
in light of the continued fiscal uncertainty that
allows local deliberation with additional information
or to maintain the current system which requires
immediate and expeditious action to budget pressures.
Despite this agreement on the conditions that
districts and county offices face, and the activities
that are necessary in those conditions, supporters and
opponents disagree fundamentally on how they judge the
usefulness of the third-year budget projections and
interim reports.
Under the current AB 1200 process, however, there is
no distinction made between a LEA qualified as a
result of its fiscal situation in the current or
second year, and one assigned a qualified
certification solely as a result of its fiscal
situation in the third year. While an LEA that is
assigned a qualified certification solely as a result
of its fiscal situation in the third year of the
multi-year projections likely has the ability to be
slightly more deliberative in its approach to
resolving the problems that it faces. But the
consequences of a "qualified" certification can make
it harder for a school district to establish and
maintain credit with vendors or go to outside markets
for cash borrowing purposes. This does not mean that
LEAs with a "qualified" certification, as a result of
that third year have the security of ignoring the
early warning provided by those projections or that
the early warning provided is unimportant, but more
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that LEAs qualified as a result of the situation that
they face in the current or subsequent year face a
more urgent situation.
This measure attempts to strike a balance of continued
immediate oversight without ignoring the early warning
system benefits of the current process, with a modicum
of reasonability under prescribed conditions and
review of a COEs or school district financial
condition. Because of the possible implications of
trying to achieve a balance on fiscal responsibility,
at a minimum staff recommends that the provisions of
this measure sunset as of June 30, 2015.
SUPPORT
California Federation of Teachers
Los Angeles Unified School District
San Francisco Unified School District
OPPOSITION
California County Superintendents Educational Services
Association
Kern County Superintendent of Schools
Riverside County Superintendent of Schools
San Diego County Office of Education
Santa Clara County Office of Education