BILL ANALYSIS �
AB 2087
Page 1
Date of Hearing: May 9, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2087 (Swanson) - As Introduced: February 23, 2012
Policy Committee: Education
Vote:6-4
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill requires school districts that have received an
emergency loan and have not complied with apportionment
conditions via an audit to have two years from the date of a
final audit report to correct deficiencies, as specified.
Specifically, this bill:
1)Authorizes the Education Audit Appeals Panel (EAAP) to waive
or reduce the reimbursement or penalty amount if the State
Controller (SC) determines that the school district has taken
appropriate corrective action.
2)Requires the school district to repay the reimbursement or
penalty and waive its right to appeal the audit finding, if
after two years, the district fails to correct the
deficiencies that led to the finding.
3)Prohibits the provisions of this bill from applying to any of
the following:
a) Audit findings, in any year, that are the result of
mathematical errors, clerical errors, or a failure to
retain records basic to the audit.
b) The first two audits performed as part of the emergency
loan process.
c) Audits conducted after the governing board of the school
district assumes full control over the district.
FISCAL EFFECT
Unknown, indeterminate loss of GF/98, federal, or special fund
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proceeds from audit findings, likely in the hundreds of
thousands to low millions. For example, past audit findings for
Oakland Unified School District (OUSD) and Vallejo Unified
School District (VUSD) have been in the millions ($32 million
for OUSD and $4.4 million for VUSD). Both school districts
appealed these findings to the EAAP and EAAP lowered their
penalties (approximately $900,000 for OUSD and approximately $1
million for VUSD).
COMMENTS
1)Background . Due to school districts becoming financially
insolvent, the state developed a process (AB 1200, Chapter
1213, Statutes of 1991) that outlined 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.
When a school district receives an emergency loan, existing
law requires the SC to conduct an audit of the district's
accounts and books in the fiscal year (FY) the district
received the loan apportionment and each FY thereafter. The
costs of the audits are borne by the school district. Statute
further requires the audits to continue until the SC, in
consultation with the SPI, determines that the district is
financially solvent, as specified.
If the SC issues an audit finding that requires the district
to repay funding or pay a penalty, the district must comply.
The repayments or penalties may be made as a direct payment to
the state or the state can offset the district's future GF/98
apportionment payments.
Prior to payment, the school district has the following
options to respond to the audit findings: seek a waiver from
the State Board of Education; request a summary review of the
EAAP; appeal to the EAAP; take the case to the Office of
Administrative Hearings; request a repayment plan; and make
corrections to information provided to the SC on which the
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audit was based.
2)Purpose . According to the author, "�This bill] will give a
local school district governing board that is regaining its
control after a state takeover, time to address audit findings
that were discovered during a time when the board had no legal
rights or control over the district. This bill could
potentially save financially vulnerable districts millions in
fines and penalties by giving districts a two year window of
time address SC audit findings and engage in corrective action
to ensure that a district remains on the path to solvency."
3)School districts with who have received an emergency loan . The
following chart details current and past emergency loans made
to school districts. This bill would apply to all school
districts with an emergency loan.
Emergency Loans to School Districts Since 1991
(Dollars in Millions)
----------------------------------------------------------------
| | | | | |
|School District | Year of | Total | Interest | Pay-Off |
| |Legislatio| Loan | Rate on | Date of |
| | n | Amount | Loana | Loan |
| | | | | |
|----------------+----------+----------+------------+------------|
| King City | 2009 | $13.0 | 5.44% | October |
| Joint Union | | | | 2028 |
| Highb | | | | |
|----------------+----------+----------+------------+------------|
| Vallejo City | 2004 | 60.0 | 1.50 | January |
| Unified | | | | 2024 |
|----------------+----------+----------+------------+------------|
| Oakland | 2003 | 100.0 | 1.78 | January |
| Unified | | | | 2023 |
|----------------+----------+----------+------------+------------|
| West Fresno | 2003 | 1.3 | 1.93 | December |
| Elementary | | | | 2010 |
|----------------+----------+----------+------------+------------|
| Emery Unified | 2001 | 1.3 | 4.19 | June 2011 |
|----------------+----------+----------+------------+------------|
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| Compton | 1993 | 20.0 | 4.39 | June 2001 |
| Unified | | | | |
|----------------+----------+----------+------------+------------|
| Coachella | 1992 | 7.3 | 5.34 | December |
| Valley | | | | 2001 |
| Unified | | | | |
|----------------+----------+----------+------------+------------|
| West Contra | 1991 | 29.0 | 1.53 | January |
| Costa Unified | | | | 2018 |
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| |
| a For districts with multiple loans and multiple interest |
| rates, reflects interest rate on largest loan. |
| |
| |
| b Has since changed its name to South Monterey County Joint |
| Union High. |
| |
| |
| Source: LAO |
| |
| |
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4)Related legislation .
a) AB 1377 (Swanson), 2009, required the Superintendent of
Public Instruction (SPI) to allow a school district under
receivership (where a trustee has been appointed and a
financial audit is conducted) a period of 180 days from the
date upon which the final audit report is received to
implement corrections before the district is required to
repay or to pay a penalty arising from an audit finding, as
specified. This bill was held on this committee's Suspense
File.
b) AB 1858 (Alejo), pending in this committee, reduces the
interest rate for the emergency loan obtained by the South
Monterey County Joint Union High School District (SMCJUHSD)
in 2099 from 5.44% to 1%.
c) AB 1898 (Alejo), pending in this committee, changes the
financing mechanism for emergency loans made to school
districts from the California Infrastructure and Economic
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Development Bank to the Pooled Money Investment Account, as
specified.
d) SB 1240 (Cannella), pending in the Senate Appropriations
Committee, proposes to reduce the interest rate for
SMCJUHSD from 5.44% to 1%, but this change will only be
operative if the district passes a local parcel tax by
January 1, 2015.
e) SB 177 (Wright), pending in Assembly Education
Committee, appropriates $12.9 million from the GF/98 as an
emergency apportionment (loan) for the Inglewood Unified
School District and requires the district to enter into a
lease financing agreement with the I-Bank for the purpose
of financing the emergency apportionment.
Analysis Prepared by : Kimberly Rodriguez / APPR. / (916)
319-2081