Amended in Assembly May 6, 2015

Amended in Assembly March 26, 2015

California Legislature—2015–16 Regular Session

Assembly BillNo. 1318


Introduced by Assembly Members Gray and Olsen

February 27, 2015


An act to amendbegin delete Sectionend deletebegin insert Sections 42127 andend insert 42127.01 of the Education Code, relating to school finance.

LEGISLATIVE COUNSEL’S DIGEST

AB 1318, as amended, Gray. School finance: school districts: annual budgets: reserve balance.

begin insert

(1) Existing law requires a school district, on or before July 1 of each year, to hold a hearing on, and adopt a budget for, the subsequent fiscal year. Existing law requires the governing board of a school district that proposes to adopt a budget that includes a combined assigned and unassigned ending fund balance in excess of the minimum recommended reserve for economic uncertainties adopted by the State Board of Education to provide specified information for public review and discussion at the public hearing, including, among other things, the combined assigned and unassigned ending fund balance in excess of the minimum recommended reserve for economic uncertainties for each fiscal year identified in the budget.

end insert
begin insert

This bill would instead require the governing board of a school district to provide the information for public review and discussion at the public hearing if the school district proposes to adopt a budget that includes a combined assigned and unassigned ending fund balance in the school district’s general fund and special reserve fund for other than capital outlay projects in excess of the minimum recommended reserve for economic uncertainties adopted by the state board. This bill would require the information about the combined assigned and unassigned ending fund balance in excess of the minimum recommended reserve for economic uncertainties to include a description of the purposes for the amounts in each fund. The bill would require the governing board of a school district to adopt a policy setting the amounts of assigned and unassigned balances the governing board of the school district expects to be necessary to address economic uncertainties, funding volatility, cash flow, and savings for expenditures. By imposing additional duties on school districts, this bill would impose a state-mandated local program.

end insert
begin insert

Existing law requires the county superintendent of schools to determine whether the adopted budget of a school district includes a combined assigned and unassigned ending fund balance that exceeds the minimum recommended reserve for economic uncertainties and if so, to verify that the school district complied with the public review and disclosure requirements.

end insert
begin insert

This bill would instead require the county superintendent of schools to determine whether the adopted budget includes a combined assigned and unassigned ending fund balance in the school district’s general fund and special reserve fund for other than capital outlay projects that exceeds the minimum recommended reserve for economic uncertainties. To the extent this requirement would impose additional duties on the county superintendent of schools, this bill would impose a state-mandated local program.

end insert
begin delete

Existing

end delete

begin insert(2)end insertbegin insertend insertbegin insertExistingend insert law, unless the school district is granted an exemption, limits the amount of the combined assigned or unassigned ending fund balance contained in a school district’s annual budget in any fiscal year immediately after a fiscal year in which a transfer is made into the Public School System Stabilization Account. Existing law establishes a formula for calculating the maximum amount allowable for school districts with less than 400,000 units of average daily attendance and establishes a formula for school districts with more than 400,000 units of average daily attendance, as specified.

This bill would revise the formula for school districts with less than 400,000 units of average daily attendance and the formula for school districts with more than 400,000 units of average daily attendance, as specified. The bill also would make a technical change by deleting an obsolete provision.

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(3) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

end insert
begin insert

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to these statutory provisions.

end insert

Vote: majority. Appropriation: no. Fiscal committee: begin deleteno end deletebegin insertyesend insert. State-mandated local program: begin deleteno end deletebegin insertyesend insert.

The people of the State of California do enact as follows:

P3    1begin insert

begin insertSECTION 1.end insert  

end insert

begin insertSection 42127 of the end insertbegin insertEducation Codeend insertbegin insert is amended
2to read:end insert

3

42127.  

(a) On or before July 1 of each year, the governing
4board of each school district shall accomplish the following:

5(1) Hold a public hearing conducted in accordance with Section
642103 on the budget to be adopted for the subsequent fiscal year.
7The budget to be adopted shall be prepared in accordance with
8Section 42126. The agenda for that hearing shall be posted at least
972 hours before the public hearing and shall include the location
10where the budget will be available for public inspection.

11(2) (A) Adopt a budget. Not later than five days after that
12adoption or by July 1, whichever occurs first, the governing board
13of the school district shall file that budget with the county
14 superintendent of schools. The budget and supporting data shall
15be maintained and made available for public review. If the
16governing board of the school district does not want all or a portion
17of the property tax requirement levied for the purpose of making
18payments for the interest and redemption charges on indebtedness
19as described in paragraph (1) or (2) of subdivision (b) of Section
201 of Article XIII A of the California Constitution, the budget shall
21include a statement of the amount or portion for which a levy shall
22not be made. For the 2014-15 fiscal year and each fiscal year
23thereafter, the governing board of the school district shall not adopt
24a budget before the governing board of the school district adopts
25a local control and accountability plan, if an existing local control
P4    1and accountability plan or annual update to a local control and
2accountability plan is not effective for the budget year. The
3governing board of a school district shall not adopt a budget that
4does not include the expenditures necessary to implement the local
5control and accountability plan or the annual update to a local
6control and accountability plan that is effective for the budget year.

7(B) begin insert(i)end insertbegin insertend insertCommencing with budgets adopted for the 2015-16
8fiscal year, the governing board of a school district that proposes
9to adopt a budget, or revise a budget pursuant tobegin delete subdivision (e),end delete
10begin insert paragraph (3) of subdivision (d),end insert that includes a combined assigned
11and unassigned ending fund balancebegin insert in the school district’s general
12fund and special reserve fund for other than capital outlay projectsend insert

13 in excess of the minimum recommended reserve for economic
14uncertainties adopted by the state board pursuant to subdivision
15(a) of Sectionbegin delete 33128,end deletebegin insert 33128end insert shall, at the public hearing held
16pursuant to paragraph (1), provide all of the following for public
17review and discussion:

begin delete

18(i)

end delete

19begin insert(I)end insert The minimum recommended reserve for economic
20uncertainties for each fiscal year identified in the budget.

begin delete

21(ii)

end delete

22begin insert(II)end insert The combined assigned and unassigned ending fundbegin delete balances
23that areend delete
begin insert balanceend insert in excess of the minimum recommended reserve
24for economic uncertainties for each fiscal year identified in the
25budgetbegin insert and a description of the purposes for the amounts in each
26fundend insert
.

begin delete

27(iii)

end delete

28begin insert(III)end insert A statement of reasons that substantiates the need for an
29assigned and unassigned ending fund balance that is in excess of
30the minimum recommended reserve for economic uncertainties
31for each fiscal yearbegin delete that the school district identifies an assigned
32and unassigned ending fund balance that is in excess of the
33minimum recommended reserve for economic uncertainties, as
34identified pursuant to clause (ii).end delete
begin insert identified in the budget.end insert

begin insert

35(ii) The governing board of a school district shall adopt a policy
36setting the amounts of assigned and unassigned balances the
37governing board of the school district expects to be necessary to
38address economic uncertainties, funding volatility, cash flow, and
39savings for expenditures.

end insert

P5    1(C) The governing board of a school district shall include the
2information required pursuant to subparagraph (B) in its budgetary
3submission each time it files an adoptedbegin delete or revisedend delete budget with
4the county superintendent of schools. The information required
5pursuant to subparagraph (B) shall be maintained and made
6available for public review.

7(b) The county superintendent of schools may accept changes
8in any statement included in the budget, pursuant to subdivision
9(a), of the amount or portion for which a property tax levy shall
10not be made. The county superintendent of schools or the county
11auditor shall compute the actual amounts to be levied on the
12property tax rolls of the school district for purposes that exceed
13 apportionments to the school district pursuant to Chapter 6
14(commencing with Section 95) of Part 0.5 of Division 1 of the
15Revenue and Taxation Code. Each school district shall provide all
16data needed by the county superintendent of schools or the county
17auditor to compute the amounts. On or before August 15, the
18county superintendent of schools shall transmit the amounts
19computed to the county auditor who shall compute the tax rates
20necessary to produce the amounts. On or before September 1, the
21county auditor shall submit the rate computed to the board of
22supervisors for adoption.

23(c) The county superintendent of schools shall do all of the
24following:

25(1) Examine the adopted budget to determine whether it
26complies with the standards and criteria adopted by the state board
27pursuant to Section 33127 for application to final local educational
28agency budgets. The county superintendent of schools shall
29identify, if necessary, technical corrections that are required to be
30made to bring the budget into compliance with those standards
31and criteria.

32(2) Determine whether the adopted budget will allow the school
33district to meet its financial obligations during the fiscal year and
34is consistent with a financial plan that will enable the school district
35to satisfy its multiyear financial commitments. In addition to his
36or her own analysis of the budget of each school district, the county
37superintendent of schools shall review and consider studies, reports,
38evaluations, or audits of the school district that were commissioned
39by the school district, the county superintendent of schools, the
40Superintendent, and state control agencies and that contain
P6    1evidence that the school district is showing fiscal distress under
2the standards and criteria adopted in Section 33127 or that contain
3a finding by an external reviewer that more than 3 of the 15 most
4common predictors of a school district needing intervention, as
5determined by the County Office Fiscal Crisis and Management
6Assistance Team, are present. The county superintendent of schools
7shall either conditionally approve or disapprove a budget that does
8not provide adequate assurance that the school district will meet
9its current and future obligations and resolve any problems
10identified in studies, reports, evaluations, or audits described in
11this paragraph.

12(3) Determine whether the adopted budget includes the
13expenditures necessary to implement the local control and
14accountability plan or annual update to the local control and
15accountability plan approved by the county superintendent of
16schools.

17(4) Determine whether the adopted budget includes a combined
18assigned and unassigned ending fund balancebegin insert in the school
19district’s general fund and special reserve fund for other than
20capital outlay projectsend insert
that exceeds the minimum recommended
21reserve for economic uncertainties. If the adopted budget includes
22a combined assigned and unassigned ending fund balancebegin insert in the
23two fundsend insert
that exceeds the minimum recommended reserve for
24economic uncertainties, the county superintendent of schools shall
25verify that the school district complied with the requirements of
26subparagraphs (B) and (C) of paragraph (2) of subdivision (a).

27(d) (1) On or before August 15, the county superintendent of
28schools shall approve, conditionally approve, or disapprove the
29adopted budget for each school district. For the 2014-15 fiscal
30year and each fiscal year thereafter, the county superintendent of
31 schools shall disapprove a budget if the county superintendent of
32schools determines that the budget does not include the
33expenditures necessary to implement a local control and
34accountability plan or an annual update to the local control and
35accountability plan approved by the county superintendent of
36schools. If the governing board of a school district does not submit
37a budget to the county superintendent of schools, the county
38superintendent of schools shall develop, at school district expense,
39a budget for that school district by September 15 and transmit that
40budget to the governing board of the school district. The budget
P7    1prepared by the county superintendent of schools shall be deemed
2adopted, unless the county superintendent of schools approves any
3modifications made by the governing board of the school district.
4The budget prepared by the county superintendent of schools shall
5also comply with the requirements of subparagraph (B) of
6paragraph (2) of subdivision (a). The approved budget shall be
7used as a guide for the school district’s priorities. The
8Superintendent shall review and certify the budget approved by
9the county. If, pursuant to the review conducted pursuant to
10subdivision (c), the county superintendent of schools determines
11that the adopted budget for a school district does not satisfy
12paragraph (1), (2), (3), or (4) of that subdivision, he or she shall
13conditionally approve or disapprove the budget and, not later than
14August 15, transmit to the governing board of the school district,
15in writing, his or her recommendations regarding revision of the
16budget and the reasons for those recommendations, including, but
17not limited to, the amounts of any budget adjustments needed
18before he or she can approve that budget. The county
19superintendent of schools may assign a fiscal adviser to assist the
20school district to develop a budget in compliance with those
21revisions. In addition, the county superintendent of schools may
22appoint a committee to examine and comment on the
23superintendent’s review and recommendations, subject to the
24requirement that the committee report its findings to the county
25superintendent of schools no later than August 20.

26(2)  Notwithstanding any other provision of this article, for the
272014-15 fiscal year and each fiscal year thereafter, the budget
28shall not be adopted or approved by the county superintendent of
29schools before a local control and accountability plan or update to
30an existing local control and accountability plan for the budget
31year is approved.

32(3) If the adopted budget of a school district is conditionally
33approved or disapproved pursuant to paragraph (1), on or before
34September 8, the governing board of the school district, in
35conjunction with the county superintendent of schools, shall review
36and respond to the recommendations of the county superintendent
37of schools at a regular meeting of the governing board of the school
38district. The response shall include any revisions to the adopted
39budget and other proposed actions to be taken, if any, as a result
40of those recommendations.

P8    1(e) On or before September 22, the county superintendent of
2schools shall provide a list to the Superintendent identifying all
3school districts for which budgets may be disapproved.

4(f) (1) The county superintendent of schools shall examine the
5revised budget as provided in paragraph (3) of subdivision (d) to
6determine whether it (A) complies with the standards and criteria
7adopted by the state board pursuant to Section 33127 for
8application to final local educational agency budgets, (B) allows
9the school district to meet its financial obligations during the fiscal
10year, (C) satisfies all conditions established by the county
11superintendent of schools in the case of a conditionally approved
12budget, (D) is consistent with a financial plan that will enable the
13school district to satisfy its multiyear financial commitments, and,
14not later than October 8, shall approve or disapprove the revised
15budget, and (E) whether the revised budget complies with the
16requirements of subparagraph (B) of paragraph (2) of subdivision
17(a). If the county superintendent of schools disapproves the budget,
18he or she shall call for the formation of a budget review committee
19pursuant to Section 42127.1, unless the governing board of the
20school district and the county superintendent of schools agree to
21waive the requirement that a budget review committee be formed
22and the department approves the waiver after determining that a
23budget review committee is not necessary. Upon the grant of a
24waiver, the county superintendent of schools immediately has the
25authority and responsibility provided in Section 42127.3. Upon
26approving a waiver of the budget review committee, the department
27shall ensure that a balanced budget is adopted for the school district
28by November 30. If no budget is adopted by November 30, the
29Superintendent may adopt a budget for the school district. The
30Superintendent shall report to the Legislature and the Director of
31Finance by December 10 if any school district, including a school
32district that has received a waiver of the budget review committee
33process, does not have an adopted budget by November 30. This
34report shall include the reasons why a budget has not been adopted
35by the deadline, the steps being taken to finalize budget adoption,
36the date the adopted budget is anticipated, and whether the
37Superintendent has or will exercise his or her authority to adopt a
38budget for the school district.

39(2) Notwithstanding any other law, for the 2014-15 fiscal year
40and each fiscal year thereafter, if the county superintendent of
P9    1schools disapproves the budget for the sole reason that the county
2superintendent of schools has not approved a local control and
3 accountability plan or an annual update to the local control and
4accountability plan filed by the governing board of the school
5district pursuant to Section 52070, the county superintendent of
6schools shall not call for the formation of a budget review
7committee pursuant to Section 42127.1.

8(g) Not later than October 8, the county superintendent of
9schools shall submit a report to the Superintendent identifying all
10school districts for which budgets have been disapproved or budget
11review committees waived. The report shall include a copy of the
12written response transmitted to each of those school districts
13pursuant to paragraph (1) of subdivision (d).

14(h) Not later than 45 days after the Governor signs the annual
15Budget Act, the school district shall make available for public
16review any revisions in revenues and expenditures that it has made
17to its budget to reflect the funding made available by that Budget
18Act.

19(i) Any school district for which the county board of education
20serves as the governing board of the school district is not subject
21to subdivisions (c) to (h), inclusive, but is governed instead by the
22budget procedures set forth in Section 1622.

23

begin deleteSECTION 1.end delete
24begin insertSEC. 2.end insert  

Section 42127.01 of the Education Code is amended
25to read:

26

42127.01.  

(a) In a fiscal year immediately after a fiscal year
27in which a transfer is made into the Public School System
28Stabilization Account, a school district budget that is adopted or
29revised pursuant to Section 42127 shall not contain a combined
30assigned or unassigned ending fund balance that is in excess of
31the following:

32(1) For school districts with fewer than 400,000 units of average
33daily attendance, the sum of the school district’s applicable
34minimum recommended reserve for economic uncertainties adopted
35by the state board pursuant to subdivision (a) of Section 33128,
36multiplied by ___.

37(2) For school districts with more than 400,000 units of average
38daily attendance, the sum of the school district’s applicable
39minimum recommended reserve for economic uncertainties adopted
P10   1by the state board pursuant to subdivision (a) of Section 33128,
2multiplied by ___.

3(b) A county superintendent of schools may grant a school
4district under its jurisdiction an exemption from the requirements
5of subdivision (a) for up to two consecutive fiscal years within a
6three-year period if the school district provides documentation
7indicating that extraordinary fiscal circumstances, including, but
8not limited to, multiyear infrastructure or technology projects,
9substantiate the need for a combined assigned or unassigned ending
10fund balance that is in excess of the minimum recommended
11reserve for economic uncertainties. As a condition of receiving an
12exception, a school district shall do all of the following:

13(1) Provide a statement that substantiates the need for an
14assigned and unassigned ending fund balance that is in excess of
15the minimum recommended reserve for economic uncertainties.

16(2) Identify the funding amounts in the budget adopted by the
17school district that are associated with the extraordinary fiscal
18circumstances.

19(3) Provide documentation that no other fiscal resources are
20available to fund the extraordinary fiscal circumstances.

21begin insert

begin insertSEC. 3.end insert  

end insert
begin insert

If the Commission on State Mandates determines that
22this act contains costs mandated by the state, reimbursement to
23local agencies and school districts for those costs shall be made
24pursuant to Part 7 (commencing with Section 17500) of Division
254 of Title 2 of the Government Code.

end insert


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