The Abridged version:
- Three California school districts remain in repayment stages for previous state emergency loans.
- Emergency loans exceeding 200% of recommended reserves trigger the hiring of an administrator with authority over the school board.
- Five districts joined the state’s early fiscal warning list in May.
This story was originally published by EdSource. Sign up for their daily newsletter.
Ten California school districts have been under state and county oversight in the last 35 years because they were fiscally insolvent and required an emergency state loan to continue to operate.
Currently, Plumas Unified, Inglewood Unified and South Monterey County Joint Union High School are repaying state loans.
School districts projected to be unable to meet their financial obligations for the current or two subsequent fiscal years are placed on notice by their county superintendent of schools. If financial problems are not resolved, the county superintendent could assign a fiscal advisor to the district.
Five districts — Sacramento City Unified, Pleasanton Unified, Antioch Unified, San Ysidro Elementary and Weed Union — were unable to meet their financial obligations for two school years and were put on the state’s most recent fiscal warning list in May.
If a school district ultimately requires an emergency state loan from the Legislature, the loan comes with significant conditions — including the potential loss of local control.
Here’s more on how the school takeover process works in California.
Legislation strengthened oversight
California legislators passed Assembly Bill 1200 in 1991 to strengthen fiscal oversight of schools and county offices of education after the bankruptcy of the Richmond School District, later renamed West Contra Costa Unified School District, according to the California Department of Education.
The law requires districts to do multiyear financial projections; identify sources of funding for substantial cost increases, such as employee raises; and make public the cost implications of such increases before approving employee contracts. County offices of education also receive funding to conduct reviews, examinations and audits of school districts.
Loan means loss of local control
If a district’s emergency loan is 200% or more of its state-recommended reserve level, the school board loses its governing authority and the superintendent is removed, according to the California Department of Education. The elected trustees become advisers to an administrator appointed by the county superintendent and approved by state education leaders.
The administrator can make sweeping changes to both the district’s financial policies and education programs to cut costs. According to the state’s Fiscal Crisis and Management Assistance Team (FCMAT), the administrator can file for Chapter 9 bankruptcy and remove district-level administrators who cannot demonstrate that they took steps to stop district trustees from making fiscally unsound decisions.
The administrator will remain in the district for at least one year or until the district’s finances improve, and county and state officials approve a recovery plan. Once those conditions are met, governing authority can be returned to the school board, with an appointed trustee providing oversight. The trustee can rescind board actions that he or she determines would negatively impact district finances.
After the trustee has served three years and the state superintendent of public instruction determines that the district’s fiscal plan is sound, the trustee is removed. The county superintendent continues to have the power to stay or rescind any board action that affects the district financially until the emergency loan is repaid with interest.
If the district violates its recovery plan within five years of the trustee being removed or of the loan being repaid, the county office of education can set aside the school board and take control of the district.
School districts whose emergency loans are less than 200% of their recommended reserves will continue to be governed by their elected boards. In these cases, an appointed trustee will provide financial oversight and have the authority to rescind any actions by the board they determine are not fiscally responsible.
Fiscal insolvency is costly and time-consuming
Being placed under state or county oversight can be expensive for a district, which must pay interest on the loan and pay the county office of education for its services.
The district must also submit an annual fiscal report to state lawmakers that includes a copy of their budget, amount of district reserves, updates on their fiscal plan and the status of employee contracts. District leaders must also report on any obstacles that are impeding economic recovery.
There are checks and balances to the process. The school board must submit an annual evaluation of the appointed administrator to the governor, Legislature, state superintendent of public instruction, president of the state school board and the county superintendent of schools.
The superintendent of public instruction monitors the county office of education’s oversight and can assume authority over the district if he finds the county superintendent was not effective in resolving the school’s financial troubles, according to FCMAT.
