Bill Text: AZ HB2114 | 2022 | Fifty-fifth Legislature 2nd Regular | Introduced
Bill Title: School districts; gross mismanagement; intervention
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2022-01-25 - House ED Committee action: Held, voting: (0-0-0-0-0-0) [HB2114 Detail]
Download: Arizona-2022-HB2114-Introduced.html
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REFERENCE TITLE: school districts; gross mismanagement; intervention |
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State of Arizona House of Representatives Fifty-fifth Legislature Second Regular Session 2022
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HB 2114 |
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Introduced by Representative Udall
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AN ACT
amending sections 15-103 and 15-107, Arizona Revised Statutes; relating to school districts.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Section 15-103, Arizona Revised Statutes, is amended to read:
15-103. School districts; financial mismanagement; intervention; definitions
A. The state board of education shall review allegations of school district insolvency and gross mismanagement. The state board shall give the school district an opportunity to respond to these allegations at a public meeting. If the state board determines that the school district is insolvent or has grossly mismanaged its finances, the state board shall appoint a receiver or fiscal crisis team for that school district.
B. The state board shall find a school district insolvent if it finds one or more of the following:
1. The school district is unable to pay debts as they fall due or in the usual course of business.
2. The salaries of any teachers or other employees have remained unpaid for at least forty-five days.
3. The tuition due another school district or other state institution remains unpaid on or after January 1 of the year following the school year it was due and there is no dispute regarding the validity or amount of the claim.
4. The school district has defaulted in payment of its bonds or interest on bonds or in payment of rentals due any state or federal authority or private business for a period of at least sixty calendar days and no action has been initiated within that period of time to make payment.
5. The school district has contracted for any loan not authorized by law.
6. The school district has accumulated and has operated with a deficit equal to five per cent percent or more of the school district's revenue control limit for any fiscal year within the past two fiscal years or the conditions prescribed in section 15-107 have occurred.
7. The school district's warrants have not been honored for payment by the school district's servicing bank or by the county treasurer and the warrants have remained unpaid for a period of more than sixty calendar days.
C. A school district shall not be deemed to be insolvent pursuant to subsection B of this section if the circumstances are the result of the failure of the state to make any payments of monies due the school district at the time payment is due.
D. The state board of education shall have has jurisdiction over all petitions requesting that a school district be placed in receivership and a receiver be appointed or that a fiscal crisis team be appointed because of the school district's alleged insolvency or gross mismanagement. The state board shall have has the burden of demonstrating by a preponderance of the evidence that the school district is insolvent or is engaged in gross mismanagement.
E. If the state board of education finds that the school district is insolvent or has engaged in gross mismanagement, the state board may place the school district in receivership and appoint a receiver recommended by the state board. The state board shall develop and adopt a list of qualified receivers to be appointed by the board.
F. On appointment, the receiver may perform any of the actions prescribed in paragraphs 1 through 11 of this subsection and shall begin a full review and investigation of the school district's financial affairs and submit to the state board of education a detailed report listing the findings of that investigation that shall include includes a financial improvement plan and budget that details how the school district will eliminate any continued gross financial mismanagement and achieve financial solvency. The plan shall include a proposed timeline for achieving financial solvency. The receiver shall submit the report within one hundred twenty days after the receiver's appointment. The financial improvement plan approved by the state board of education may authorize the receiver to do any of the following:
1. Override any decisions of the school district's governing board or the school district superintendent, or both, concerning the management and operation of the school district, and initiate and make decisions concerning the management and operation of the school district.
2. Attend any and all meetings of the school district's governing board and administrative staff.
3. Supervise the day-to-day activities of the school district's staff, including reassigning the duties and responsibilities of personnel in a manner that, in the determination of the receiver, best suits the needs of the school district.
4. Place on extended leave, suspend or terminate for cause the school district's superintendent or chief financial officer, or both. The receiver is not authorized to provide a severance or buyout package to the school district's superintendent or chief financial officer if the school district is placed into receivership by the state board of education. A person terminated pursuant to this paragraph may appeal the receiver's decision to the state board of education if an appeal is filed with the state board within thirty days of after receiving notice of the termination.
5. Authorize pupils to transfer from schools operated by the school district to schools operated by another school district that is not currently in receivership.
6. Appoint a chief educational officer who shall possess the powers and duties of a school district superintendent. A chief educational officer who is appointed pursuant to this paragraph shall hold a valid administrative certificate.
7. Appoint a chief fiscal officer who shall possess the powers and duties of the school district's chief school business official and any other duties regarding budgeting, accounting and other financial matters that are assigned to the school district by law.
8. Appoint a competent independent public accountant to audit the accounts of the school district.
9. Reorganize the school district's financial accounts, management and budgetary systems to improve financial responsibility and reduce financial inefficiency within the district.
10. Establish school district fiscal guidelines and a system of internal controls, including internal administrative controls and internal accounting controls, with provisions for internal audits.
11. Cancel or renegotiate any contract, other than contracts of certificated teachers who have been employed by the school district in the capacity of a certificated teacher for more than one year immediately before the date the receiver was appointed, to which the governing board or the school district is a party if the cancellation or renegotiation of the contract will produce needed economies in the operation of the district's schools. The receiver may refuse to reemploy any certificated teacher who has not been employed by the school district for more than the major portion of three consecutive school years as provided in section 15-536.
G. The receiver's power, authority and duties shall be are effective on the date of the receiver's appointment by the state board of education. The receiver shall perform the receiver's duties according to the instructions of the state board of education order and according to law. The receiver shall promptly report any violations of law, including a violation of the uniform system of financial records, to the state board of education.
H. On review and approval of the state board of education, the receiver shall take all necessary steps to implement the financial improvement plan and budget utilizing using those powers identified in the plan as prescribed in subsection F of this section.
I. The salary and benefits of the receiver and any officers or employees appointed by the receiver shall be paid by the school district. The state board of education shall determine the salary for the receiver and any officers or employees appointed by the receiver based on amounts recommended by the state board.
J. The state board of education shall remove the school district from receivership and dismiss the receiver and dismiss any officer or employee appointed by the receiver thirty days after all of the following have occurred:
1. The auditor general certifies that the school district has been financially solvent for one fiscal year.
2. The auditor general certifies that the school district's financial records are in compliance with the uniform system of financial records and generally accepted accounting principles.
3. The receiver certifies that the school district is no longer engaged in gross mismanagement.
4. The state board of education has determined that the school district is able to pay its debts as those debts become due.
K. Beginning ninety days after the submission of the first report prescribed in subsection F of this section, the receiver shall submit a quarterly progress report to the state board of education. The state board of education shall review the expenses and costs of the receiver at least once each calendar quarter.
L. The state board of education shall formally review the receiver's progress every six months. If, based on the quarterly progress reports, the state board determines that the receiver's progress is insufficient, the state board may remove the current receiver and appoint another receiver for the school district.
M. The state board of education may dismiss the receiver for cause or on a majority vote of no confidence in the receiver of the state board.
N. The school district shall indemnify the receiver and any officer or employee appointed by the receiver who is made or threatened to be made a party to any litigation by reason of their status under this section if the receiver, officer or employee acted in good faith and in a manner that the receiver, officer or employee reasonably believed to be consistent with the best interest of the school district and if the receiver, officer or employee had no reasonable cause to believe that the conduct was unlawful.
O. During the period of time that the school district is in receivership, no a member, officer, employee or agent of the school district may not enter into any contract or incur any liability on behalf of the school district for any purpose if the amount of the contract or liability exceeds the receiver's authorized financial plan and budget for the school district. The receiver may discipline, including, if warranted, imposing a suspension from duty without pay, removal from office or termination of, any school district employee or officer who violates this subsection.
P. This section does not create a private cause of action against the school district or its officers, directors, board members or employees.
Q. The assumption of control of the school district by the receiver shall in no way not interfere with the election or reelection of school district governing board members.
R. This section shall not interfere with a school district's ability to declare bankruptcy under federal law.
S. The state board of education shall continue to monitor and offer technical assistance to a school district for two years after its removal from receivership.
T. All information received and records or reports kept by the state board of education during an investigation resulting from a complaint against a receiver appointed pursuant to this section or section 15-107 are confidential and not a public record.
U. The state board of education or the department of education shall immediately notify the auditor general if the board or department has knowledge that a superintendent or chief financial officer who was employed at the school district at the time the school district was placed in receivership is currently employed in another school district or charter school in this state.
V. Notwithstanding any other law, a fiscal crisis team appointed pursuant to this section shall be is subject to section 15-107, subsections E through H and a school district that is assigned a level two fiscal crisis team pursuant to this section shall be is subject to section 15-107, subsections J, K and L.
W. For the purposes of this section:
1. "Fiscal crisis team" means either:
(a) A level one fiscal crisis team with the duties and authority prescribed in section 15-107, subsection D, paragraph 2.
(b) A level two fiscal crisis team with the duties and authority prescribed in section 15-107, subsection D, paragraph 3.
2. "Gross mismanagement":
(a) Means that the school district's officers or employees committed or engaged in gross incompetence or systemic and egregious mismanagement of the school district's finances or financial records.
(b) Includes either of the following as indicated On any school district audit:
(i) four or more material weaknesses as determined by the auditor general.
(ii) twenty or more unfavorable findings as determined by the auditor general and according to the uniform system of financial records for three consecutive years.
3. "Notice" means written notice personally served or delivered by certified mail, return receipt requested.
4. "Receiver" means an individual who is appointed by the state board of education from the persons recommended by the state board for the purpose of managing a school district placed in receivership by the state board of education.
5. "Receivership" means the state or condition of being under the control of the receiver appointed by the state board of education.
6. "Superintendent" means the chief executive officer of the school district.
Sec. 2. Section 15-107, Arizona Revised Statutes, is amended to read:
15-107. School district overexpenditures and gross mismanagement; fiscal crisis teams; reporting requirements; actions resulting from overexpenditures; professional development; definitions
A. A county school superintendent, within two business days, shall provide written notice to the department of education, if, in the county school superintendent's judgment, a school district has committed an overexpenditure under this section. Notwithstanding any other law, a warrant shall not be drawn by a county school superintendent for an expenditure that is in excess of the amount budgeted and that has not been previously expended, unless the county school superintendent is notified in writing by the department of education that budget capacity exists as determined by the department based on information provided by the school district.
B. The department of education, in conjunction with the county school superintendent, shall monitor the school district and provide technical assistance to the school district and to the county school superintendent to resolve the overexpenditure.
C. If the department of education determines that the school district has failed to take appropriate action to resolve the overexpenditure or that the original notice of overexpenditure pursuant to subsection A of this section constitutes an overexpenditure that will cause the school district's overall expenditures to exceed the school district's general budget limit or unrestricted capital budget limit by fifty thousand dollars $50,000 or one-half of one per cent percent, whichever is less, the department shall request that the matter be placed on the agenda of a meeting of the state board of education for action pursuant to this section.
D. At the request of the department of education, the state board of education shall call a public meeting to consider overexpenditures or gross mismanagement by any school district. The state board of education shall require the superintendent of the school district and any other school district personnel who may have information relevant to the overexpenditure or gross mismanagement to appear before the state board of education. After testimony from all interested parties, the state board of education shall take one of the following actions:
1. Require the department of education, in conjunction with the county school superintendent, to monitor the expenditures of the school district.
2. Direct the department of education to contract with a level one fiscal crisis team. The level one fiscal crisis team shall provide on-site oversight and off-site monitoring for the school district for no not longer than twelve months and shall advise the school district on all financial issues and professional development training related to financial issues.
3. Direct the department of education to contract with a level two fiscal crisis team. The level two fiscal crisis team shall provide on-site oversight and off-site monitoring for the school district for no not longer than twenty-four months, shall have the authority prescribed for level one fiscal crisis teams and may override any financial act or decision of the school district, including expenditures.
4. Appoint a receiver who, subject to the discretion of the state board of education, may take any actions prescribed in section 15-103, subsection F.
E. The level one and level two fiscal crisis teams shall be composed of at least one person who has knowledge of school finance and may include current or former school district financial officers, current or former school district business managers, certified public accountants and current or former school district superintendents. The fiscal crisis teams shall not include employees of the state board of education or the department of education.
F. The expenses incurred by a fiscal crisis team or by a receiver appointed pursuant to this section shall be paid by the school district. The state board of education shall review the expenses and costs of each fiscal crisis team at least once each calendar quarter.
G. Beginning ninety days after submitting the fiscal management report prescribed in subsection H of this section, the fiscal crisis team or receiver appointed pursuant to this section shall submit a detailed written quarterly progress report to the state board of education that includes all of the following:
1. The results of the review of the school district's finances, including expenditures.
2. The recommendations and decisions made by the fiscal crisis team or the receiver appointed pursuant to this section.
3. The status of the fiscal management plan described pursuant to subsection H of this section.
4. Recommendations to the state board of education on the content of professional development training related to overexpenditures or gross mismanagement.
5. Any recommendations of potential action to be taken concerning professional certificates issued to school district personnel by the state board of education or the department of education. The state board of education shall review the recommendations submitted pursuant to this paragraph and shall take appropriate action.
H. After appointment, the fiscal crisis team or the receiver appointed pursuant to this section shall review the financial affairs of the school district and may work with school finance personnel at the department of education to ensure that the finances of the school district are in compliance with the laws of this state. A school district that has been assigned a fiscal crisis team or a receiver pursuant to this section shall submit, in consultation with the receiver or the fiscal crisis team, a fiscal management report to the state board of education within one hundred twenty days after the date that the state board of education appointed the receiver or the fiscal crisis team. The fiscal management report shall include the following:
1. A description of the fiscal management plan that has been implemented to correct the overexpenditure or gross mismanagement, including the following:
(a) The manner in which the fiscal management plan will address the findings and recommendations of the fiscal crisis team.
(b) A timeline for complete resolution of the overexpenditure or gross mismanagement.
(c) A detailed explanation of the methods and procedures that will be implemented to prevent future overexpenditures or gross mismanagement.
(d) The identification of any issues that need to be resolved before the fiscal management plan may be fully implemented.
(e) The identification of any long-term issues resulting from the overexpenditure or gross mismanagement that will extend to future fiscal years.
2. A description of the manner in which the fiscal management plan was developed, including identification of the role of the fiscal crisis team or the receiver, the role of the school district governing board and the role of the administrators of the school district.
I. On or before December 31, the state board of education shall submit an annual report to the governor, the president of the senate and the speaker of the house of representatives. The state board shall provide a copy of this report to the secretary of state. The annual report shall include the following:
1. A summarized compilation of the fiscal management reports submitted by school districts pursuant to subsection H of this section.
2. The actions taken by the state board of education, the department of education, school districts, fiscal crisis teams and receivers during the most recently completed fiscal year.
3. Recommendations regarding improvements to the laws of this state or to administrative actions required under the laws of this state.
J. A school district that is assigned a level two fiscal crisis team or a receiver pursuant to this section shall require professional development training for school district governing board members and appropriate administrative personnel of the school district, including the school district superintendent, who are involved in district finances and budgeting, as determined by the level two fiscal crisis team or by the receiver. The professional development training shall be selected from a list approved by the state board of education, and the cost of the professional development training shall be paid by the school district. Governing board members and district administrative personnel shall complete at least twelve hours of professional development training within one hundred twenty days after the assignment of a level two fiscal crisis team or the appointment of a receiver. The fiscal crisis team or the receiver shall report to the state board of education whether the professional development training requirements prescribed in this subsection have been met.
K. A school district governing board member who fails to complete the professional development training within the time prescribed in subsection J of this section is guilty of nonfeasance in office, and the state board of education shall forward a complaint to the attorney general. The attorney general may bring an action in superior court against a school district governing board member for failure to comply with the professional development training requirements prescribed in subsection J of this section. If a court determines that a school district governing board member failed to comply with the professional development training requirements prescribed in subsection J of this section, the court shall issue an order removing the school district governing board member from office. Any vacancy in the office of the school district governing board as a result of a court order issued pursuant to this subsection shall be filled in the manner provided by law.
L. If any of the administrative personnel of the school district fails to complete the professional development training within the time prescribed in subsection J of this section, the state board of education may take appropriate action concerning current certificates held by that person.
M. All information received and records or reports kept by the state board of education during an investigation resulting from a complaint against a receiver appointed pursuant to this section or section 15-103 are confidential and not a public record.
N. For the purposes of this section: ,
1. "Gross mismanagement" has the same meaning prescribed in section 15-103.
2. "Overexpenditure" means an expenditure in excess of THAT EXCEEDS any of the following:
1. (a) The general budget limit of the school district or the amount budgeted by the school district, whichever is less.
2. (b) The unrestricted capital budget limit of the school district or the amount budgeted for capital by the school district, whichever is less.
