ARIZONA HOUSE OF REPRESENTATIVES

Fifty-fifth Legislature

Second Regular Session

HB 2114: school districts; gross mismanagement; intervention

Sponsor: Representative Udall, LD 25

Committee on Education

Overview

Modifies the definition of gross mismanagement as it relates to school districts. Specifies reporting requirements and timeframes for school districts who are found to be insolvent or engaged in gross mismanagement.

History

The State Board of Education (SBE) is tasked with reviewing allegations of school district insolvency and gross mismanagement. A school district is found to be insolvent or has grossly mismanaged its finances if: 1) it is unable to pay its debts; 2) its employees' salaries have remained unpaid for 45 days; 3) tuition owed to another school district or state institution remains unpaid; 4) it has defaulted in bond, bond interest or rental payments for 60 calendar days; 5) it has contracted for an unauthorized loan; 6) it has operated with a deficit equal to 5% or more of its revenue control limit within the past two fiscal years; or 7) its warrants have not been honored for payment. If SBE determines that a school district is insolvent or has grossly mismanaged its finances, SBE must appoint a receiver or fiscal crisis team for the school district. Statute details the authorized powers of a receiver (A.R.S. § 15-103).

Additionally, the Arizona Department of Education (ADE) may request that SBE call a public meeting to consider overexpenditures by a school district. After taking testimony, SBE may appoint a receiver or direct ADE to monitor the school district's expenditures or contract with a fiscal crisis team. Statute establishes reporting requirements for a school district and a fiscal crisis team or receiver (if one is utilized) under these circumstances (A.R.S. § 15-107).

Currently, gross mismanagement means that a school district's officers or employees committed gross incompetence or systemic and egregious mismanagement of the school district's finances or financial records (A.R.S. § 15-103).

Provisions

1. Alters the definition of gross mismanagement to include either of the following as indicated on any school district audit:

a) Four or more material weaknesses as determined by the Auditor General; or

b) 20 or more unfavorable findings as determined by the Auditor General and according to the Uniform System of Financial Records for three consecutive years. (Sec. 1)

2. Directs SBE, at the request of ADE, to:

a) Call a public meeting to consider gross mismanagement by any school district; and

b) Require a school district superintendent and any other personnel who may have information relevant to the gross mismanagement to appear before SBE. (Sec. 2)

3. Requires the written quarterly progress report submitted by a fiscal crisis team or receiver include recommendations to SBE on the content or professional development training related to gross mismanagement. (Sec. 2)

4. Adds the fiscal management report submitted by a school district assigned a fiscal crisis team or receiver must contain a description of the implemented fiscal management plan to correct the gross mismanagement, including:

a) A timeline for complete resolution of the gross mismanagement;

b) A detailed explanation of the methods that will be implemented to prevent future gross mismanagement; and

c) The identification of any long-term issues resulting from the gross mismanagement that will extend to future fiscal years. (Sec. 2)

5. Specifies that a school district is insolvent if SBE finds that:

a) The salaries of any employees have remained unpaid for at least 45 days; or

b) The school district has defaulted in payment of its bonds, interest on bonds or in rental payments for a period of at least 60 calendar days. (Sec. 1)

6. Makes technical and conforming changes. (Sec. 1, 2)

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