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ARIZONA STATE SENATE
Fifty-Sixth Legislature, Second Regular Session
schools; finance; instruction; accountability; revisions
Purpose
Revises school performance measures and financial reporting requirements, modifies the Auditor General’s (OAG) schoolwide audit team duties and directs school districts to consolidate numerous funds into a newly established School District Additional Monies Fund.
Background
The OAG determines the school district accounting systems, methods and procedures and, in conjunction with the Arizona Department of Education (ADE), prescribes a uniform system of financial records (USFR) for all school districts to use each fiscal year (A.R.S. § 15-271).
Statute requires the OAG to establish a schoolwide audit team to conduct performance audits and monitor school districts to determine the percentage of every dollar spent in the classroom by the school district. The OAG must determine, through random selection, the school districts to be audited each year, subject to review by the Joint Legislative Audit Committee (JLAC). A school district subjected to a performance audit must notify the OAG whether the school district agrees or disagrees with the findings of the audit and whether the school district will implement the recommendations, implement modifications to the recommendations or refuse to implement the recommendations. The OAG must review the school district's progress toward implementing the recommendations and provide status reports of the reviews to JLAC within a two-year period from the performance audit (A.R.S. § 41-1279.03).
A school district governing board must annually publish, by November 15, an annual financial report (AFR) for the prior fiscal year. The OAG, in conjunction with ADE, must prescribe the AFR format to be used by school districts. The AFR must contain budgeted and actual expenditures for the previous fiscal year, including detailed information for: 1) the bond building fund; 2) the unrestricted capital fund; 3) the adjacent ways fund; 4) the deficiencies correction fund; and 5) the new school facilities fund. The AFR must also include school level data for charter schools and schools operated by school districts. The Superintendent of Public Instruction (SPI) compiles all school district AFRs for the SPI's Annual Report (SAFR), which is annually reported to the Governor and the Legislature by January 15 (A.R.S. §§ 15-255 and 15-904).
The ADE must annually recommend to the State Board of Education (SBE) an achievement profile for each public school and local education agency (LEA) using classifications based on an A through F letter grade system. Each school district and charter school must submit any data to ADE that is necessary to compile the achievement profile. The A through F letter grade system is applied to each performance indicator of the prescribed annual achievement profile and the SBE must assign an overall letter grade for each public school or LEA. The annual achievement profile must include, at a minimum: 1) multiple measures of academic performance or other relevant indicators of school quality; 2) academic progress on the statewide assessments; 3) academic progress on the English Language learner assessments; 4) progress toward college and career readiness for all schools and LEAs that offer instruction to grades 9 through 12; 5) academic progress on the menu of achievement assessments; and 6) multiple measures of educational performance or other indicators that assess a school's educational impact, such as graduation and attendance rates (A.R.S. § 15-241).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
Financial Reporting and Auditing Revisions
1. Replaces the OAG's school wide audit team requirements to conduct performance audits and monitor school district classroom spending with requirements to conduct special audits and financial audits.
2. Removes the requirements for the OAG, the schoolwide audit team and school districts relating to school district performance audits and the monitoring of classroom spending.
3. Prohibits the SPI, for the purposes of compiling the SAFR, from requiring school districts or charter schools from separately submitting information that is otherwise available, including information that may be created or summarized from data reported in a school district's AFR.
4. Allows a school district to submit detailed general ledger information to the OAG and ADE in lieu of including, in an AFR:
a) the separate accounting information relating to:
i. the College Credit by Examination Incentive Program;
ii. the Arizona Industry Credentials Incentive Program;
iii. gifted pupils;
iv. school district budgets for excess utility costs;
v. school district budgets for a joint career and technical education and vocation education center; and
vi. energy and water savings accounts;
b) the information required by the OAG relating to English language learner education; and
c) specified reporting requirements prescribed by the AFR.
5. Requires the OAG, in conjunction with ADE, to prescribe new AFR formats by January 1, 2025.
6. Directs the OAG, in conjunction with ADE, to prescribe an AFR format to be used by school districts that submit detailed general ledger information and specifies that the format may not exceed two printed pages and must include only information that is relevant to the public interest.
7. Directs the OAG and ADE to consult with school districts in developing each new AFR format.
8. Sets, as August 15, the date by which the OAG and ADE must annually prescribe the final format to be used by school districts for the AFR and the summary form of the AFR for use by governing boards.
9. Specifies that, if the OAG does not prescribe the final format for the AFR by August 25, the school districts may use the format prescribed during the preceding year.
10. Prohibits the OAG from requiring a school district to create or maintain records for any fund or account that is not used by the school district, including any fund or account that has a balance of zero for at least one fiscal year.
11. Removes the requirements for ADE to include, in the Career and Technical Education District (CTED) annual report:
a) the student enrollment of each CTED program and corresponding course;
b) the percentage of students who enrolled in the second year of the program and corresponding course;
c) the percentage of students who completed each CTED program;
d) the associated costs of each CTED program; and
e) a listing of any CTED programs or courses continued, discontinued or added by review of ADE's Career and Technical Education Division.
12. Prohibits ADE from requiring a school district or charter school to separately submit information for the purposes of ADE's K-3 Reading Program annual report that is otherwise available, including data that may be created or summarized from data included in:
a) the SAFR;
b) a school district's AFR; or
c) the School Financial Transparency Portal.
13. Allows a governing board, in a public hearing and governing board meeting, to adopt procurement policies and procedures that exempt the school district from the public bidding requirements under the SBE-adopted procurement rules for contracts that exceed the aggregate dollar amount limits prescribed and do not involve construction.
14. Adds, to the procurement practices guidelines the OAG must prescribe for the USFR, guidelines applicable to procurement practices for use by school district for amounts exempt from public bidding requirements pursuant to a governing board-adopted policy.
Annual Achievement Profile Performance Classification
15. Requires the annual achievement profile to use performance classifications based on a system adopted by the SBE, rather than classifications based on an A through F letter grade system in which a letter grade of A reflects an excellent level of performance, and a letter grade of F reflects a failing level of performance.
16. Removes the requirement for the SBE to assign an overall letter grade to each public school and local education agency for the annual achievement profile.
17. Requires the school report card to explain whether the performance classification assigned to the school to indicate that the school:
a) meets the expected standards;
b) fails to meet the expected standards; or
c) exceeds the expected standards.
18. Allows the SBE to assign the lowest performance classification, rather than an F letter grade, to a school for each performance indicator of the annual achievement profile if the SBE determines that the school is among the persistently lowest-achieving Arizona schools for a majority of the annual achievement profile performance indicators.
19. Applies the requirements relating to the K-3 reading program for a school district or charter school assigned a letter grade of C, D or F to a school district or charter school assigned a performance classification indicating that the school district or charter school does not exceed the expected standards.
20. Applies, to the SBE's performance classifications, the annual achievement letter grade requirements for the purposes of school district requests from regulatory exemptions.
21. Applies the requirements relating to school improvement plans:
a) for a school assigned a D letter grade to a school assigned a failing performance classification that is not the lowest performance classification; and
b) for a school assigned an F letter grade to a school assigned the lowest performance classification.
22. Applies the requirements relating to alternative operation plans for a school district with schools assigned a D or F letter grade to a school district with schools that receive a performance classification indicating that the schools failed to meet the expected standards.
23. Exempts a CTED from being assigned an annual achievement profile performance classification, rather than letter grade.
24. Modifies school district consolidation eligibility by including consolidations to change the boundaries of a school district that has received a performance classification indicating that the school district exceeded the expected standards, rather than an A or B letter grade.
25. Modifies teacher evaluation policy requirements by prescribing:
a) incentives for teachers in the two highest performance classifications to work at schools assigned a failing performance classification, rather than a D letter grade;
b) protections for teachers who are transferred to schools that are assigned a failing performance classification, rather than a D or F letter grade.
26. Modifies eligibility criteria for achievement district schools by requiring a school to be assigned the annual achievement profile's highest performance classification, rather than an A letter grade.
School District Fund Consolidation
27. Removes the requirement for a school district to establish an Advertisement Fund for revenues from the sale of advertisements.
28. Repeals the authorization for a school district to deposit insurance premium refunds with the county treasurer to credit to the school district's Insurance Refund Fund and the permissible uses for Insurance Refund Fund monies.
29. Removes the requirements relating to a school district's Fingerprint Fund.
30. Repeals the authorization for a school district to hold monies and the permissible expenditures of monies obtained for:
a) lost or damaged textbooks, subject matter materials, supplementary books or instructional computer software; or
b) repairing or replacing textbooks, subject matter materials, supplementary books or instructional computer software which are lost or damaged.
31. Removes the authority for a school district to transfer an amount from the school district's maintenance and operations fund ending cash balance to the school district's School Opening Fund and the requirements relating to a School Opening Fund.
32. Repeals the authorization for a school district to deposit monies received or derived from insurance loses with the county treasurer to credit to the school district's Insurance Proceeds Fund and the permissible uses for Insurance Proceeds Fund monies.
33. Repeals the requirement to deposit unemployment compensation monies with the county treasurer to credit to the school district's Unemployment Compensation Fund and the permissible uses for Unemployment Compensation Fund monies.
34. Repeals the authorization for a governing board to deposit, in a separate bank account, grants or gifts that are less than $1,500 and designated for use by a teacher for instructional purposes.
35. Repeals the authorization for a school district to establish a Career and Technical Education Projects Fund and requirements and the permissible uses for Career and Technical Education Projects Fund monies.
36. Directs each school district governing board to establish a School District Additional Monies Fund, consisting of monies received by the school district from any lawful source for which a specific fund is not designated, established or required by law or the grantor, including private grants, gifts, contributions and devises.
37. Allows School District Additional Monies Fund monies to be used for any expenditure that is included in a governing board's final adopted budget.
38. Specifies that School District Additional Monies Fund monies are not subject to reversion.
39. Transfers all unexpended and unencumbered monies in the following school district funds to the respective school district's School District Additional Monies Fund:
a) the Advertisement Fund;
b) the Insurance Refund Fund;
c) the Fingerprint Fund;
d) monies obtained for lost or damaged textbooks books and other school supplies;
e) the School Opening Fund;
f) the Insurance Proceeds Fund;
g) the Unemployment Compensation Fund; and
h) the Career and Technical Education Projects Fund.
40. Directs a governing board to close the bank account opened for grants and gifts that are less than $1,500 and designated for use by a teacher for instructional purposes and transfer any remaining monies to the school district's School District Additional Monies Fund.
Miscellaneous
41. Authorizes a public school to designate any school day during the school year as Sandra Day O'Connor Civics Celebration Day and dedicate a majority of that school day to civics education.
42. Specifies that a public school may designate any day during the school year as 9/11 Education Day.
43. Allows a public school to provide the required Sandra Day O'Connor Civics Celebration Day and 9/11 Education Day instruction on the same day of the school year.
44. Removes the requirement for a school district to use Litigation Recovery Fund monies only for specified purposes.
45. Allows a school district to use Litigation Recovery Fund monies for remedial measures reasonably related to a legal controversy or litigation by or against the school district as specified.
46. Authorizes a school district, after all other required expenditures, to use monies remaining in the school district's Litigation Recovery Fund for maintenance and operation or unrestricted capital outlay.
47. Allows a school district or charter school to fulfill the dyslexia training requirement by ensuring that at least one designated employee in each school has received the dyslexia training.
48. Requires a school district bond election to be called for at least 90 days before the proposed election.
49. Repeals the Arizona Industry Credentials Incentive Program and Incentive Program Fund and the requirements relating to:
a) ADE's administration of the list of qualifying CTE credentials;
b) distribution of $1,000 awards to school districts, charter schools and CTEDs for each qualifying student;
c) permissible uses of Incentive Program award monies; and
d) ADE's annual Incentive Program report.
50. Removes, retroactive to June 30, 2024, the June 30, 2024, expiration date for the following authorized purposes of contributions made to a public school:
a) the acquisition of outlined capital items;
b) community school meal programs;
c) student consumable health care supplies; and
d) playground equipment and shade structures for playground equipment.
51. Makes technical and conforming changes.
52. Becomes effective on the general effective date, with a retroactive provision as noted.
Prepared by Senate Research
February 5, 2024
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