Budgets: multiyear financial commitments., the official text

An act to amend Sections 1240, 1630, 33128, 42127.6, and 42131 of the Education Code, relating to school finance.

LEGISLATIVE COUNSEL'S DIGEST

Existing law requires the Superintendent of Public Instruction, the Controller, and the Director of Finance to develop and update as necessary, standards and criteria to be reviewed and adopted by the State Board of Education and to be used by local educational agencies in the development of annual budgets and the management of subsequent expenditures from that budget, as specified. Existing law requires these standards and criteria to include, among other things, multiyear commitments, including cost-of-living adjustments.
This bill would specify that the multiyear commitments are for only the current fiscal year and the subsequent fiscal year. The bill would require the state board, on or before March 1, 2027, to amend specified related regulations, as provided, and would require the State Department of Education to modify the Standardized Account Code Structure reporting software infrastructure to eliminate reporting fields for a 2nd subsequent fiscal year and, commencing with the 2027–28 fiscal year, ensure that the system reflects a 2-year operational and forecasting structure.
Existing law requires the governing board of a school district and each county board of education, on or before July 1 of each year, to adopt a budget, as specified, and requires that budget to be filed with the county superintendent of schools or the Superintendent, respectively. Existing law requires the county superintendent of schools or the Superintendent, as applicable, to, among other things, examine the adopted budget to determine whether it complies with the standards and criteria adopted by the state board for local educational agency budgets and determine whether the adopted budget (1) will allow the school district or county office of education to meet its financial obligations during the fiscal year and (2) is consistent with a financial plan that will enable the school district or county office of education to satisfy its multiyear financial commitments.
Existing law requires the governing board of each school district and each county superintendent of schools to certify whether the school district or county office of education is able to meet its financial obligations for the remainder of the fiscal year and for the subsequent 2 fiscal years. Existing law requires (1) a negative certification to be assigned to any school district or county office of education that will be unable to meet its financial obligations for the remainder of the fiscal year or the subsequent fiscal year, (2) a qualified certification to be assigned to the school district or county office of education that may not meet its financial obligations for the current fiscal year or 2 subsequent fiscal years, and (3) a positive certification to be assigned to a school district or county office of education that will meet its financial obligations for the current fiscal year and subsequent 2 fiscal years. Existing law requires a copy of the school district’s or county superintendent’s certification to be filed with the county superintendent of schools or the Superintendent, respectively.
The bill would instead only require certification for the current fiscal year and the subsequent fiscal year, and would require determinations for qualified and positive certifications to instead be assigned based only on the current fiscal year and the subsequent fiscal year. The bill would also make conforming changes to related provisions.

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

SECTION 1.
Section 1240 of the Education Code is amended to read:
1240.
The county superintendent of schools shall do all of the following:
(a) Superintend the schools of that county.
(b) Maintain responsibility for the fiscal oversight of each school district in that county pursuant to the authority granted by this code.
(c) (1) Visit and examine each school in the county at reasonable intervals to observe its operation and to learn of its problems. The county superintendent of schools annually may present a report of the state of the schools in the county, and of the county office of education, including, but not limited to, observations from visiting the schools, to the board of education and the board of supervisors of the county.
(2) (A) (i) Commencing with the 2021–22 fiscal year, the Superintendent shall identify a list of schools, which shall include charter schools, for which the county superintendent, or a designee, shall inspect annually, and about which the county superintendent, or a designee, shall submit an annual report, at a regularly scheduled November board meeting, to the governing board of each school district under the jurisdiction of the county superintendent, the county board of education of that county, and the board of supervisors of that county, that describes the state of the schools in the county. The list established in the 2021–22 fiscal year shall also be used as the list established in the 2022–23 and 2023–24 fiscal years. The list of schools established pursuant to this section shall be reestablished in the 2024–25 fiscal year and again every three fiscal years thereafter. Each list shall be established in accordance with clause (ii), and shall be used for inspections beginning the following fiscal year.
(ii) The list of schools pursuant to clause (i) shall be compiled as follows:
(I) The Superintendent shall include on the list all schools that were most recently identified for comprehensive support and improvement and additional targeted support and improvement pursuant to the federal Every Student Succeeds Act (Public Law 114-95) or identified as low performing under the federal Elementary and Secondary Education Act of 1965 (Public Law 89-10), or any subsequent amendments to that act. For the list established in the 2021–22, 2022–23, and 2023–24 fiscal years, the Superintendent shall use the list of schools identified in the 2019–20 fiscal year for comprehensive support and improvement and for additional targeted support and improvement.
(II) The Superintendent shall include on the list all schools where 15 percent or more of the teachers are holders of a permit or certificate, such as a temporary or short-term permit, a substitute permit, a waiver, an intern credential, or any other authorization that is a lesser certification than a preliminary or clear California teaching credential. With the exception of alternative schools, all schools within a local educational agency that fail to meet the requirements of Sections 44258.9 and 60900 shall be included on the list for the applicable reporting cycle.
(III) The list of schools compiled pursuant to clause (i) shall exclude alternative schools within the meaning of subdivision (d) of Section 52052 and other schools accepted for participation in the Dashboard Alternative School Status program by the department.
(iii) The annual report shall include the determinations for each school made by the county superintendent, or the county superintendent’s designee, regarding the status of all of the circumstances listed in subparagraph (E) and teacher misassignments and teacher vacancies, as described in Section 44258.9, and the county superintendent, or the county superintendent’s designee, shall use a standardized template to report the circumstances listed in subparagraph (E) and teacher misassignments and teacher vacancies, as described in Section 44258.9, unless the current annual report being used by the county superintendent, or the county superintendent’s designee, already includes those details with the same level of specificity that is otherwise required by this subdivision.
(B) The county superintendent of the Counties of Alpine, Amador, Del Norte, Mariposa, Plumas, and Sierra, and the City and County of San Francisco shall contract with another county office of education or an independent auditor to conduct the required visits and make all reports required by this paragraph.
(C) On a quarterly basis, the county superintendent, or the county superintendent’s designee, shall report the results of the visits and reviews conducted that quarter to the governing board of the school district at a regularly scheduled meeting held in accordance with public notification requirements. The results of the visits and reviews shall include the determinations of the county superintendent, or the county superintendent’s designee, for each school regarding the status of all of the circumstances listed in subparagraph (E) and teacher misassignments and teacher vacancies, as described in Section 44258.9. If the county superintendent, or the county superintendent’s designee, conducts no visits or reviews in a quarter, the quarterly report shall report that fact.
(D) The visits made pursuant to this paragraph shall be conducted at least annually and shall meet the following criteria:
(i) Minimize disruption to the operation of the school.
(ii) Be performed by individuals who meet the requirements of Section 45125.1.
(iii) Consist of not less than 25 percent unannounced visits in each county. During unannounced visits in each county, the county superintendent shall not demand access to documents or specific school personnel. Unannounced visits shall only be used to observe the condition of school repair and maintenance, and the sufficiency of instructional materials, as defined by Section 60119.
(E) The priority objective of the visits made pursuant to this paragraph shall be to determine the status of all of the following circumstances:
(i) Sufficient textbooks, as defined in Section 60119 and as specified in subdivision (i).
(ii) The condition of a facility that poses an emergency or urgent threat to the health or safety of pupils or staff, as described in school district policy or paragraph (1) of subdivision (c) of Section 17592.72.
(iii) The accuracy of data reported on the school accountability report card with respect to the availability of sufficient textbooks and instructional materials, as defined by Section 60119, and the safety, cleanliness, and adequacy of school facilities, including good repair, as required by Sections 17014, 17032.5, 17070.75, and 17089.
(F) The county superintendent may make the status determinations described in subparagraph (E) during a single visit or multiple visits. In determining whether to make a single visit or multiple visits for this purpose, the county superintendent shall take into consideration factors such as cost-effectiveness, disruption to the schoolsite, deadlines, and the availability of qualified reviewers.
(G) If the county superintendent determines that the condition of a facility poses an emergency or urgent threat to the health or safety of pupils or staff as described in school district policy or paragraph (1) of subdivision (c) of Section 17592.72, or is not in good repair, as specified in subdivision (d) of Section 17002 and required by Sections 17014, 17032.5, 17070.75, and 17089, the county superintendent, among other things, may do any of the following:
(i) Return to the school to verify repairs.
(ii) Prepare a report that specifically identifies and documents the areas or instances of noncompliance if the school district has not provided evidence of successful repairs within 30 days of the visit of the county superintendent or, for major projects, has not provided evidence that the repairs will be conducted in a timely manner. The report may be provided to the governing board of the school district. If the report is provided to the school district, it shall be presented at a regularly scheduled meeting held in accordance with public notification requirements. The county superintendent shall post the report on the internet website of the county superintendent. The report shall be removed from the internet website when the county superintendent verifies the repairs have been completed.
(H) For schools that are identified on the list established in the 2024–25 fiscal year pursuant to subparagraph (A), and only in the fiscal years in which that list is used, a county superintendent shall complete the textbook and instructional materials review conducted for purposes of this paragraph and subparagraph (A) of paragraph (3) of subdivision (i) by the eighth week of the school year. The county superintendent shall prioritize reviewing, within the first four weeks of the school year where practicable, schools for which the county superintendent has received information from a survey, a complaint filed pursuant to Section 35186, or any other reliable source that the school does not have sufficient textbooks, as defined in Section 60119 and as specified in subdivision (i), or that a facility of the school poses an emergency or urgent threat to the health or safety of pupils or staff as described in school district policy or paragraph (1) of subdivision (c) of Section 17592.72, or is not in good repair, as specified in subdivision (d) of Section 17002 and required by Sections 17014, 17032.5, 17070.75, and 17089.
(d) Distribute all laws, reports, circulars, instructions, and blanks that the county superintendent may receive for the use of the school officers.
(e) Annually, on or before September 15, present a report to the governing board of the school district and the Superintendent regarding the fiscal solvency of a school district with a disapproved budget, qualified interim certification, or a negative interim certification, or that is determined to be in a position of fiscal uncertainty pursuant to Section 42127.6.
(f) Keep in the office of the county superintendent the reports of the Superintendent.
(g) Keep a record of the official acts of the county superintendent and of all the proceedings of the county board of education, including a record of the standing, in each study, of all applicants for certificates who have been examined, which shall be open to the inspection of an applicant or an authorized agent of the applicant.
(h) Enforce the course of study.
(i) (1) Enforce the use of state textbooks and instructional materials and of high school textbooks and instructional materials regularly adopted by the proper authority in accordance with Section 51050.
(2) For purposes of this subdivision, sufficient textbooks or instructional materials has the same meaning as in subdivision (c) of Section 60119.
(3) (A) Commencing with the 2022–23 school year, if a school is identified as specified in subparagraph (A) of paragraph (2) of subdivision (c), the county superintendent specifically shall review that school at least annually as a priority school. A review conducted for purposes of this paragraph shall be completed by the fourth week of the school year, except as specified in subparagraph (H) of paragraph (2) of subdivision (c).
(B) In order to facilitate the review of instructional materials before the fourth week of the school year, the county superintendent in a county with 200 or more schools that are identified as specified in subparagraph (A) of paragraph (2) of subdivision (c) may use a combination of visits and written surveys of teachers for the purpose of determining sufficiency of textbooks and instructional materials in accordance with subparagraph (A) of paragraph (1) of subdivision (a) of Section 60119 and as defined in subdivision (c) of Section 60119. If a county superintendent elects to conduct written surveys of teachers, the county superintendent shall visit the schools surveyed within the same academic year to verify the accuracy of the information reported on the surveys. If a county superintendent surveys teachers at a school in which the county superintendent has found sufficient textbooks and instructional materials for the previous two consecutive years and determines that the school does not have sufficient textbooks or instructional materials, the county superintendent shall, within 10 business days, provide a copy of the insufficiency report to the school district as set forth in paragraph (4).
(C) For purposes of this paragraph, “written surveys” may include paper and electronic or online surveys.
(4) If the county superintendent of schools determines that a school does not have sufficient textbooks or instructional materials in accordance with subparagraph (A) of paragraph (1) of subdivision (a) of Section 60119 and as defined by subdivision (c) of Section 60119, the county superintendent shall do all of the following:
(A) Prepare a report that specifically identifies and documents the areas or instances of noncompliance.
(B) Provide within five business days of the review, a copy of the report to the school district, as provided in subdivision (c), or, if applicable, provide a copy of the report to the school district within 10 business days pursuant to subparagraph (B) of paragraph (3).
(C) Provide the school district with the opportunity to remedy the deficiency. The county superintendent shall ensure that the deficiency is remedied no later than the second month of the school term.
(D) If the deficiency is not remedied as required pursuant to subparagraph (C), the county superintendent shall request the department to purchase the textbooks or instructional materials necessary to comply with the sufficiency requirement of this subdivision. If the department purchases textbooks or instructional materials for the school district, the department shall issue a public statement at the first regularly scheduled meeting of the state board occurring immediately after the department receives the request of the county superintendent and that meets the applicable public notice requirements, indicating that the district superintendent and the governing board of the school district failed to provide pupils with sufficient textbooks or instructional materials as required by this subdivision. Before purchasing the textbooks or instructional materials, the department shall consult with the school district to determine which textbooks or instructional materials to purchase. The amount of funds necessary for the purchase of the textbooks and materials is a loan to the school district receiving the textbooks or instructional materials. Unless the school district repays the amount owed based upon an agreed-upon repayment schedule with the Superintendent, the Superintendent shall notify the Controller and the Controller shall deduct an amount equal to the total amount used to purchase the textbooks and materials from the next principal apportionment of the school district or from another apportionment of state funds.
(5) If the county superintendent of schools determines that there are insufficient textbooks or instructional materials pursuant to a resolution received in accordance with subparagraph (A) of paragraph (2) of subdivision (a) of Section 60119 and as defined by subdivision (c) of Section 60119, or as a result of receiving a report of an unresolved complaint pursuant to subdivision (e) of Section 35186 or an audit exception pursuant to subdivision (i) of Section 41020, the county superintendent shall do both of the following:
(A) Provide the school district with the opportunity to remedy the deficiency. The county superintendent shall ensure that the deficiency is remedied no later than the second month of the school term.
(B) If the deficiency is not remedied as required pursuant to subparagraph (A), the county superintendent shall request the department to purchase the textbooks or instructional materials necessary to comply with the sufficiency requirement of this subdivision. If the department purchases the textbooks or instructional materials for the school district, the department shall issue a public statement at the first regularly scheduled meeting of the state board occurring immediately after the department receives the request of the county superintendent and that meets the applicable public notice requirements, indicating that the district superintendent and the governing board of the school district failed to provide pupils with sufficient textbooks or instructional materials as required by this subdivision. Before purchasing the textbooks or instructional materials, the department shall consult with the school district when determining which textbooks or instructional materials to purchase. The amount of funds necessary for the purchase of the textbooks and materials is a loan to the school district receiving the textbooks or instructional materials. Unless the school district repays the amount owed based upon an agreed-upon repayment schedule with the Superintendent, the Superintendent shall notify the Controller and the Controller shall deduct an amount equal to the total amount used to purchase the textbooks and materials from the next principal apportionment of the school district or from another apportionment of state funds.
(j) Preserve carefully all reports of school officers and teachers.
(k) Deliver to the county superintendent’s successor, at the close of the county superintendent’s official term, all records, books, documents, and papers belonging to the office, taking a receipt for them, which shall be filed with the department.
(l) (1) Submit two reports during the fiscal year to the county board of education in accordance with the following:
(A) The first report shall cover the financial and budgetary status of the county office of education for the period ending October 31. The second report shall cover the period ending January 31. Both reports shall be reviewed by the county board of education and approved by the county superintendent no later than 45 days after the close of the period being reported.
(B) As part of each report, the county superintendent shall certify in writing whether or not the county office of education is able to meet its financial obligations for the remainder of the fiscal year and, based on current forecasts, for the subsequent fiscal year. The certifications shall be classified as positive, qualified, or negative, pursuant to standards prescribed by the Superintendent, for purposes of determining subsequent state agency actions pursuant to Section 1240.1. For purposes of this subdivision, a negative certification shall be assigned to a county office of education that, based upon current projections, will not meet its financial obligations for the remainder of the fiscal year or for the subsequent fiscal year. A qualified certification shall be assigned to a county office of education that may not meet its financial obligations for the current fiscal year or the subsequent fiscal year. A positive certification shall be assigned to a county office of education that will meet its financial obligations for the current fiscal year and the subsequent fiscal year. In accordance with those standards, the Superintendent may reclassify a certification. If a county office of education receives a negative certification, the Superintendent, or the Superintendent’s designee, may exercise the authority set forth in subdivision (d) of Section 1630. Copies of each certification, and of the report containing that certification, shall be sent to the Superintendent at the time the certification is submitted to the county board of education. Copies of each qualified or negative certification and the report containing that certification shall be sent to the Controller at the time the certification is submitted to the county board of education.
(2) All reports and certifications required under this subdivision shall be in a format or on forms prescribed by the Superintendent, and shall be based on standards and criteria for fiscal stability adopted by the state board pursuant to Section 33127. The reports and supporting data shall be made available by the county superintendent to an interested party upon request.
(3) This subdivision does not preclude the submission of additional budgetary or financial reports by the county superintendent to the county board of education or to the Superintendent.
(4) The county superintendent is not responsible for the fiscal oversight of the community colleges in the county, however, the county superintendent may perform financial services on behalf of those community colleges.
(5) A county office of education having a negative or qualified certification, or classified as qualified or negative by the Superintendent, shall continue to be classified as qualified or negative until the next report required under this subdivision is filed.
(m) If requested, act as agent for the purchase of supplies for the city and high school districts of that county.
(n) For purposes of Section 44421.5, report to the Commission on Teacher Credentialing the identity of a certificated person who knowingly and willingly reports false fiscal expenditure data relative to the conduct of an educational program. This requirement applies only if, in the course of normal duties, the county superintendent discovers information that gives the county superintendent reasonable cause to believe that false fiscal expenditure data relative to the conduct of an educational program has been reported.
(o) If any activities authorized pursuant to this section are found to be a state reimbursable mandate pursuant to Section 6 of Article XIII B of the California Constitution, funding provided for school districts and county offices of education pursuant to Sections 2574, 2575, 42238.02, and 42238.03 shall be used to directly offset any mandated costs.

SEC. 2.
Section 1630 of the Education Code is amended to read:
1630.
(a) The Superintendent shall review and consider studies, reports, evaluations, or audits of the county office of education that contain evidence that the county office of education is demonstrating fiscal distress according to the standards and criteria adopted by the state board pursuant to Section 33127 or that contain a finding by an external reviewer that the county office of education is at moderate or high risk of intervention based on the most common indicators of school agencies needing intervention, as determined by the County Office Fiscal Crisis and Management Assistance Team. If those findings are made, the Superintendent shall investigate the financial condition of the county office of education and determine if the county office of education may be unable to meet its financial obligations for the current fiscal year or the subsequent fiscal year, or should receive a qualified or negative interim financial certification pursuant to Section 1240.
(b) If at any time during the fiscal year the Superintendent determines that the county office of education may be unable to meet its financial obligations for the current fiscal year or the subsequent fiscal year, or if the county office has a qualified or negative certification pursuant to Section 1240, the Superintendent shall provide a written notice of going concern determination to the county board of education and the county superintendent of schools and the basis for the determination. The notification shall include the assumptions used in making the determination and shall be available to the public. The Superintendent shall take all actions that are necessary, including at least one of the following, to ensure that the county office of education meets its financial obligations:
(1) Assign a fiscal expert, paid for by the Superintendent, to advise the county office of education on its financial problems.
(2) Conduct a study of the financial and budgetary conditions of the county office of education that includes, but is not limited to, a review of the county office of education’s internal controls. If in the course of this review, the Superintendent determines that their office requires analytical assistance or expertise that is not available through the county office, the Superintendent may employ, at the county office of education’s expense, on a short-term basis, staff, including certified public accountants, to provide the assistance and expertise.
(3) Direct the county office of education to submit a financial projection of all fund and cash balances of the county office of education as of June 30 of the current fiscal year and the subsequent fiscal year, as the Superintendent requires.
(4) Require the county office of education to encumber all contracts and other obligations, to prepare appropriate cashflow analyses and monthly or quarterly budget revisions, and to appropriately record all receivables and payables.
(5) Direct the county office of education to submit a proposal for addressing the fiscal conditions that resulted in the determination that the county office of education may not be able to meet its financial obligations.
(6) Withhold compensation of the county board of education and the county superintendent of schools for failure to provide requested financial information.
(c) If, after taking the actions identified in subdivision (a), the Superintendent determines that a county office of education will be unable to meet its financial obligations for the current fiscal year or the subsequent fiscal year, or if a county office of education experiences a significant fiscal event that is determined by the Superintendent to have an immediate severe fiscal impact that will cause a county office of education to be unable to meet its financial obligations for the current fiscal year or the subsequent fiscal year, the Superintendent shall notify the county board of education, the county superintendent of schools, and the president of the state board, or the president’s designee, in writing of that determination and the basis for that determination. The notification shall include the assumptions used in making the determination and shall be available to the public.
(d) If the Superintendent makes a determination specified in subdivision (c) or if the county office of education has a negative certification pursuant to Section 1240, the Superintendent shall make a report to the president of the state board, or the president’s designee, about the financial condition of the county office of education and remedial actions proposed by the Superintendent and shall take all actions that are necessary to ensure that the county office of education meets its financial obligations, including at least one of the following actions:
(1) Develop and impose, in consultation with the county board of education and the county superintendent, a budget revision that will enable the county office of education to meet its financial obligations in the current fiscal year.
(2) Stay or rescind all actions determined to be inconsistent with the ability of the county office of education to meet its obligations for the current fiscal year or the subsequent fiscal year, including all actions up to the point that the subsequent year’s budget is approved by the Superintendent. The Superintendent shall inform the county board of education and the county superintendent of schools in writing of the Superintendent’s justification for all exercises of authority under this paragraph.
(3) Assist in developing, in consultation with the county board of education and the county superintendent of schools, a multiyear financial recovery plan that will enable the county office of education to meet its future obligations.
(4) Assist in developing, in consultation with the county board of education and the county superintendent, a budget for the subsequent fiscal year. If necessary, the Superintendent shall continue to work with the county board of education and the county superintendent until the budget for the subsequent year is adopted by the county board of education and approved by the Superintendent.
(5) As necessary, appoint a fiscal adviser to perform one or more of the duties prescribed by this subdivision on behalf of the Superintendent.
(e) All actions taken by the Superintendent pursuant to paragraph (1) or (2) of subdivision (d) shall be accompanied by a notification that includes the actions to be taken, the reasons for the actions, and the assumptions used to support the necessity for the actions. That notification shall be available to the public.
(f) This section does not authorize the Superintendent to abrogate a provision of a collective bargaining agreement that was entered into by a county office of education before the date that the Superintendent assumed authority pursuant to subdivision (d).
(g) The county office of education shall pay 75 percent of, and the Superintendent shall pay 25 percent of, the administrative expenses incurred pursuant to subdivision (d) or costs associated with improving the county office of education’s financial management practices.
(h) Notwithstanding any other law, a county treasurer shall not honor a warrant when the Superintendent, as appropriate, has disapproved that warrant, or has disapproved the order on county office of education funds for which a warrant was prepared.
(i) For all purposes of errors and liability insurance policies, a fiscal expert appointed pursuant to this section shall be deemed to be an employee of the county office of education. The Superintendent may require that the fiscal adviser be placed on the county office of education payroll for purposes of remuneration, benefits, and payroll deductions.
(j) If staff persons are hired pursuant to paragraph (2) of subdivision (b), the Superintendent may certify to the Controller an amount to be transferred to the department, from the funds that otherwise would be apportioned to the county office of education pursuant to Section 2574 or 2575, for the purpose of paying all costs incurred by that staff in performing their respective services. The Controller, upon receipt of that certification, shall transfer that amount.
(k) To facilitate the appointment of a county office of education fiscal officer and the employment of additional staff pursuant to paragraphs (1) and (2), respectively, of subdivision (b), for purposes of those paragraphs, the Superintendent is exempt from the requirements of Article 6 (commencing with Section 999) of Chapter 6 of Division 4 of the Military and Veterans Code and Part 2 (commencing with Section 10100) of Division 2 of the Public Contract Code.

SEC. 3.
Section 33128 of the Education Code is amended to read:
33128.
(a) The standards and criteria to be adopted by the state board pursuant to Section 33127 shall include, but not be limited to, comparisons and reviews, including appropriate methods of projection, of all of the following:
(1) Average daily attendance.
(2) Revenues and expenditures.
(3) Reserves and fund balance.
(4) (A) Multiyear commitments for only the current fiscal year and the subsequent fiscal year, including cost-of-living adjustments.
(B) (i) (I) The state board shall, on or before March 1, 2027, amend Subchapter 8 (commencing with Section 15440) and Subchapter 9 (commencing with Section 15467) of Chapter 14 of Division 1 of Title 5 of the California Code of Regulations to substitute references to “two subsequent fiscal years” with “the subsequent fiscal year” instead, as applicable.
(II) The amendments pursuant to subclause (I) are a conforming change and shall be exempt from the requirements of Section 33127 and the Administrative Procedures Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code), and the state board shall submit the amended regulations to the Office of Administrative Law only for the printing and publication of the amended regulations in the California Code of Regulations. The amended regulations shall become effective immediately upon filing by the Secretary of State.
(ii) The department shall modify the Standardized Account Code Structure reporting software infrastructure to eliminate reporting fields for a second subsequent fiscal year and, commencing with the 2027–28 fiscal year, ensure the system reflects a two-year operational and forecasting structure.
(b) In addition to the requirements of subdivision (a), the standards and criteria to be adopted by the state board pursuant to Section 33127 shall include, but not be limited to, all of the following:
(1) Clear definitions and guidelines for positive, qualified, and negative interim financial certifications pursuant to Sections 42130 and 42131.
(2) District financial health indicators to provide a comprehensive review and assessment of the financial condition of districts and to help identify districts that are developing financial problems before the problems become severe. The indicators shall take into account issues including, but not limited to, all of the following:
(A) Increasing or decreasing balances available for general purposes and general purpose reserve size relative to the standard for the district.
(B) Long-term commitments for rates of increase in significant cost centers that are more or less than current revenue growth rate projections, including the projected cost change of the workforce taking into account the progression of newer hires and existing staff through the salary schedule and likely turnover, and all compensation for the superintendent of the school district and executive positions reporting directly to the superintendent of the school district.
(C) Use of one-time revenues for ongoing costs.
(D) Use of ongoing revenues for one-time costs.
(E) Appropriate recognition and amortization of future commitments including any district-created benefit program.
(F) Facilities maintenance funding adequate to preserve functionality of facilities for their normal life.

SEC. 4.
Section 42127.6 of the Education Code is amended to read:
42127.6.
(a) (1) A school district shall provide the county superintendent of schools with a copy of a study, report, evaluation, or audit that was commissioned by the school district, the county superintendent, the Superintendent, and state control agencies and that contains evidence that the school district is showing fiscal distress under the standards and criteria adopted by the state board pursuant to Section 33127, or a report on the school district by the County Office Fiscal Crisis and Management Assistance Team. The county superintendent shall review and consider studies, reports, evaluations, or audits of the school district that contain evidence that the school district is demonstrating fiscal distress under the standards and criteria adopted by the state board pursuant to Section 33127 or that contain a finding by an external reviewer that the school district is at moderate or high risk of intervention based on the most common indicators of a school district needing intervention, as determined by the County Office Fiscal Crisis and Management Assistance Team. If these findings are made, the county superintendent of schools shall investigate the financial condition of the school district and determine if the school district may be unable to meet its financial obligations for the current fiscal year or the subsequent fiscal year, or should receive a qualified or negative interim financial certification pursuant to Section 42131. If at any time during the fiscal year the county superintendent of schools determines that a school district may be unable to meet its financial obligations for the current fiscal year or the subsequent fiscal year, or if a school district has a qualified or negative certification pursuant to Section 42131, the county superintendent of schools shall provide a written notice of going concern determination to the governing board of the school district and the Superintendent and the basis for the determination. The notification shall include the assumptions used in making the determination and shall be available to the public. The county superintendent of schools shall report to the Superintendent on the financial condition of the school district and the county superintendent’s proposed remedial actions and shall do at least one of the following and all actions that are necessary to ensure that the school district meets its financial obligations:
(A) Assign a fiscal expert, paid for by the county superintendent of schools, to advise the school district on its financial problems.
(B) Conduct a study of the financial and budgetary conditions of the school district that includes, but is not limited to, a review of internal controls. If, in the course of this review, the county superintendent of schools determines that the county superintendent’s office requires analytical assistance or expertise that is not available through the school district, the county superintendent of schools may employ, on a short-term basis, with the approval of the Superintendent, staff, including certified public accountants, to provide the assistance and expertise. The school district shall pay 75 percent and the county office of education shall pay 25 percent of these staff costs.
(C) Direct the school district to submit a financial projection of all fund and cash balances of the district as of June 30 of the current fiscal year and the subsequent fiscal year, as the county superintendent of schools requires.
(D) Require the district to encumber all contracts and other obligations, to prepare appropriate cashflow analyses and monthly or quarterly budget revisions, and to appropriately record all receivables and payables.
(E) Direct the school district to submit a proposal for addressing the fiscal conditions that resulted in the determination that the school district may not be able to meet its financial obligations.
(F) Withhold compensation of the members of the governing board of the school district and the school district superintendent for failure to provide requested financial information. This action may be appealed to the Superintendent pursuant to subdivision (b).
(G) Assign the County Office Fiscal Crisis and Management Assistance Team to review teacher hiring practices, teacher retention rate, percentage of provision of highly qualified teachers, and the extent of teacher misassignment in the school district, to provide the school district with recommendations to streamline and improve the teacher hiring process, teacher retention rate, extent of teacher misassignment, and provision of highly qualified teachers, and to perform any or all of the duties prescribed in subparagraphs (A) to (C), inclusive, or to further review the causes that led to a finding of moderate or high risk of intervention pursuant to subdivision (a) and recommend corrective action. If a review team is assigned to a school district, the school district shall follow the recommendations of the team, unless the school district shows good cause for failure to do so. The County Office Fiscal Crisis and Management Assistance Team may not recommend an action that would abrogate a contract that governs employment.
(2) Any contract entered into by a county superintendent of schools for the purposes of this subdivision is subject to the approval of the Superintendent.
(3) An employee of a school district who provides information regarding improper governmental activity, as defined in Section 44112, is entitled to the protection provided pursuant to Article 5 (commencing with Section 44110) of Chapter 1 of Part 25.
(b) Within five days of the county superintendent of schools making the determination specified in subdivision (a), a school district may appeal the basis of the determination and any of the proposed actions that the county superintendent of schools has indicated that the county superintendent of schools will take to further examine the financial condition of the school district. The Superintendent shall sustain or deny any or all parts of the appeal within 10 days.
(c) If after taking the actions identified in subdivision (a), the county superintendent of schools determines that a school district will be unable to meet its financial obligations for the current fiscal year or the subsequent fiscal year, or if a school district experiences a significant fiscal event that is determined by the county superintendent of schools to have an immediate severe fiscal impact that will cause a school district to be unable to meet its financial obligations for the current fiscal year or the subsequent fiscal year, the county superintendent of schools shall notify the governing board of the school district, the superintendent of the school district, each recognized employee organization of the school district, each recognized parent organization of the school district, the Superintendent, and the president of the state board or the president’s designee in writing of that determination and the basis for that determination. The notification shall include the assumptions used in making the determination.
(d) Within five days of the county superintendent of schools making the determination specified in subdivision (c), a school district may appeal that determination to the Superintendent. The Superintendent shall sustain or deny the appeal within 10 days. If the governing board of the school district appeals the determination, the county superintendent of schools may stay any action of the governing board of the school district that the county superintendent of schools determines is inconsistent with the ability of the school district to meet its financial obligations for the current fiscal year or the subsequent fiscal year until resolution of the appeal by the Superintendent.
(e) If the appeal described in subdivision (d) is denied or not filed, or if the school district has a negative certification pursuant to Section 42131, the county superintendent of schools shall take all actions that are necessary to ensure that the school district meets its financial obligations, make a report to the Superintendent and the president of the state board, or the president’s designee, about the financial condition of the school district and remedial actions proposed by the county superintendent of schools, and shall, in consultation with the Superintendent, take at least one of the following actions:
(1) Develop and impose, in consultation with the Superintendent and the governing board of the school district, a budget revision that will enable the school district to meet its financial obligations in the current fiscal year.
(2) Stay or rescind any action that is determined to be inconsistent with the ability of the school district to meet its obligations for the current fiscal year or the subsequent fiscal year. This includes any actions up to the point that the subsequent year’s budget is approved by the county superintendent of schools. The county superintendent of schools shall inform the governing board of the school district in writing of the county superintendent’s justification for any exercise of authority under this paragraph.
(3) Assist in developing, in consultation with the governing board of the school district, a financial recovery plan that will enable the school district to meet its future obligations.
(4) Assist in developing, in consultation with the governing board of the school district, a budget for the subsequent fiscal year. If necessary, the county superintendent of schools shall continue to work with the governing board of the school district until the budget for the subsequent year is adopted by the governing board of the school district and approved by the county superintendent of schools.
(5) As necessary, appoint a fiscal adviser to perform any or all of the duties prescribed by this section on behalf of the county superintendent of schools.
(f) Any action taken by the county superintendent of schools pursuant to paragraph (1) or (2) of subdivision (e) shall be accompanied by a notification that shall include the actions to be taken, the reasons for the actions, and the assumptions used to support the necessity for these actions and shall be made available to the public.
(g) This section does not authorize the county superintendent of schools to abrogate any provision of a collective bargaining agreement that was entered into by a school district before the date that the county superintendent of schools assumed authority pursuant to subdivision (e).
(h) The school district shall pay 75 percent and the county office of education shall pay 25 percent of the administrative expenses incurred pursuant to subdivision (e) or costs associated with improving the school district’s financial management practices. The Superintendent shall develop and distribute to affected school districts and county offices of education advisory guidelines regarding the appropriate amount of administrative expenses charged pursuant to this subdivision.
(i) Notwithstanding Section 42647 or 42650 or any other law, a county treasurer shall not honor any warrant if, pursuant to Sections 42127 to 42127.5, inclusive, or pursuant to this section, the county superintendent of schools or the Superintendent, as appropriate, has disapproved that warrant or the order on school district funds for which a warrant was prepared.
(j) Effective upon the certification of the election results for a newly organized school district pursuant to Section 35763, the county superintendent of schools may exercise any of the powers and duties of this section regarding the reorganized school district and the other affected school districts until the reorganized school district becomes effective for all purposes in accordance with Article 4 (commencing with Section 35530) of Chapter 3 of Part 21.
(k) The Superintendent shall monitor the efforts of a county office of education in exercising its authority under this section and may exercise any of that authority if the Superintendent finds that the actions of the county superintendent of schools are not effective in resolving the financial problems of the school district. Upon a decision to exercise the powers of the county superintendent of schools, the county superintendent of schools is relieved of those powers assumed by the Superintendent, and shall provide support and assistance to the Superintendent in the exercise of those powers. The Superintendent shall also request that the County Office Fiscal Crisis and Management Assistance Team identify the circumstances that led to the ineffectiveness of the county superintendent of schools in resolving the financial problems of the school district, and shall require the county office of education to demonstrate, in a manner determined by the Superintendent, remediation of those deficiencies. In addition to the actions taken by the county superintendent of schools, the Superintendent shall take further actions to ensure the long-term fiscal stability of the school district. The county office of education shall reimburse the Superintendent for all of the Superintendent’s costs in exercising the Superintendent’s authority under this subdivision. The Superintendent shall promptly notify the county superintendent of schools, the county board of education, the superintendent of the school district, the governing board of the school district, the appropriate policy and fiscal committees of each house of the Legislature, and the Department of Finance of the Superintendent’s decision to exercise the authority of the county superintendent of schools.

SEC. 5.
Section 42131 of the Education Code is amended to read:
42131.
(a) (1) Pursuant to the reports required by Section 42130, the governing board of each school district shall certify, in writing, within 45 days after the close of the period being reported, whether the school district is able to meet its financial obligations for the remainder of the fiscal year and, based on current forecasts, for the subsequent fiscal year. These certifications shall be based upon the governing board of the school district’s assessment, on the basis of standards and criteria for fiscal stability adopted by the state board pursuant to Section 33127, of the school district budget, as revised to reflect current information regarding the adopted State Budget, school district property tax revenues pursuant to Sections 95 to 100, inclusive, of the Revenue and Taxation Code, and ending balances for the preceding fiscal year as reported pursuant to Section 42100. The certifications shall be classified as positive, qualified, or negative, as prescribed by the Superintendent for purposes of determining subsequent actions by the Superintendent, the Controller, or the county superintendent of schools, pursuant to subdivisions (b) and (c). These certifications shall be based upon the financial and budgetary reports required by Section 42130 but may include additional financial information known by the governing board of the school district to exist at the time of each certification. For purposes of this subdivision, a negative certification shall be assigned to any school district that, based upon current projections, will be unable to meet its financial obligations for the remainder of the fiscal year or the subsequent fiscal year. A qualified certification shall be assigned to any school district that, based upon current projections, may not meet its financial obligations for the current fiscal year or the subsequent fiscal year. A positive certification shall be assigned to any school district that, based upon current projections, will meet its financial obligations for the current fiscal year and the subsequent fiscal year.
(2) (A) A copy of each certification and a copy of the report submitted to the governing board of the school district pursuant to Section 42130 shall be filed with the county superintendent of schools. If a county office of education receives a positive certification when it determines a negative or qualified certification should have been filed, or receives a qualified certification when it determines a negative certification should have been filed, the county superintendent of schools shall change the certification to negative or qualified, as appropriate, and, no later than 75 days after the close of the period being reported, shall provide notice of that action to the governing board of the school district and to the Superintendent. No later than five days after a school district receives notice from the county superintendent of schools of a change in the school district’s certification to negative or qualified, the governing board of the school district may submit an appeal to the Superintendent regarding the validity of that change, in accordance with the criteria applied to those designations pursuant to this subdivision. No later than 10 days after receiving that appeal, the Superintendent shall determine the certification to be assigned to the school district and shall notify the governing board of the school district and the county superintendent of schools of that determination.
(B) Copies of any certification in which the governing board of the school district is unable to certify unqualifiedly that these financial obligations will be met and a copy of the report submitted to the governing board of the school district pursuant to Section 42130 shall be sent by the county office of education to the Controller and the Superintendent at the time of the certification, together with a completed transmittal form provided by the Superintendent. Within 75 days after the close of the reporting period on all school district certifications that are classified as qualified or negative pursuant to this section, the appropriate county superintendent of schools shall submit to the Superintendent and the Controller the county superintendent of schools’ comments on those certifications and report any action proposed or taken pursuant to subdivision (b).
(3) All reports and certifications required under this subdivision shall be in a format or on forms prescribed by the Superintendent and shall be based on standards and criteria for fiscal stability adopted by the state board pursuant to Section 33127.
(4) This subdivision does not preclude the submission of additional budgetary or financial reports by the county superintendent of schools to the governing board of the school district, or to the Superintendent.
(b) As to any school district having a negative or qualified certification, the county superintendent of schools shall exercise the county superintendent of schools’ authority, as necessary, pursuant to Section 42127.6.
(c) Within 75 days after the close of each reporting period, each county superintendent of schools shall report to the Controller and the Superintendent as to whether the governing board of each of the school districts under the county superintendent of schools’ jurisdiction has submitted the certification required by subdivision (a). That report shall account for all school districts under the jurisdiction of the county office of education and indicate the type of certification filed by each school district.
(d) The Controller’s office may conduct an audit or review of the fiscal condition of any school district having a negative or qualified certification.
(e) Any school district having a negative or qualified certification, or classified as qualified or negative by the county superintendent of schools, shall continue to be classified as qualified or negative until the next report required under Section 42130 is filed.
(f) The governing board of each school district filing a qualified or negative certification for the second report required under Section 42130, or classified as qualified or negative by the county superintendent of schools, shall provide to the county superintendent of schools, the Controller, and the Superintendent no later than June 1, financial statement projections of the school district’s fund and cash balances through June 30 for the period ending April 30. The governing boards of all other school districts are encouraged to develop a similar financial statement for use in developing the beginning fund balances of the school district for the ensuing fiscal year.
(g) A school district for which the county board of education serves as the governing board of the school district is not subject to subdivisions (a) to (f), inclusive, but is governed instead by the interim report, monitoring, and review procedures set forth in subdivision (l) of Section 1240 and in Article 2 (commencing with Section 1620) of Chapter 5 of Part 2.