Purpose
Allows the State Board of Education (SBE) to petition a Maricopa County Superior Court (Court) to appoint a receiver to take over the operations of a grossly dysfunctional school district.
Background
Receivership, as described in Title 10 of Arizona Revised Statute relating to the dissolution of non-profit corporations, allows a court to dissolve a corporation and to appoint a receiver to "carry out the ordinary and necessary activities"
and to "manage the affairs of the corporation in the best interests of its members and creditors."
Several states have passed laws relating to academic receivership in efforts to comply with the No Child Left Behind Act of 2001. Academic receivership generally allows government entities, like a state’s education department, or a court, to temporarily grant control of a school failing to meet academic standards to a public or private entity as a receiver to create and implement plans for improving academic achievement in that school. In 2000, the Arizona Legislature adopted Education 2000, which, among other items, included provisions for schools falling below academic standards. This law requires the Superintendent of Public Instruction (SPI) to assign a solutions team to create and implement a plan to bring the school to compliance if Arizona Department of Education (ADE) classifies the school as failing. Additionally, the State Board of Education may direct the SPI to withhold a portion of state funding from school districts that are not in compliance with the uniform system of financial records.
Currently, this legislation applies only to the Colorado City Unified School District in Mohave County. The school district failed to comply with financial record reporting requirements, including Classroom Site Fund (Proposition 301) reporting requirements in 2003. Since 2000, the school has received over $4 million in rapid decline funds, emergency relief from the state offered to school districts experiencing a drastic drop in enrollment, after more than 600 students were withdrawn from the school district by their parents.
There is an on-going investigation of the school district by the Arizona Attorney General’s office. No criminal charges have yet been filed, nor results made public.
There is no fiscal impact to the state General Fund associated with this legislation.
Provisions
- Requires the SBE to review allegations of school district insolvency and gross mismanagement submitted to the SBE by ADE, the Auditor General or any other state office.
- Allows a school district to respond to allegations of insolvency and gross mismanagement at an SBE public meeting.
- Allows the Court to appoint a receiver to a school district determined to be insolvent or to have grossly mismanaged finances on recommendation from the SBE.
- Deems a school district as insolvent if the Court finds any of the following:
a. the school district is unable to pay debts as they become due or in the usual course of business.
b. the school district has not paid employees’ salaries for 60 days.
c. the school district has not paid tuition due to another school district or state institution on or after January 1 of the following school year it was due and there is no dispute regarding the validity or the amount of the claim.
d. the school district has defaulted in payment of its bonds, interest on bonds or payment of rentals to any federal or state authority or private business for 60 days and no effort make payment has been made.
e. the school district has accumulated and operated with a deficit equal to two percent or more of the assessed valuation of the taxable real property within the district for two consecutive years.
f. the school district has warrants not yet honored for payment by the school district’s servicing bank or county treasurer or has unpaid warrants for more than 60 days.
g. a new school district has been formed and one or more of the former school districts that composed the previous school districts was insolvent at the time the new school district was formed.
- Prohibits a school district from being deemed insolvent if the insolvency is a result of the state’s failure to make timely payments of monies owed to the school district.
- Provides the Court with jurisdiction over all petitions requesting a school district be placed in receivership.
- Stipulates the SBE has the burden of proving a school districts insolvency or gross mismanagement.
- Provides a receiver appointed to an insolvent school district by the Court with the power, authority and duties of the school district’s governing board and authority to:
a. override school district management and operation decisions made by the governing board or school district superintendent.
b. initiate and make management and operation decisions for the school district.
c. attend all school district governing board and administrative staff meetings.
d. supervise school district staff’s daily activities.
e. reassign duties and responsibilities of school district personnel.
f. place on extended leave, suspend or terminate for cause the school district’s superintendent and/or chief financial officer.
g. remove schools within the school district from the jurisdiction of the school district, with court approval, and establish an alternative system of governance and supervision for those schools.
h. dissolve, with court approval, the school district.
i. allow students to transfer to schools not in receivership outside the school district.
j. appoint a person with a valid administrative certificate as the chief educational officer to serve as the school district’s superintendent.
k. appoint a chief fiscal officer to serve as the school district’s chief school business official and to posses the powers and duties regarding budgeting, accounting and other financial matters assigned by state law.
l. appoint an independent public accountant to audit the school districts accounts.
m. reorganize the school districts financial accounts, management and budgeting systems.
n. establish school district fiscal guidelines and a system of internal controls to include internal audits.
o. cancel or renegotiate contracts, except teachers’ contracts, if the renegotiation or cancellation will produce needed economies for school district operation.
p. increase tax levies as permitted by law.
q. appoint a collector of delinquent taxes for the school district who may or may not be a resident of the school district.
r. cause the school district to issue its own full faith and credit obligation bonds for the payment of any delinquent debt not to exceed 13 and eight-tenths of the school districts most recent equalized assessed valuations.
- Requires the receiver to report any violations of law, including Uniform System of Financial Records violations to the SBE.
- Requires the receiver to submit a report detailing the findings of an investigation of the school district’s financial affairs to the Court and to the SBE within 120 days of its appointment.
- Requires the receiver to submit a financial improvement plan, budget and timeline to the Court and to the SBE detailing how the school district will eliminate any gross mismanagement and achieve financial solvency within 180 days of its appointment.
- Requires the receiver to implement the financial improvement plan, budget and timeline approved by the Court.
- Requires the SBE to pay the salary and benefits of the receiver and any officers or employees appointed by the receiver.
- Requires the Court to determine the salary for the receiver, the chief educational officer and the chief financial officer appointed by the receiver based on the SBE recommendations.
- Allows the Court remove the school district from receivership and dismiss the receiver and any officer or employee appointed by the receiver 30 days after all of the following have occurred:
a. the Auditor General certifies the school district has been financially solvent for one fiscal year.
b. the Auditor General certifies the school district financial records are in compliance.
c. the receiver certifies the school district is no longer engaged in gross mismanagement.
d. the Court has determined the school district is able to pay its debts when they are due or has dissolved the school district.
- Requires the receiver to submit an annual progress report to the Court on the first anniversary of the receiver’s appointment and every year thereafter.
- Requires the receiver to issue to the SBE a detailed quarterly progress report.
- Allows the SBE to petition the Court to appoint a different receiver if it determines the currently appointed receiver’s progress is insufficient.
- Allows the Court to dismiss the receiver for cause or on the SBE’s written request.
- Requires the school district to indemnify the receiver and any officers, employees or contractor appointed by the receiver made or threatened to be made a party in any litigation by reason of their status as appointed by the receiver when acting in good faith.
- Prohibits a member, officer, employee or agent of the school district to enter into any contracts or incur liability on behalf of the school district without authorization from the receiver.
- Allows a receiver to discipline or suspend from duty without pay and school district employee who enters into a contract or incurs liability on behalf of the school district without its permission.
- Stipulates that a private cause or right of action against the school district or school district officers, directors, board members or employees does not exist.
- Stipulates the receiver’s assumption of control of the school district governing board can not interfere with school governing board elections.
- Stipulates a school district being placed in receivership may declare bankruptcy under federal law.
- Defines gross mismanagement as the school district’s officers or employees committing or being engaged in fiscal fraud, dishonesty, gross incompetence or systemic and egregious mismanagement of a school district’s finances.
- Defines notice as a written notice personally served or delivered by certified mail, return receipt requested.
- Defines receiver as an individual appointed by the Court for the purpose of managing a school district places in receivership.
- Defines receivership as the condition of being under the control of a receiver.
- Defines superintendent as the chief executive officer of a school district.
- Becomes effective on the general effective date.
Prepared by Senate Research
February 7, 2005
DG/MB/ac
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