Arkansas Department of Education Fiscal Distress Program

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Arkansas Department of EducationFiscal Distress
Program

• Presented to
• Joint Adequacy Evaluation Oversight Subcommittee
• of the
• House and Senate Interim Committees on Education
• March 13, 2008

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Purpose

• The purpose of Fiscal Distress is to provide
  early interventions to school districts to
  improve their financial status before a crisis
  exists

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History

• Act 915 of 1995 A.C.A. 6-20-1601-1610,
• Repealed by Act 1467 of 2003
• Act 1467 of 2003 A.C.A. 6-20-1901
• Act 741 of 2007 A.C.A. 6-20-1904

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Indicators of Fiscal Distress (A.C.A.
6-20-1904)

• Any indicator which could jeopardize the fiscal
  integrity of a school district may be used to
  identify a district as being in Fiscal Distress
• Declining Balance determined to jeopardize the
  fiscal integrity of the district
• Material failure to properly maintain facilities
• Material violation of local, state, or federal
  fire, health, or safety codes
• Material violation of local, state, or federal
  construction codes
• Material state or federal audit exceptions
• Material failure to provide timely and accurate,
  legally-required financial reports to ADE, Audit,
  Legislature, or IRS

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Indicators of Fiscal Distress (Continued)
(A.C.A. 6-20-1904)

• Insufficient funds to cover payroll, benefits,
  and/or tax obligations
• Failure to meet minimum teacher salary schedule
• Failure to comply with purchasing or bid
  requirements
• Default on a district debt obligation
• Material discrepancies between budgeted and
  actual school district expenditures
• Failure to comply with audit requirements
• Failure to comply with provisions of the law that
  specifically place a district in fiscal distress
• Any other fiscal condition deemed to have a
  detrimental negative impact on the continuation
  of educational services

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Specific Reasons for Being in Fiscal Distress

• Overage and cost overruns on construction
  projects
• Placing bond proceeds or partnership money in
  operating fund
• Excessive debt
• Loss of students without making appropriate
  adjustments in staffing and facilities usage
• Inaccurate and/or inconsistent financial record
  keeping
• Operating programs beyond what is required
• Fixed costs exceed revenues available
• Operating day care programs in the red
• Operating Child Nutrition programs in the red
• Excessive increases in salaries beyond funds
  available

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Specific Reasons for Being in Fiscal
Distress(Continued)

• Not being current on health insurance or teacher
  retirement benefits
• Use of cash flow loans to cover lack of operating
  funds
• Loss of state revenues and no adjustments in
  expenditures
• Audit findings dealing with not following bid
  laws and not complying with ethics laws on
  disclosure
• Illegal uses of categorical or federal funds
• Not utilizing federal funds/or categorical funds
  to provide supplemental programs
• Not reconciling the bank statements
• Failing to use standardized accounting procedures
  and/or not filing accurate, required financial
  reports

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Specific Reasons for Being in Fiscal
Distress(Continued)

• Transfers within funds that are excessive
• Inability to say No.

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Process of Identification

• Perform an annual financial review of all school
  districts to determine those with declining
  balances and/or other financial indicators which
  indicate financial concerns
• Districts with a three year declining balance are
  identified.
• District is sent a letter and asked to respond to
  a financial questionnaire to provide additional
  financial information.
• A conference is held with the district to gain
  further insight into their financial status
• The district is requested to provide any
  additional, relevant information to explain its
  deteriorating financial status
• ADE conducts a thorough financial analysis of the
  current status of the district and projects
  balances based on available facts

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Process of Identification (Continued)

• Report of findings is provided to the
  Commissioner of Education
• Decision is made on what districts will be
  recommended to the State Board of Education to be
  identified as being in Fiscal Distress
• District is notified by certified mail that the
  district will be recommended to be classified in
  Fiscal Distress by the State Board.
• District is given thirty days to appeal the
  recommendation
• State Board of Education makes the final
  determination to classify a district as being in
  Fiscal Distress

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Fiscal Distress Timeline

• November - - - - Begin process of analyzing
  financial data and
• gathering reports
• December - - - - Annual review of financial
  information for all
• school districts (AFRs, Audits, Balances,
  etc.)
• January - - - - - - Contact districts with
  declining balances and
• other Fiscal Distress indicators
• Mail first letter to districts with Fiscal
• Distress indicators with financial
• questionnaire

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Fiscal Distress Timeline (Continued)

• February - - - - Questionnaires due back to ADE
• Conferences held with districts being
  screened to review financial information
• Districts present additional information
  regarding financial status
• March - - - - - - Mail identification letters by
  certified mail
• April - - - - - - - Deadline for district appeals
  of Fiscal Distress identification
• State Board hears appeals filed by districts
• State Board classifies Fiscal Distress
  districts

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Fiscal Distress Timeline (Continued)

• May - - - - - - Fiscal Distress Plans due to ADE

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(No Transcript)
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Classification in Fiscal Distress(A.C.A.
6-20-1906)

• State Board of Education classifies district as
  being in Fiscal Distress
• District has to publish one time for two
  consecutive weeks in a newspaper with general
  circulation that the district has been classified
  as being in Fiscal Distress and give reasons why
• No district classified as being in Fiscal
  Distress may incur any additional debt without
  prior written approval of ADE
• Within ten days of being classified, a written
  Fiscal Distress Improvement Plan must be filed
  with ADE
• The Plan outlines how the district will remedy
  the problems which resulted in the district being
  classified in Fiscal Distress

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Classification in Fiscal Distress(Continued)

• The district has two years to improve its
  financial status sufficient to be removed from
  Fiscal Distress status
• ADE must provide on-site technical assistance
• ADE makes recommendations which are binding on
  the district
• ADE makes a progress report to the State Board
  every six months on the status of each district
  in fiscal Distress
• ADE may recommend at any time the consolidation,
  annexation, or reconstruction of a fiscal
  Distress or may take other appropriate actions to
  secure the educational resources of the state or
  to act in the best interests of the students in
  the Fiscal Distress district

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Classification in Fiscal Distress(Continued)

• Any district that fails to make adequate
  improvements to be removed from Fiscal Distress
  status within the two year time frame shall be
  consolidated, annexed, or reconstituted by the
  State Board
• When ADE certifies to the State Board that the
  district has met the objectives in its Fiscal
  Improvement Plan, the district then petitions the
  State Board for removal from Fiscal Distress
  status

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Legal ADE Actions(A.C.A. 6-20-1909)

• In addressing needs of Fiscal Distress districts,
  ADE may
• Replace the superintendent
• Appoint a new superintendent
• Suspend the local board
• May require a newly-elected board
• May impose reporting requirements
• Monitors fiscal operations and accounts of the
  Fiscal Distress district
• May require fiscal training for the district
  staff and board
• May take any action deemed necessary to assist in
  removing a district from Fiscal Distress

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Legal State Board Actions (A.C.A. 6-20-1910)

• May consolidate, annex, or reconstitute to
  another district or districts
• Board may determine boundary lines of the
  receiving or resulting districts
• Board may allocate assets and liabilities of the
  Fiscal Distress district

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Fiscal Distress Districts2007-2008

• Bald Knob
• Bismarck
• Clinton
• Helena/West Helena
• Hughes
• Midland
• Omaha
• Turrell