A2684

An Act concerning the appointment of a State monitor in school districts with serious fiscal deficiencies, supplementing Title 18A of the New Jersey Statutes, and making an appropriation.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. a. In addition to the powers provided pursuant to P.L.2005, c.235 and P.L.1996, c.138 (C.18A:7F-1 et seq.) or any other law, the Commissioner of Education shall have the authority to appoint a State monitor and additional staff, as necessary, to provide direct oversight of a board of education’s business operations and personnel matters if the school district receives an adverse or a disclaimer of opinion by its independent auditor in the annual audit required pursuant to N.J.S.18A:23-1 or if any two or more of the following circumstances apply to the school district:

(1) the school district ends the fiscal year with a deficit balance as calculated for budgetary purposes in the general fund, special revenue fund, or capital projects fund, with the exception of a capital projects fund deficit caused by the issuance of bond anticipation notes;

(2) the school district receives a qualified opinion by its independent auditor in the annual audit required pursuant to N.J.S.18A:23-1;

(3) the school district receives audit findings by its independent auditor identified as material weaknesses in internal controls;

(4) the school district fails to develop and implement a plan acceptable to the commissioner or his designee to address a potential or actual deficit balance in the general fund, special revenue fund, or capital projects fund, with the exception of a capital projects fund deficit caused by the issuance of bond anticipation notes; or

(5) the school district fails to implement a plan from the prior year which causes findings from the independent auditor to be repeated.

b. The State monitor shall:

(1) oversee the fiscal management and expenditures of school district funds, including, but not limited to, budget reallocations and reductions, approvals of purchase orders, budget transfers, and payment of bills and claims;

(2) oversee the operation and fiscal management of school district facilities, including the development and implementation of recommendations for redistricting and restructuring of schools;

(3) ensure development and implementation of an acceptable plan to address the circumstances set forth in subsection a. of this section which resulted in the appointment of the State monitor. The plan shall include measurable benchmarks and specific activities to address the deficiencies of the school district;

(4) oversee all district staffing, including the ability to hire, promote, and terminate employees;

(5) have authority to override a chief school administrator’s action and a vote by the board of education on any of the matters set forth in this subsection; and

(6) attend all meetings of the board of education, including closed sessions.

c. The Commissioner of Education shall notify the State Board of Education following the appointment of a State monitor pursuant to subsection a. of this section. The State monitor shall report directly to the commissioner or his designee on a weekly basis. The State monitor shall also report monthly to the board of education and members of the public at the regularly scheduled board of education meeting.

d. For purposes of the “New Jersey Tort Claims Act,” N.J.S.59:1-1 et seq., the State monitor shall be considered a State officer.

e. The State monitor shall provide oversight in the school district until the commissioner determines that all remedial actions required under the plan have been implemented and the necessary local capacity and fiscal controls have been restored to school district operations.

f. The salary of the State monitor shall be fixed by the commissioner and adjusted from time to time as the commissioner deems appropriate. The school district shall assume the total cost of the State monitor and necessary additional staff appointed pursuant to subsection a. of this section.

2. a. The Commissioner of Education shall recommend to the State Treasurer whether an advance State aid payment should be made to a school district for which a State monitor has been appointed. The commissioner’s recommendation shall be based on whether the payment is necessary to ensure the provision of a thorough and efficient education.

b. The advance State aid payment shall be repaid by the school district through automatic reductions in the State aid provided to the school district in subsequent years. The term of the repayment shall not exceed 10 years, but may be for a shorter term as determined by the State Treasurer. At any time during the term of the repayment the State Treasurer, in consultation with the Commissioner of Education, may determine to impose interest on the unpaid balance. The commissioner shall transfer the amount of the reduction in State aid to the account established pursuant to section 4 of this act.

c. In any year in which the school district’s undesignated general fund balance is greater than 1.5% of general fund expenditures, the amount which exceeds 1.5% shall be an additional amount applied to the following year’s repayment of the advance State aid payment and the school district’s State aid shall be reduced by this additional amount in that following year.

3. a. The Office of the State Auditor shall conduct a forensic audit of the fiscal operations of any school district which has a year-end general fund deficit and also meets one of the other criteria in subsection a. of section 1 of this act. The audit shall be of the fiscal year in which the general fund deficit occurred and shall be in addition to the audit required of school districts pursuant to N.J.S.18A:23-1.

b. Notwithstanding the provisions of R.S.52:24-1 et seq. to the contrary, the Office of the State Auditor shall submit the audit to the commissioner. The Office of the State Auditor shall also present the audit to the district’s board of education and the public at the board’s next regularly scheduled monthly meeting.

c. The Office of the State Auditor shall forward any findings of fraudulent activities discovered as a result of the audit to the appropriate law enforcement agency.

d. Within 30 days of the presentation of the audit by the Office of the State Auditor to the board of education, the board shall submit to the commissioner a plan that addresses all of the findings, conclusions, and recommendations of the Office of the State Auditor which have not been previously addressed by the school district.

4. There is established in the Department of the Treasury a nonlapsing “Deficit Relief Account” which shall be credited with the monies appropriated pursuant to section 6 of this act, monies transferred by the Commissioner of Education pursuant to subsection b. of section 2 of this act, and such other monies as may be appropriated or made available for the purposes of providing an advance State aid payment to a school district pursuant to subsection a. of section 2 of this act. Any interest that shall accrue on the monies in the account shall be credited to the account.

5. The State Board of Education may promulgate rules pursuant to the “Administrative Procedure Act,” P.L.1968, c.410 (C.52:14B-1 et seq.), to effectuate the purposes of this act.

6. There is appropriated from the General Fund $10,000,000 for deposit in the “Deficit Relief Account” established pursuant to section 4 of P.L. , c. (C. ) (pending before the Legislature as this bill) for the purposes of providing an advance State aid payment to a school district pursuant to subsection a. of section 2 of this act.

7. This act shall take effect immediately.

STATEMENT

This bill is designed to address the increasing problem of school districts failing to correct serious deficiencies identified in their annual audits. In order to immediately address these deficiencies this bill provides statutory authority to the Commissioner of Education to appoint a State monitor to provide direct oversight of a board of education’s business operations and personnel matters if the school district receives an adverse or a disclaimer of opinion by its independent auditor or if any two or more of the following circumstances apply to the school district:

--(1) the school district ends the fiscal year with a deficit balance, as calculated for budgetary purposes, in the general fund, special revenue fund, or capital projects fund, with the exception of a capital projects fund deficit caused by the issuance of bond anticipation notes;

--(2) the school district receives a qualified opinion by its independent auditor in its annual audit;

--(3) the school district receives audit findings identified as material weaknesses in internal controls in its annual audit;

--(4) the school district fails to develop and implement a plan acceptable to the commissioner or his designee to address a potential or actual deficit in the general fund, special revenue fund, or capital projects fund, with the exception of a capital projects fund deficit caused by the issuance of bond anticipation notes;

--(5) the school district fails to implement a plan from the prior year which causes findings form the independent auditor to be repeated.

The State monitor is provided various responsibilities under the bill including:

--(1) overseeing the fiscal management and expenditures of school district funds;

--(2) overseeing the operation and fiscal management of school district facilities, including the development and implementation of of recommendations for redistricting and restructuring of schools;

--(3) ensuring the development and implementation of an acceptable plan to address the circumstances which resulted in the appointment of the State monitor;

--(4) overseeing all district staffing, including the ability to hire, promote, and terminate employees;

--(5) having the authority to override a chief school administrator’s action and a vote by the board of education on any of the matters for which he has oversight responsibilities; and

--(6) attending all school board meetings, including closed sessions.

The Commissioner of Education must notify the State Board of Education following the appointment of a State monitor. The State monitor must report weekly to the commissioner and monthly to the district’s board of education and to the public at the regularly scheduled board meetings. The commissioner has the authority to fix and adjust the salary of the State monitor. All the costs of the State monitor must be borne by the school district.

The bill also provides financial relief to districts for which a State monitor has been appointed if the commissioner determines that the payment is necessary to ensure the provision of a thorough and efficient education. The advance payment must be repaid by the district through automatic reductions in the State aid provided to the district over a term not greater than 10 years. The bill also contains a provision that requires the district to apply a certain amount of any undesignated general fund balances to the repayment of the advance payment.

The bill establishes a nonlapsing account in the Department of the Treasury to be called the “Deficit Relief Account.” It is from this account that the advance payment to a district will be made. The account will be credited with the $10 million appropriation included in the bill, along with amounts equaling the reductions in State aid the district will incur in repaying the advance payment which will be transferred to the account by the Commissioner of Education.

The bill also requires the Office of the State Auditor to conduct forensic audits of the fiscal operations of any school district with a year-end general fund deficit, if that district also meets another criteria used for determining whether a State monitor should be appointed for a district. This audit is in addition to the annual audit already required for school districts. The audit by the State Auditor will be submitted to the Commissioner of Education and to the school board at its next regularly scheduled monthly meeting; and within 30 days of its presentation to the board, the board must submit to the commissioner a plan to address all of the audit’s unaddressed findings, conclusions and recommendations.