Criteria and Standards for Fiscal Solvency

Evolution of the Criteria and Standards

The criteria and standards used to develop, review, and assess school district and county office of education budgets and interim financial reports were developed through the collaborative effort of an advisory committee that included representatives from numerous local educational agency associations and state agencies. The criteria and standards were originally adopted by the State Board of Education (SBE) in May 1989 and were revised in 1999 and 2000.

The criteria and standards were next revised in 2005 pursuant to Assembly Bill (AB) 2756 (Chapter 52, Statutes of 2004), as the result of several emergency loans to school districts. The Legislature added a number of new criteria to expand the information requested in the existing criteria and standards and to improve the identification of fiscal warning signs. These revisions were approved by the SBE in July 2005.

Because of the magnitude of the 2005 changes, the CDE recognized that it might be desirable to revisit and revise the criteria and standards again in the near future. It did so in 2007, and the SBE approved the resulting changes in March 2008. The 2008 changes were primarily technical, designed to produce more balanced results and a better warning system. Most of the revisions were to adjust those standards, or thresholds, that were resulting in a very high “failure” rate which was not necessarily indicative of fiscal distress.

The criteria and standards were revised again effective for 2014–15 to reflect changes relating to the new Local Control Funding Formula (LCFF). The LCFF legislation requires that each school district and county office of education adopt a Local Control and Accountability Plan (LCAP), and requires that the LCAP be taken into consideration during the budget review process.

The criteria and standards are codified in Title 5 of the California Code of Regulations. The complex analytical tools used to apply the criteria and standards are automated as part of CDE’s standardized account code structure (SACS) financial reporting software used by LEAs to prepare, validate, and submit their budgets and interim reports to their reviewing agencies.

Fiscal Oversight

In accordance with AB 1200 (Chapter 1213, Statutes of 1991), the county superintendent of schools has fiscal oversight responsibility over school districts in the county and the State Superintendent of Public Instruction (SSPI) has fiscal oversight responsibility over county offices of education. The county superintendent has authority to disapprove a school district’s budget, or authority to declare a district in jeopardy of being unable to meet its financial obligations through a qualified or negative certification at interim financial reporting periods or at any time during the year. Such action results in various authorized forms of intervention on the part of the county office including assigning external consultants, requiring a district fiscal recovery plan, or even disallowing certain district expenditures. The SSPI has similar authority to intervene in fiscal matters of the county office of education.

The fiscal criteria and standards guide the LEA in the budget development process and in its periodic self-evaluations of solvency, and are used by the county superintendent of schools and the SSPI in their monitoring and oversight roles. In assessing a district’s financial health, the county superintendent uses the district criteria and standards; similarly, in assessing a county office’s financial health, the SSPI uses the county office criteria and standards. If there is disagreement between a district and the county office about the district’s financial condition and the associated intervention, the matter may be elevated to the SSPI for a final determination.