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1 Philadelphia Pittsburgh pa.rg The Schl District Financial Recvery Law (Act 141) and Basic Educatin Funding Frmulas Act 141, the Schl District Financial Recvery Law ( financially distressed schl districts 1 get back n a path tward financial stability. The law, passed July 12, 2012, allws the Pennsylvania Department f Educatin and the Secretary f Educatin t declare up t nine schl districts at a time in Financial Recvery Status. This wuld then allw and administer a financial recvery plan. The CRO and receiver have brad pwers under the Act but little accuntability. Prpnents f Act 141, including Gvernr Crbett, say that the schl districts in financial distress are at fault fr their financial situatin. Critics n the ther hand pint ut that funding cuts t educatin ver the past few years helped create the financial difficulties f many f these schl districts in the first place. Ultimately, Act 141 des nt prvide fr increased funding t financially distressed schl districts, instead nly allwing these districts t apply fr lans. In additin, thse schl districts that have already been r may sn be declared in Financial Recvery Status tend t be schl districts with higher percentage f students in pverty and students learning English. A fair funding frmula that prperly accunts fr the added csts required t educate these students wuld drive mre mney ut t these schl districts, which culd help these schl districts avid further financial hardships. Hwever, Pennsylvania des nt currently use an educatin funding frmula that wuld distribute state educatin dllars accurately and fairly. This fact sheet highlights sme f the mst imprtant prvisins f Act 141 and discusses the impact Act 141 has already had n the schl districts already identified by Act 141 fr having financial difficulties. Early Warning System: Act 141 gives PDE the authrity t mnitr the financial status f all schl districts under an Early Warning System. PDE will cmpile financial data frm every district and analyze it t determine if any schl district shuld be identified fr financial watch status. Schl districts in financial watch status will be ffered technical assistance t crrect minr financial prblems and t avid a declaratin f FRS. PDE has als established guidelines fr the peratin f the Early Warning System, which include 3 levels f analysis depending n the financial instability f a schl district. What This Means: PDE will be requesting varying amunts f financial data frm all schl districts s as t mnitr the financial cnditins f the districts. Schl districts 1 Please nte that Act 141 des nt apply t the Schl District f Philadelphia r any charter schls. 1

2 experiencing financial trubles can expect t be clsely mnitred and may ultimately be declared first in financial watch status and the pssibly in FRS. Declaring a Schl District in Financial Recvery Status: Under Act 141, the Secretary f Educatin shall declare a schl district in FRS if it receives an advances f its basic educatin subsidy and either has an average daily membership greater than 7,500, has been declared financially distressed under 24 P.S , r is in active litigatin against the Cmmnwealth seeking financial assistance t allw the district t stay in peratin. A schl district declared in FRS fr the first reasn is deemed a Mderate Financial Recvery Schl District. A schl district declared in FRS fr either f the latter tw reasns is deemed a Severe Financial Recvery Schl District. Act 141 places respnsibility n the Cmmnwealth t ensure the delivery f effective educatinal services t all students enrlled in a schl district in FRS. FRS. First, n mre than 9 schl districts may be under a declaratin f FRS at any time. Secnd, the Secretary may decline t issue this declaratin if a schl district had faced an emergency in the previus five years that caused its financial hardship. Finally, a schl district will nt be declared in FRS if its financial difficulties were caused by the Cmmnwealth failing t make timely payments that were due t the schl district. What This Means: Thse districts that have received advances f their basic educatin subsidy are in line fr a declaratin f FRS. Hwever, althugh many schl districts may be experiencing financial difficulties at this time and may qualify r sn qualify t be declared in FRS, nly nine may be declared in FRS at a time. A schl district will lse much cntrl and authrity if declared in FRS, s it is advisable t d whatever is pssible t avid such a declaratin. Act 141 als authrizes the State Bard f Educatin t prmulgate regulatins that wuld establish criteria fr the Secretary t cnsider in determining whether t declare a schl district in FRS, and whether the district shall be a Mderate r Severe Financial Recvery Schl District. Act 141 lists 15 criteria that shuld be included in the regulatins. Prpsed regulatins have been apprved by the State Bard f Educatin and are pending final changes and apprval ver the next several mnths. The prpsed regulatins include the 15 criteria in Act 141 and add 12 mre criteria fr the Secretary t cnsider when determining the status f a schl district. Hwever, the restrictins discussed abve wuld still apply. What This Means: In additin t the factrs discussed abve fr declaring a schl district in FRS, the prpsed regulatins wuld give the Secretary an alternative avenue t declare a district in FRS. This alternative avenue includes almst 30 criteria fr the Secretary t cnsider, which gives the Secretary brad latitude in declaring a schl district in FRS. Due t the number and breadth f criteria in the prpsed regulatins, the Secretary culd target almst any schl district experiencing financial difficulties when deciding whether t declare it in FRS. Hwever, the Secretary wuld still nly be limited t declaring 9 schl districts in FRS at a time. Chief Recvery Officer: The Secretary must appint a CRO within five days f declaring a schl district in FRS. A CRO must have a relevant backgrund in business and finance duties are t, with the assistance f PDE, develp, implement and administer a financial recvery plan. The CRO shall meet with the bard f schl directrs and an established advisry cmmittee fr the 2

3 schl district. The CRO shall have full access t all recrds f the district. Aside frm serving at the pleasure f the Secretary, Act 141 des nt specify any versight r accuntability fr the CRO. What This Means: The CRO is an unelected persn with a backgrund in business and. Althugh the CRO meets with the bard f schl directrs and an advisry cmmittee, the CRO is nly answerable t the Secretary. This gives a CRO brad latitude t develp, implement, and administer a financial recvery plan f his/her chsing. The Financial Recvery Plan: A schl district declared t be in Mderate r Severe FRS must develp a financial recvery plan that will help the schl district becme financially stable. The plan must include criteria that the schl district needs t satisfy befre the Secretary may terminate the FRS. Fr Mderate financial recvery schl districts, the CRO must develp and submit a plan within 90 days f appintment. The schl bard must then apprve r disapprve the plan within 30 days. If the schl bard des nt apprve the plan within 1 year, the Secretary shall petitin the curt f cmmn pleas fr the appintment f a receiver. If the schl bard apprves the plan, the Secretary must apprve the plan within 10 days. If the Secretary disapprves, the CRO shall develp a revised plan within 20 days. The prcess is the same fr schl districts in Severe FRS, but with accelerated timeframes. Extensins are permissible. What This Means: Once a CRO is appinted, the CRO gathers infrmatin t develp a financial recvery plan. The schl bard and Secretary must apprve the plan. If the Hwever, if the schl bard disapprves, the Secretary may seek the appintment f a receiver wh, as discussed belw, will have the pwer t implement the plan regardless As part f the financial recvery plan, a schl district can request an interest- free lan thrugh the Financial Recvery Transitinal Lan Prgram, which is established by PDE. T apprval f the financial recvery plan cnstitutes apprval f the lan. Lans must be used t implement prvisins f the Plan. A schl district may nly receive ne lan per year. What This Means: R funding cuts frm the last few years, Act 141 nly allws schl districts in FRS t request lans. Act 141 des nt prvide fr direct financial aid t these financially trubled schl districts. A schl district in FRS may exercise certain pwers enumerated in Act 141. These pwers include the ability t cnvert an unlimited number f schl buildings t charter schls withut being subject t the usual prcedures fr establishing charters; t clse r recnstitute a schl, including the reassignment, suspensin r dismissal f schl emplyees; and t negtiate a new cllective bargaining agreement with schl emplyees. Hwever, the schl bard must cmply with all directives f the CRO and may take n actin that is incnsistent with the financial recvery plan, nt specifically identified in the plan, r nt directed by the CRO as necessary t implement the plan. What This Means: A schl district in FRS has the authrity t turn every ne f its 3

4 schls int charter schls, clse schls, and negtiate new cllective bargaining agreements with teachers. Hwever, because a schl bard must always cmply with the CRO and the financial recvery plan, in essence it is the CRO wh has these pwers. The schl district des nt even have t cmply with the usual prcedures fr creating charter schls. As discussed abve, the Secretary must ultimately apprve f any financial recvery plan. Thus, Act 141 gives the CRO and, stensibly, the Secretary extrardinary pwer t reshape financially distressed schl districts. Upn petitin r n his wn initiative, the Secretary may terminate FRS when the Secretary has determined that the district has satisfied and is cntinuing t satisfy certain criteria. After terminatin f FRS, the schl bard resumes full cntrl f district management, but the CRO and PDE will versee the schl bard fr five mre years t ensure financial stability. The Secretary shall petitin the curt f cmmn pleas fr the appintment f a receiver if the schl bard fails t maintain the bjectives f the recvery plan. What This Means: Secretary apprval is the nly way fr a schl district t terminate its financially distressed status. Even then, PDE will cntinue t mnitr the district and can take back cntrl if it determines the recvery plan is nt being fllwed. Receivership: A receiver versees the financial recvery plan f a schl district under a receivership. The Secretary will petitin the curt f cmmn pleas t appint a receiver when: a bard f schl directrs fails t apprve a financial recvery plan, fails t cmply with directives issued by the CRO, fails t satisfy its bligatins under a financial recvery plan during a transitin perid, r when a Severe Financial Recvery Schl District vtes t appint a receiver instead f having a CRO. The qualificatins fr a receiver are similar t thse fr a CRO as discussed abve, and in fact the CRO may be named the receiver. The curt f cmmn pleas shall grant receivership unless the petitin is arbitrary, capricius, r whlly irrelevant t restring the schl district t financial stability. The nly accuntability fr the receiver is if the Secretary petitins the curt t replace the current receiver. The receiver assumes all pwers and duties f the CRO and the schl bard, except fr the pwer t levy and raise taxes, which remains with the schl bard. Under a receivership, the emplyees and elected and appinted fficials f the schl district have a duty t cmply with the receiver, and the authrity f these individuals t exercise pwer n behalf f the schl district is suspended. A receivership shall expire 3 years after the initial appintment f the receiver unless the Secretary petitins the curt t extend the receivership fr anther 3 years. What This Means: A receiver is appinted by the Secretary and apprved by the curt. By assuming all the pwers and duties f the CRO and the schl bard, the receiver has even mre pwer than the CRO. Unless a Severe Financial Recvery Schl District vtes t appint a receiver, a receiver is nly appinted when the schl bard des mandates. The practical effect f the schl bard disagreeing with the CRO is authrity, and have the ability t very plan anyway. Fiscal Impact f Act 141: Act 141 is estimated t cst $6,000,000 during the fiscal year. The $6,000,000 is brken dwn as fllws: (1) $250,000 t develp and implement an Early Warning System 4

5 t cmpile and analyze infrmatin n the financial cnditin f all schl districts; (2) $250,000 t prvide districts in financial watch status with technical assistance; (3) $500,000 fr persnnel and administrative csts f PDE; and (4) $5,000,000 t pay the salaries and necessary expenses f the CROs and receivers, legal fees, accunting csts, csts fr ther cnsultants and fr financial data sftware systems fr the schl districts in FRS. This estimated figure is based n the assumptin that nly 4 schl districts that will be placed in FRS during Csts in future fiscal years will depend upn the number f schl districts in FRS and the amunt f mney apprpriated fr the Lan Prgram. Act 141 in Practice: Since Act 141 has been passed, 4 schl districts have been declared in FRS: -. Als, the Reading, Aliquippa, Steeltn- Highspire, and Wilkinsburg Schl Districts have been declared in early watch status. These 5 schl districts have all been experiencing significant financial difficulties fr at least several years. Of the 4 schl districts declared in FRS, 2 f them, HSD and YCSD, were declared as Mderate Financial Recvery Schl Districts, and the ther 2, DCSD and CUSD, were declared as Severe Financial Recvery Schl Districts. Each f these schl districts nw each will be subject t a financial recvery plan put frth by a CRO r a receiver. As f this writing, the CROs f HSD and YCSD are still in the prcess f analyzing finances, making prjectins, and develping ideas fr the recvery plans. The CRO fr YCSD is currently cnsidering several ptins fr the plan, including cnverting the district t all charter schls, creating an internal slutin fr the financial prblems, r even cnslidating the schl district with neighbring schl districts. The CROs f bth DCSD and CUSD have prpsed financial recvery plans. Hwever, in bth instances the schl bards rejected thse plans. This resulted in the Secretary petitining the curt f cmmn pleas t appint the CROs as receivers in their respective schl districts. Bth petitins were granted and nw DCSD and CUSD are under receivership. The DCSD recvery plan fcuses n sending students t nearby districts n a tuitin basis via agreement. The CUSD recvery plan includes staffing cuts, at least ne schl clsing, and detailed ways t increase funding while als raising academic standards in rder t attract charter schl students back t the district. 2 Text f Act 141 and apprved and prpsed regulatins: Act 141, Early Warning System Regulatins, Prpsed Regulatins CONTACT: Brett Schaeffer, Educatin Law Center; bschaeffer@elc- pa.rg; ext The CUSD recvery plan can be fund here. 5