HOUSE BILL No. 4330

March 11, 2015, Introduced by Rep. Kelly and referred to the Committee on Financial Liability Reform.

A bill to amend 1979 PA 94, entitled

"The state school aid act of 1979,"

by amending sections 17a and 18 (MCL 388.1617a and 388.1618), as

amended by 2014 PA 196.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 17a. (1) The department may withhold all or part of any

payment that a district or intermediate district is entitled to

receive under this article to the extent the withholdings are a

component part of a plan, developed and implemented pursuant to the

revised municipal finance act, 2001 PA 34, MCL 141.2101 to

141.2821, the emergency municipal loan act, 1980 PA 243, MCL

141.931 to 141.942, the local financial stability and choice act,

2012 PA 436, MCL 141.1541 to 141.1575, section 1356 of the revised

school code, MCL 380.1356, or other statutory authority, for

financing an outstanding obligation upon which the district or

intermediate district defaulted or for other financial obligations

of the district or intermediate district. Amounts withheld shall be

used to pay, on behalf of the district or intermediate district,

unpaid amounts or subsequently due amounts, or both, of principal

and interest on the outstanding obligation upon which the district

or intermediate district defaulted.

(2) The state treasurer may withhold all or part of any

payment that a district or intermediate district is entitled to

receive under this article to the extent authorized or required

under section 15 of the school bond qualification, approval, and

loan act, 2005 PA 92, MCL 388.1935, the emergency municipal loan

act, 1980 PA 243, MCL 141.931 to 141.942, the local financial

stability and choice act, 2012 PA 436, MCL 141.1541 to 141.1575,

section 1356 of the revised school code, MCL 380.1356, or other

statutory authority.

(3) Under an agreement entered into by a district or

intermediate district assigning all or a portion of the payment

that it is eligible to receive under this article to the Michigan

finance authority or to the trustee of a pooled arrangement or

pledging the amount for payment of an obligation it incurred with

the Michigan finance authority or with the trustee of a pooled

arrangement, the state treasurer shall transmit to the Michigan

finance authority or a trustee designated by the Michigan finance

authority or to the trustee of a pooled arrangement or other

designated depository the amount of the payment that is assigned or

pledged under the agreement.

(4) If a district or intermediate district for which an

emergency manager is in place under the local financial stability

and choice act, 2012 PA 436, MCL 141.1541 to 141.1575, or that has

an approved deficit elimination plan or an approved enhanced

deficit elimination plan under section ~~102,~~ 1220 of the revised

school code, MCL 380.1220, enters into or has entered into an

agreement described in subsection (3) pursuant to section 1225(2)

of the revised school code, MCL 380.1225, whether the obligation

was issued before or after the effective date of this subsection,

the portion of state school aid paid or to be paid on behalf of the

district or intermediate district directly to the Michigan finance

authority, or to a trustee designated by the Michigan finance

authority, for the sole purpose of paying the principal of and

interest on the obligation is subject to a lien and trust that is a

statutory lien and trust, paramount and superior to all other liens

and interests of any kind, for the sole purpose of paying the

principal of and interest on the obligation. The statutory lien and

trust applies to the state school aid received or to be received by

the Michigan finance authority, or trustee designated by the

Michigan finance authority, on behalf of the district or

intermediate district, immediately upon the ~~later of the effective~~

~~date of this subsection or the~~ time when the state school aid is

allocated to the district or intermediate district, but is subject

to any subsequent reduction of the state school aid allocation by

operation of law or executive order. The lien and trust imposed by

this section with respect to state school aid has a priority as

established in the agreement, except that the agreement shall not

impair any existing lien and trust previously created pursuant to

this section, including any lien and trust applicable to a multi-

year repayment agreement under section 1225 of the revised school

code, MCL 380.1225. Except as otherwise provided in this

subsection, the lien and trust created under this subsection for

the benefit of holders of the obligation issued pursuant to this

section is valid and binding against a party having a claim of any

kind in tort, contract, or otherwise against the district or

intermediate district that has issued the obligation secured by a

pledge of state school aid pursuant to this section, regardless of

whether that party has notice of the pledge. A pledge made pursuant

to this section for the benefit of the holders of obligations or

others is perfected without delivery, recording, or notice. The

state school aid paid or to be paid on behalf of a district or

intermediate district to the Michigan finance authority, or trustee

designated by the Michigan finance authority, shall be held in

trust for the sole benefit of the holders of the obligation issued

pursuant to this section or section 1225 of the revised school

code, MCL 380.1225, and is exempt from being levied upon, taken,

sequestered, or applied toward paying the debts or liabilities of

the district or intermediate district other than for payment of the

obligation to which the lien applies. However, nothing in this

subsection alters the ability of the state treasurer to withhold

state school aid from a district or intermediate district as

provided by law.

(5) Notwithstanding the payment dates prescribed by this

article for distributions under this article, the state treasurer

may advance all or part of a payment that is dedicated for

distribution or for which the appropriation authorizing the payment

has been made if and to the extent, under the terms of an agreement

entered into by a district or intermediate district and the

Michigan finance authority, the payment that the district or

intermediate district is eligible to receive has been assigned to

or pledged for payment of an obligation it incurred with the

Michigan finance authority.

(6) This section does not require the state to make an

appropriation to any school district or intermediate school

district and shall not be construed as creating an indebtedness of

the state, and any agreement made pursuant to this section shall

contain a statement to that effect.

(7) As used in this section, "trustee of a pooled arrangement"

means the trustee of a trust approved by the state treasurer and,

subject to the conditions and requirements of that approval,

established for the purpose of offering for sale, as part of a

pooled arrangement, certificates representing undivided interests

in notes issued by districts or intermediate districts under

section 1225 of the revised school code, MCL 380.1225.

(8) If a trustee applies to the state treasurer for approval

of a trust for the purposes of this section, the state treasurer

shall approve or disapprove the trust within 10 days after receipt

of the application.

(9) An allocation to a district or intermediate district under

this article is contingent upon the district's or intermediate

district's compliance with this section.

Sec. 18. (1) Except as provided in another section of this

article, each district or other entity shall apply the money

received by the district or entity under this article to salaries

and other compensation of teachers and other employees, tuition,

transportation, lighting, heating, ventilation, water service, the

purchase of textbooks, other supplies, and any other school

operating expenditures defined in section 7. However, not more than

20% of the total amount received by a district under sections 22a

and 22b or received by an intermediate district under section 81

may be transferred by the board to either the capital projects fund

or to the debt retirement fund for debt service. The money shall

not be applied or taken for a purpose other than as provided in

this section. The department shall determine the reasonableness of

expenditures and may withhold from a recipient of funds under this

article the apportionment otherwise due upon a violation by the

recipient.

(2) A district or intermediate district shall adopt an annual

budget in a manner that complies with the uniform budgeting and

accounting act, 1968 PA 2, MCL 141.421 to 141.440a. Within 15 days

after a district board adopts its annual operating budget for the

following school fiscal year, or after a district board adopts a

subsequent revision to that budget, the district shall make all of

the following available through a link on its website ~~home page,~~

homepage, or may make the information available through a link on

its intermediate district's website ~~home page,~~ homepage, in a form

and manner prescribed by the department:

(a) The annual operating budget and subsequent budget

revisions.

(b) Using data that have already been collected and submitted

to the department, a summary of district expenditures for the most

recent fiscal year for which they are available, expressed in the

following 2 pie charts:

(i) A chart of personnel expenditures, broken into the

following subcategories:

(A) Salaries and wages.

(B) Employee benefit costs, including, but not limited to,

medical, dental, vision, life, disability, and long-term care

benefits.

(D) All other personnel costs.

(ii) A chart of all district expenditures, broken into the

following subcategories:

(A) Instruction.

(B) Support services.

(D) Operations and maintenance.

(i) The current collective bargaining agreement for each

bargaining unit.

(ii) Each health care benefits plan, including, but not limited

to, medical, dental, vision, disability, long-term care, or any

other type of benefits that would constitute health care services,

offered to any bargaining unit or employee in the district.

(iii) The audit report of the audit conducted under subsection

(4) for the most recent fiscal year for which it is available.

(iv) The bids required under section 5 of the public ~~employee~~

employees health benefits act, 2007 PA 106, MCL 124.75.

(d) The total salary and a description and cost of each fringe

benefit included in the compensation package for the superintendent

of the district and for each employee of the district whose salary

exceeds $100,000.00.

(e) The annual amount spent on dues paid to associations.

(f) The annual amount spent on lobbying or lobbying services.

As used in this subdivision, "lobbying" means that term as defined

in section 5 of 1978 PA 472, MCL 4.415.

(g) Any deficit elimination plan or enhanced deficit

elimination plan the district was required to submit under ~~this~~

~~article.~~section 1220 of the revised school code, MCL 380.1220.

(h) Identification of all credit cards maintained by the

district as district credit cards, the identity of all individuals

authorized to use each of those credit cards, the credit limit on

each credit card, and the dollar limit, if any, for each

individual's authorized use of the credit card.

(i) Costs incurred for each instance of out-of-state travel by

the school administrator of the district that is fully or partially

paid for by the district and the details of each of those instances

of out-of-state travel, including at least identification of each

individual on the trip, destination, and purpose.

(3) For the information required under subsection (2)(a),

(2)(b)(i), and (2)(c), an intermediate district shall provide the

same information in the same manner as required for a district

under subsection (2).

(4) For the purposes of determining the reasonableness of

expenditures, whether a district or intermediate district has

received the proper amount of funds under this article, and whether

a violation of this article has occurred, all of the following

apply:

(a) The department shall require that each district and

intermediate district have an audit of the district's or

intermediate district's financial and pupil accounting records

conducted at least annually, and at such other times as determined

by the department, at the expense of the district or intermediate

district, as applicable. The audits must be performed by a

certified public accountant or by the intermediate district

superintendent, as may be required by the department, or in the

case of a district of the first class by a certified public

accountant, the intermediate superintendent, or the auditor general

of the city. A district or intermediate district shall retain these

records for the current fiscal year and from at least the 3

immediately preceding fiscal years.

(b) If a district operates in a single building with fewer

than 700 full-time equated pupils, if the district has stable

membership, and if the error rate of the immediately preceding 2

pupil accounting field audits of the district is less than 2%, the

district may have a pupil accounting field audit conducted

biennially but must continue to have desk audits for each pupil

count. The auditor must document compliance with the audit cycle in

the pupil auditing manual. As used in this subdivision, "stable

membership" means that the district's membership for the current

fiscal year varies from the district's membership for the

immediately preceding fiscal year by less than 5%.

audit shall include an analysis of the financial and pupil

accounting data used as the basis for distribution of state school

aid.

(d) The pupil and financial accounting records and reports,

audits, and management letters are subject to requirements

established in the auditing and accounting manuals approved and

published by the department.

(e) All of the following shall be done not later than November

15, 2014 for reporting 2013-2014 data during 2014-2015, and not

later than ~~October 15~~ November 1 for reporting the prior fiscal

year data for all subsequent fiscal years:

(i) A district shall file the annual financial audit reports

with the intermediate district and the department.

(ii) The intermediate district shall file the annual financial

audit reports for the intermediate district with the department.

(iii) The intermediate district shall enter the pupil membership

audit reports for its constituent districts and for the

intermediate district, for the pupil membership count day and

supplemental count day, in the Michigan student data system.

(f) The annual financial audit reports and pupil accounting

procedures reports shall be available to the public in compliance

with the freedom of information act, 1976 PA 442, MCL 15.231 to

15.246.

(g) Not later than January 31 of each year, the department

shall notify the state budget director and the legislative

appropriations subcommittees responsible for review of the school

aid budget of districts and intermediate districts that have not

filed an annual financial audit and pupil accounting procedures

report required under this section for the school year ending in

the immediately preceding fiscal year.

(5) By November 15, 2014 for 2014-2015 and by ~~October 15~~

November 1 for all subsequent fiscal years, each district and

intermediate district shall submit to the center, in a manner

prescribed by the center, annual comprehensive financial data

consistent with accounting manuals and charts of accounts approved

and published by the department. For an intermediate district, the

report shall also contain the website address where the department

can access the report required under section 620 of the revised

school code, MCL 380.620. The department shall ensure that the

prescribed Michigan public school accounting manual chart of

accounts includes standard conventions to distinguish expenditures

by allowable fund function and object. The functions shall include

at minimum categories for instruction, pupil support, instructional

staff support, general administration, school administration,

business administration, transportation, facilities operation and

maintenance, facilities acquisition, and debt service; and shall

include object classifications of salary, benefits, including

categories for active employee health expenditures, purchased

services, supplies, capital outlay, and other. Districts shall

report the required level of detail consistent with the manual as

part of the comprehensive annual financial report.

(6) By September 30 of each year, each district and

intermediate district shall file with the department the special

education actual cost report, known as "SE-4096", on a form and in

the manner prescribed by the department.

(7) By October 7 of each year, each district and intermediate

district shall file with the center the transportation expenditure

report, known as "SE-4094", on a form and in the manner prescribed

by the center.

(8) The department shall review its pupil accounting and pupil

auditing manuals at least annually and shall periodically update

those manuals to reflect changes in this article.

(9) If a district that is a public school academy purchases

property using money received under this article, the public school

academy shall retain ownership of the property unless the public

school academy sells the property at fair market value.

(10) If a district or intermediate district does not comply

with subsections (4), (5), (6), and (7), the department shall

withhold all state school aid due to the district or intermediate

district under this article, beginning with the next payment due to

the district or intermediate district, until the district or

intermediate district complies with subsections (4), (5), (6), and

(7). However, the department shall not withhold the payment due on

October 20 due to the operation of this subsection. If the district

or intermediate district does not comply with subsections (4), (5),

(6), and (7) by the end of the fiscal year, the district or

intermediate district forfeits the amount withheld.

(11) If a district or intermediate district does not comply

with subsection (2), the department may withhold up to 10% of the

total state school aid due to the district or intermediate district

under this article, beginning with the next payment due to the

district or intermediate district, until the district or

intermediate district complies with subsection (2). If the district

or intermediate district does not comply with subsection (2) by the

end of the fiscal year, the district or intermediate district

forfeits the amount withheld.

(12) ~~(11)~~ Not later than November 1, 2014, if a district or

intermediate district offers online learning under section 21f, the

district or intermediate district shall submit to the department a

report that details the per-pupil costs of operating the online

learning by vendor type. The report shall include at least all of

the following information concerning the operation of online

learning for the school fiscal year ending June 30, 2014:

(a) The name of the district operating the online learning and

of each district that enrolled students in the online learning.

(b) The total number of students enrolled in the online

learning and the total number of membership pupils enrolled in the

online learning.

the district offering online learning, the name of that district.

(d) The district in which the pupil was enrolled before

enrolling in the district offering online learning.

(e) The number of participating students who had previously

dropped out of school.

(f) The number of participating students who had previously

been expelled from school.

(g) The total cost to enroll a student in the program. This

cost shall be reported on a per-pupil, per-course, per-semester or

trimester basis by vendor type. The total shall include costs

broken down by cost for content development, content licensing,

training, online instruction and instructional support, personnel,

hardware and software, payment to each online learning provider,

and other costs associated with operating online learning.

(h) The name of each online education provider contracted by

the district and the state in which each online education provider

is headquartered.

(13) ~~(12)~~ Not later than March 31, 2015, the department shall

submit to the house and senate appropriations subcommittees on

state school aid, the state budget director, and the house and

senate fiscal agencies a report summarizing the ~~per pupil~~ per-pupil

costs by vendor type of online courses available under section 21f.

(14) An allocation to a district or another entity under this

article is contingent upon the district's or entity's compliance

with this section.

(15) ~~(13)~~ As used in subsections ~~(11)~~ (12) and ~~(12),~~ (13),

"vendor type" means the following:

(a) Online courses provided by the Michigan ~~virtual~~

~~university.~~Virtual University.

(b) Online courses provided by a school of excellence that is

a cyber school, as defined in section 551 of the revised school

code, MCL 380.551.

affiliated with a Michigan public school.

(d) Online courses created and offered by a district or

intermediate district.

Enacting section 1. This amendatory act takes effect 90 days

after the date it is enacted into law.

Enacting section 2. This amendatory act does not take effect

unless all of the following bills of the 98th Legislature are

enacted into law:

(a) Senate Bill No.____ or House Bill No. 4327 (request no.

00280'15).

(b) Senate Bill No.____ or House Bill No. 4328 (request no.

00282'15).

00285'15).