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15-103. School districts; financial mismanagement; intervention; definitions

A. The state board of education shall review allegations of school district insolvency and gross mismanagement. The state board shall give the school district an opportunity to respond to these allegations at a public meeting. If the state board determines that the school district is insolvent or has grossly mismanaged its finances, the state board shall appoint a receiver for that school district.

B. The state board shall find a school district insolvent if it finds one or more of the following:

1. The school district is unable to pay debts as they fall due or in the usual course of business.

2. The salaries of any teachers or other employees have remained unpaid for forty-five days.

3. The tuition due another school district or other state institution remains unpaid on or after January 1 of the year following the school year it was due and there is no dispute regarding the validity or amount of the claim.

4. The school district has defaulted in payment of its bonds or interest on bonds or in payment of rentals due any state or federal authority or private business for a period of sixty calendar days and no action has been initiated within that period of time to make payment.

5. The school district has contracted for any loan not authorized by law.

6. The school district has accumulated and has operated with a deficit equal to five per cent or more of the school district's revenue control limit for any fiscal year within the past two fiscal years or the conditions prescribed in section 15-107 have occurred.

7. The school district's warrants have not been honored for payment by the school district's servicing bank or by the county treasurer and the warrants have remained unpaid for a period of more than sixty calendar days.

C. No school district shall be deemed to be insolvent pursuant to subsection B of this section if the circumstances are the result of the failure of the state to make any payments of monies due the school district at the time payment is due.

D. The state board of education shall have jurisdiction over all petitions requesting that a school district be placed in receivership and a receiver be appointed because of the school district's alleged insolvency or gross mismanagement. The state board shall have the burden of demonstrating by a preponderance of the evidence that the school district is insolvent or is engaged in gross mismanagement.

E. If the state board of education finds that the school district is insolvent or has engaged in gross mismanagement, the state board shall place the school district in receivership and appoint a receiver recommended by the state board. The state board shall develop and adopt a list of qualified receivers to be appointed by the board.

F. On appointment, the receiver may perform any of the actions prescribed in paragraphs 1 through 11 of this subsection and shall begin a full review and investigation of the school district's financial affairs and submit to the state board of education a detailed report listing the findings of that investigation that shall include a financial improvement plan and budget that details how the school district will eliminate any continued gross financial mismanagement and achieve financial solvency. The plan shall include a proposed timeline for achieving financial solvency. The receiver shall submit the report within one hundred twenty days after the receiver's appointment. The financial improvement plan approved by the state board of education may authorize the receiver to do any of the following:

1. Override any decisions of the school district's governing board or the school district superintendent, or both, concerning the management and operation of the school district, and initiate and make decisions concerning the management and operation of the school district.

2. Attend any and all meetings of the school district's governing board and administrative staff.

3. Supervise the day-to-day activities of the school district's staff, including reassigning the duties and responsibilities of personnel in a manner that, in the determination of the receiver, best suits the needs of the school district.

4. Place on extended leave, suspend or terminate for cause the school district's superintendent or chief financial officer, or both. The receiver is not authorized to provide a severance or buyout package to the school district's superintendent or chief financial officer if the school district is placed into receivership by the state board of education. A person terminated pursuant to this paragraph may appeal the receiver's decision to the state board of education if an appeal is filed with the state board within thirty days of receiving notice of the termination.

5. Authorize pupils to transfer from schools operated by the school district to schools operated by another school district that is not currently in receivership.

6. Appoint a chief educational officer who shall possess the powers and duties of a school district superintendent. A chief educational officer who is appointed pursuant to this paragraph shall hold a valid administrative certificate.

7. Appoint a chief fiscal officer who shall possess the powers and duties of the school district's chief school business official and any other duties regarding budgeting, accounting and other financial matters that are assigned to the school district by law.

8. Appoint a competent independent public accountant to audit the accounts of the school district.

9. Reorganize the school district's financial accounts, management and budgetary systems to improve financial responsibility and reduce financial inefficiency within the district.

10. Establish school district fiscal guidelines and a system of internal controls, including internal administrative controls and internal accounting controls, with provisions for internal audits.

11. Cancel or renegotiate any contract, other than contracts of certificated teachers who have been employed by the school district in the capacity of a certificated teacher for more than one year immediately before the date the receiver was appointed, to which the governing board or the school district is a party if the cancellation or renegotiation of the contract will produce needed economies in the operation of the district's schools. The receiver may refuse to reemploy any certificated teacher who has not been employed by the school district for more than the major portion of three consecutive school years as provided in section 15-536.

G. The receiver's power, authority and duties shall be effective on the date of the receiver's appointment by the state board of education. The receiver shall perform the receiver's duties according to the instructions of the state board of education order and according to law. The receiver shall promptly report any violations of law, including a violation of the uniform system of financial records, to the state board of education.

H. On review and approval of the state board of education, the receiver shall take all necessary steps to implement the financial improvement plan and budget utilizing those powers identified in the plan as prescribed in subsection F of this section.

I. The salary and benefits of the receiver and any officers or employees appointed by the receiver shall be paid by the school district. The state board of education shall determine the salary for the receiver and any officers or employees appointed by the receiver based on amounts recommended by the state board.

J. The state board of education shall remove the school district from receivership and dismiss the receiver and dismiss any officer or employee appointed by the receiver thirty days after all of the following have occurred:

1. The auditor general certifies that the school district has been financially solvent for one fiscal year.

2. The auditor general certifies that the school district's financial records are in compliance with the uniform system of financial records and generally accepted accounting principles.

3. The receiver certifies that the school district is no longer engaged in gross mismanagement.

4. The state board of education has determined that the school district is able to pay its debts as those debts become due.

K. Beginning ninety days after the submission of the first report prescribed in subsection F of this section, the receiver shall submit a quarterly progress report to the state board of education. The state board of education shall review the expenses and costs of the receiver at least once each calendar quarter.

L. The state board of education shall formally review the receiver's progress every six months. If, based on the quarterly progress reports, the state board determines that the receiver's progress is insufficient, the state board may remove the current receiver and appoint another receiver for the school district.

M. The state board of education may dismiss the receiver for cause or on a majority vote of no confidence in the receiver of the state board.

N. The school district shall indemnify the receiver and any officer or employee appointed by the receiver who is made or threatened to be made a party to any litigation by reason of their status under this section if the receiver, officer or employee acted in good faith and in a manner that the receiver, officer or employee reasonably believed to be consistent with the best interest of the school district and if the receiver, officer or employee had no reasonable cause to believe that the conduct was unlawful.

O. During the period of time that the school district is in receivership, no member, officer, employee or agent of the school district may enter into any contract or incur any liability on behalf of the school district for any purpose if the amount of the contract or liability exceeds the receiver's authorized financial plan and budget for the school district. The receiver may discipline, including, if warranted, imposing a suspension from duty without pay, removal from office or termination of, any school district employee or officer who violates this subsection.

P. This section does not create a private cause of action against the school district or its officers, directors, board members or employees.

Q. The assumption of control of the school district by the receiver shall in no way interfere with the election or reelection of school district governing board members.

R. This section shall not interfere with a school district's ability to declare bankruptcy under federal law.

S. The state board of education shall continue to monitor and offer technical assistance to a school district for two years after its removal from receivership.

T. All information received and records or reports kept by the state board of education during an investigation resulting from a complaint against a receiver appointed pursuant to this section or section 15-107 are confidential and not a public record.

U. The state board of education or the department of education shall immediately notify the auditor general if the board or department has knowledge that a superintendent or chief financial officer who was employed at the school district at the time the school district was placed in receivership is currently employed in another school district or charter school in this state.

V. For the purposes of this section:

1. "Gross mismanagement" means that the school district's officers or employees committed or engaged in gross incompetence or systemic and egregious mismanagement of the school district's finances or financial records.

2. "Notice" means written notice personally served or delivered by certified mail, return receipt requested.

3. "Receiver" means an individual appointed by the state board of education from the persons recommended by the state board for the purpose of managing a school district placed in receivership by the state board of education.

4. "Receivership" means the state or condition of being under the control of the receiver appointed by the state board of education.

5. "Superintendent" means the chief executive officer of the school district.