AMENDED IN ASSEMBLY JUNE 25, 2026

AMENDED IN ASSEMBLY MAY 11, 2026

AMENDED IN SENATE JANUARY 5, 2026

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

95

Introduced by Senator Seyarto

(Coauthor: Senator Rubio)

February 10, 2025

An act to amend Sections 84040 and 84040.6 of the Education Code, relating to community colleges.

Vote: majority   Appropriation: no   Fiscal committee: yes   Local program: no

LEGISLATIVE COUNSEL’S DIGEST

Existing law establishes the California Community Colleges, under the administration of the Board of Governors of the California Community Colleges, as one of the segments of public postsecondary education in the state. Existing law requires the board of governors to adopt criteria and standards for periodic assessment of the fiscal condition of community college districts. In so doing, existing law requires the board of governors to develop, by regulation, appropriate procedures and actions for community college districts that fail to achieve fiscal stability or that fail to comply with the board of governors’ recommendations, and to report to the chairs of the educational policy and fiscal committees of both houses of the Legislature, the Director of Finance, and the Governor, related corrective actions taken by the community college district and related actions taken against the community college district.

This bill would instead require the office of the Chancellor of the California Community Colleges to report the above-described information, as needed, and to additionally report the information to the Joint Legislative Audit Committee. Beginning in the 2027–28 fiscal year, the bill would also require any information reported to be included with the below-described report related to community college district audits.

Existing law requires the board of governors to annually submit a report to the Joint Legislative Audit Committee on the number and nature of audit exceptions and estimated amount of funds involved in the exceptions, a list of community college districts that failed to file their audits under existing law, and the actions taken by the State Department of Education to eliminate audit exceptions and comply with management improvement recommendations.

This bill would revise the contents of the report to instead include actions taken by the chancellor’s office to eliminate audit exceptions and comply with management improvement recommendations. The bill would instead require the chancellor’s office to report that information, and to additionally report that information to the educational policy and fiscal committees of both houses of the Legislature, the Director of Finance, and the Governor. Beginning in the 2027–28 fiscal year, the bill would also require the report to include any of the above-described information related to corrective actions taken by, and actions taken against, a community college district.

The people of the State of California do enact as follows:

SECTION 1.

Section 84040 of the Education Code is amended to read:

84040.

(a) It is the intent of the Legislature to encourage sound fiscal management practices among community college districts for the most efficient and effective use of public funds for the education of community college students by strengthening fiscal accountability at the community college district and state levels.

(b) The governing board of each community college district shall provide for an annual audit of all funds, books, and accounts of the district in accordance with regulations of the board of governors. The audit shall be made by certified public accountants licensed by the California Board of Accountancy. If the governing board of a community college district fails to provide for an audit, the board of governors shall provide for an audit, and if the board of governors fails or is unable to make satisfactory arrangements for such an audit, the Department of Finance shall make arrangements for the audit. The cost of any audit described above shall be paid from community college district funds.

(c) The board of governors shall adopt criteria and standards for periodic assessment of the fiscal condition of community college districts, and such regulations regarding the review and improvement of community college district fiscal conditions as necessary to encourage sound fiscal management practices. In so doing:

(1) The governing board of a community college district, as required by regulations of the board of governors, shall periodically report information to the board of governors regarding the fiscal condition of the community college district.

(2) The board of governors, by regulation, shall develop standards for community college district maintenance of sound fiscal conditions. The regulations shall authorize a board comprehensive management review of any community college district that, after assessing itself or being assessed in accordance with board of governors’ criteria and standards, is shown to be experiencing fiscal difficulty. On the basis of the findings of the management review, the board of governors may recommend appropriate changes in a community college district’s management practices.

(3) The board of governors, by regulation, shall develop appropriate procedures and actions for community college districts that fail to achieve fiscal stability or that fail to comply with the board of governors’ recommendations. The procedures and remedies may include the appointment of a special trustee to manage the community college district. The regulations pursuant to which the board of governors may appoint a special trustee to manage the community college district shall include specific benchmarks to indicate the presence of local capacity to resume management of the community college district and clear standards that require meaningful consultation by a special trustee, or the special trustee’s designee, with the community college district before decisionmaking. The board of governors may reduce or withhold apportionment to community college districts to pay for the cost of the special trustee, management review, or other extraordinary costs resulting from the community college district’s fiscal difficulties and to ensure the stabilization of the community college district’s financial condition.

(4) (A) The office of the Chancellor of the California Community Colleges shall report, as needed, to the chairs of the educational policy and fiscal committees of both houses of the Legislature, the Joint Legislative Audit Committee, the Director of Finance, and the Governor any corrective action taken by the community college district and any action taken against the community college district pursuant to paragraph (3).

(B) Beginning in the 2027–28 fiscal year, if the chancellor’s office has information to report pursuant to subparagraph (A), the information shall be included with the report submitted pursuant to subdivision (a) of Section 84040.6.

(C) A report submitted to a committee of the Legislature pursuant to this paragraph shall be submitted in compliance with Section 9795 of the Government Code.

SEC. 2.

Section 84040.6 of the Education Code is amended to read:

84040.6.

(a) On June 30, 1991, and each year thereafter, the office of the Chancellor of the California Community Colleges shall report to the chairs of the educational policy and fiscal committees of both houses of the Legislature, the Joint Legislative Audit Committee, the Director of Finance, and the Governor on all of the following:

(1) The number and nature of audit exceptions and estimated amount of funds involved in the exceptions.

(2) A list of community college districts that failed to file their audits pursuant to Section 84040.

(3) The actions taken by the chancellor’s office to eliminate audit exceptions and comply with management improvement recommendations.

(b) Beginning in the 2027–28 fiscal year, the chancellor’s office shall include any information reported pursuant to paragraph (4) of subdivision (c) of Section 84040 with the report required pursuant to subdivision (a).

(c) A report submitted to a committee of the Legislature pursuant to this section shall be submitted in compliance with Section 9795 of the Government Code.