(a) As used in this section:

(1) "Fiscal integrity" means the education service cooperative's ability to comply completely, accurately, and timely with financial management, accounting, auditing, and reporting procedures required by state or federal law and regulations; and

(2) "Material" means that the act, omission, or violation jeopardizes the fiscal integrity of the education service cooperative.

(b) Any education service cooperative that meets one (1) or more of the following criteria may be identified by the Department of Education as being in fiscal distress upon final approval of the State Board of Education:

(1)

(A) A declining balance that jeopardizes the fiscal integrity of the education service cooperative.

(B) The department shall not use capital outlay expenditures from the education service cooperative's balance for facilities to identify the education service cooperative as being in fiscal distress;

(2) A material failure to meet the education service cooperative's obligation to maintain the education service cooperative's facilities;

(3) A material violation of local, state, or federal law or regulations relating to:

(A) Fire, health, or safety codes;

(B) Construction codes;

(C) Audit requirements; or

(D) Procurement, bidding, and purchasing requirements;

(4) A material failure to provide timely and accurate legally required financial reports to the department, the Division of Legislative Audit, the General Assembly, or the Internal Revenue Service;

(5) A material failure to maintain sufficient funds to cover payroll, salary, employment benefits, or legal tax obligations;

(6) A material default on any debt obligation;

(7) A material discrepancy between budgeted and actual expenditures; or

(8) Any other fiscal condition of the education service cooperative that the department determines materially impacts the education service cooperative's delivery of education services.

(c)

(1) The department may identify an education service cooperative as being in fiscal distress at any time a fiscal condition of the education service cooperative is discovered to have a detrimental negative impact on the continuation of educational services provided by the education service cooperative.

(2)

(A) If the department identifies an education service cooperative as being in fiscal distress, the department shall notify the education service cooperative in writing of the identification of fiscal distress within ten (10) calendar days.

(B) The department shall identify in the notice each criteria for fiscal distress on which the department based the identification of fiscal distress.

(C) The department shall deliver the notice by certified mail, return receipt requested, and addressed to:

(i) The president of the education service cooperative's board of directors; and

(ii) The director of the education service cooperative employed under § 6-13-1010.

(d) The identification of fiscal distress made by the department under this section may be appealed to the state board under § 6-13-1031 in which case the final order entered upon appeal is the final classification of fiscal distress.

(e) Within two (2) weeks following the date the education service cooperative receives the final classification by the state board of fiscal distress, the education service cooperative shall:

(1) Notify in writing each public school district in its service area that the education service cooperative is classified as being in fiscal distress; and

(2) File with the department a fiscal distress plan under § 6-13-1028.

(f) An education service cooperative that is identified as being in fiscal distress shall not incur any debt without the prior written approval of the department.

(g) The education service cooperative shall include in the annual report to constituent school districts under § 6-13-1020(d) the progress the education service cooperative has made on its fiscal distress plan.