Fewer districts say they’re in troubleSleepless nights ahead for Joel Montero
Ten school districts have acknowledged that they’re headed toward insolvency this year or next. An additional 91 districts say they won’t be able to make ends meet two years from now, based on current projections.
The combination represents about 10 percent of the state’s school districts. It’s preliminary and may rise after county offices of education review districts’ financials over the next month. (Montero did not reveal the schools on the list.)
But the totals are lower than the 174 districts that last spring said they were headed for fiscal trouble. That’s surprising to Joel Montero, CEO of Fiscal Crisis and Management Assistance Team (FCMAT), the state agency that straightens out districts’ financial messes. He told district administrators last week at School Services of California’s annual budget outlook presentation in Sacramento that he assumed more districts would file negative self-certifications, indicating impending financial trouble.
“What keeps me up at night are the districts that certified themselves as positive” and shouldn’t have, Montero said. Six of the last eight districts that became insolvent had filed a previous report showing no problems on the horizon.
The latest numbers Montero cited will be in the First Interim Status Report for districts that the state Department of Education will release in March. They’re a snapshot, based on districts’ financial condition as of Oct. 31. A Second Interim Status Report, based on what shape they’re in as of Jan. 31, will be released in June. Districts will base that report on Gov. Brown’s proposed 2011-12 state budget, which basically provides the same level of funding as this year.
But that’s tenuous. If voters in June reject Brown’s request to extend $8.8 billion in temporary taxes – or the Legislature cannot muster a two-thirds majority to put the question on the ballot – K-12 schools will lose $2 billion in funding. If that happens, Montero predicts as many as 50 districts will become insolvent, and hundreds will file “qualified” certifications, meaning they foresee troubles making payroll within the next three years.
In last year’s Second Interim Status Report, a record 160 districts were certified as qualified and 14 filed “negative” reports. Between then and last fall, districts received unexpected good news. In the state budget that it passed in October, the Legislature added back $270 per student in K-12 funding that districts hadn’t expected when they built their 2010-11 budgets. That cushion could account for the expected drop in districts’ “qualified” ratings in the latest report.
But these are volatile times for K-12 schools. Montero and John Gray, vice president and CEO of School Services of California, agreed that districts’ best strategy is a big cash reserve. “I would never apologize for a large fund balance. Hedge your bets against cash insolvency,” Montero said.
The Legislature has actually lowered the required cash reserve to 1 percent of a district’s general fund for large districts (Los Angeles and San Diego) and 3 percent for small districts. But Gray said that, on average, 10 percent would be safer.
Bargaining units may fight large reserves, because there’s less money to bargain over. But, with the state proposing to defer paying a record $10 billion owed to districts into the next fiscal year, districts cannot take a chance of being caught short, Gray said.