By John Fensterwald - Educated Guess

Many school districts are worried about running out of money this year. San Diego Unified, the state’s second largest district, is openly talking about it. But surprisingly, given the financial pressures on all K-12 districts, only one district is in grave danger of insolvency: 12,000-student Inglewood Unified, southwest of Los Angeles.

Last month, the board of the little-known but powerful state agency, the Fiscal Crisis and Management Assistance Team, or FCMAT, approved a declaration of fiscal emergency for Inglewood, the first step  leading to the state issuing a loan and taking over the district. It’s a four- to six-month process, requiring the Legislature’s two-thirds majority approval, and it’s still possible that the district can stave off the equivalent of  bankruptcy this year, but only with a series of “ifs” breaking its way:

… if there aren’t midyear state cuts to K-12 schools;

… if teachers and classified employees agree to more give-backs: benefits cuts and more furlough days – which at this point appears doubtful;

… if the State Board of Education this week grants waivers to allow huge class sizes in grades 4 to 8, over the opposition of many parents and teachers;

… if district officials can convince its suppliers – health care providers being the biggest – to shift some bills from the end of this year to next to ease the cash flow;

… and if the district can then convince private lenders in the next few months to deem Inglewood creditworthy to receive short-term loans called TRANs (Tax and Revenue Anticipation Note).

It’s looking increasingly grim, with the district now projecting a negative cash balance of $4 million in April, soaring to nearly $26 million by the end of June.** Meanwhile, parents have voted a lack of confidence with their feet: The district lost another 900 students this fall, with families pulling kids out and sending many of them to charter schools.

The leadership of the Inglewood Teachers Association voted to support a state takeover instead of bigger classes, approaching 50 in some high school subjects, and more givebacks and furlough days. As union President Pete Somberg told the Daily Breeze, “We don’t see how the current leadership is able to do that when all they are looking for is financial daylight so they can maintain local control. If local control means ransoming a generation of kids, we are not for it.”

But as Glenston Thompson, the assistant superintendent and numbers guy who Inglewood brought in last summer to save the ship, responds, “Be careful what you wish for.”

State, county, and FCMAT officials uniformly warn that a state takeover of a district – and that includes too-big-to-fail San Diego Unified – should be the last resort, a trap to be avoided, because getting out of state receivership is costly (King City Unified, the last district to get a state loan, in 2009, is paying 5 percent interest plus the salary of a state-appointed administrator and advisers) and lengthy (as long as two decades to pay off). The administrator replaces the superintendent and makes all academic and financial decisions; district trustees lose all authority.

Inglewood would be the ninth district in two decades to be taken over, joining Oakland, Emery, Coachella Valley, Compton, West Fresno, Vallejo City, West Contra County and King City in the hall of shame.

Like other districts, Inglewood Unified has been slammed by budget cuts and the failure of the state to pay its bills on time. Deferrals now account for 38 percent of revenue limit payments (the portion not covered by property taxes), creating massive cash-flow challenges.

But the difference between Inglewood and most districts is massive declining enrollment and bad management.

Over the past eight years, enrollment has plunged nearly a third, from nearly 18,000 students to about 12,260 this year. A FCMAT analysis in from a year ago found that the district failed to anticipate and respond to the hemorrhaging of students. Only now is it moving to combine two elementary schools with fewer than 200 students. (The financial impact of losing state reimbursements for 900 students this year actually won’t be felt until next year’s budget.)

FCMAT pointed to other deficiencies:

• Failure to maintain reserve levels;
• Insufficient consideration of long-term bargaining agreement effects;
• Poor cash flow analysis and reconciliation;
• Bargaining agreements beyond state COLA;
• Ineffective management information systems;
• Lack of regular monitoring of categorical programs.

“There is a lack of direct oversight in the business office,” the report said. “Combined with an insufficient level of technical competence, this has created flawed budget assumptions, duplication of revenues and poor enrollment projections.”

Special education was a huge problem. The district failed to monitor the costs of out-of-district placements of handicapped students. Special education’s encroachment of $12 million equaled about a sixth of the district’s general fund budget.

Severe cuts and layoffs, to no avail

Last spring, staring in the face of a budget deficit and cash shortage, the Inglewood board cut more than $24 million, about 20 percent of its total budget. It laid off 200 teachers, nearly a third of the staff, which, in turn, has led to class sizes beyond the legal limits. With the county’s help, the district was able to get most of the state deferrals waived, and it squeaked by through internal borrowing, according to Melvin Iizuka, director of business advisory services for the Los Angeles County Office of Education.

Through painful cuts and better budgeting, the district was able to persuade Iizuka’s office to approve this year’s budget. But that will be a short-lived reprieve, achieved only because the Legislature banned county offices from using two- and three-year budget projections in authorizing school districts’ budgets this year. But in an Oct. 20 letter, while crediting its “considerable progress,” Los Angeles County Superintendent Arturo Delgado notified the district that his office determined that the district won’t be able to meet its commitments this year and next and will be certified negative.

State Board of Education’s dilemma

Having been inundated with emails urging the State Board not to grant waivers for larger classes in Inglewood, State Board member Carl Cohn visited Bennett-Kew Elementary School last week. It was the same school that years ago, when he was the Long Beach Unified superintendent, he would take his principals to visit, because of its extraordinary achievement.

What he saw last week disturbed him, he said. “I saw enthusiastic teachers and kids focused on classroom instruction; there was lots of resilience under these circumstances,” he said.  “But the circumstances were extremely challenging. I saw classrooms in dilapidated bungalows with upwards of 35 students and not much space.”

If Cohn and the State Board deny the waivers, the district will have to hire back teachers it cannot afford to pay, compounding its budget problems. But to continue to approve waivers for 30 to 38 students per classroom in Inglewood and elsewhere, “we will break the backs of those who do the work.”

“I don’t have a magic answer. All I know is what I see: hardworking, dedicated teachers overwhelmed in California public schools.”

** Joel Montero, CEO of FCMAT, is constantly warning school district trustees to pay attention to their districts’ cash flow; it’s not enough to pass a balanced budget.  “Don’t let a school board meeting go by without asking, ‘How are we with cash? ’” he says.