Financially strained districts on rise

Nearly a third of California students attend school in a district facing dire financial circumstances. A report released yesterday by the State Department of Education shows that 127 of California’s 1,037 school districts are now designated as either in negative or qualified budget territory. And that’s before taking the January trigger cuts into account.

2011-12 California school districts in financial distress. (Source: Calif. Dept. of Education). Click to enlarge.

2011-12 California school districts in financial distress. (Source: Calif. Dept. of Education). Click to enlarge.

Seven districts in the First Interim Status Report for 2011-12 received a negative certification, meaning they might not have enough money to get through the rest of this academic year or the next one. They include Vallejo City Unified, which was on the verge of bankruptcy in 2004 and is still paying off a $60 million bailout loan from the state.

Another 120 districts – 17 more than last year – landed in qualified status. They range from Los Angeles Unified, the largest district in the state, to La Grange Elementary School District in rural Stanislaus county, with 7 students. These districts will get through this year, but may not be able to pay their bills in the next two years.

“The financial emergency facing our schools remains both wide and deep,” said State Superintendent of Public Instruction Tom Torlakson in a written statement. “The deep cuts made to school funding – and looming uncertainties about the future – are driving school districts to the brink of insolvency.”

For a second straight year school districts are planning their budgets without knowing whether they’ll have to take another mid-year cut. If voters reject all of the tax increase measures on the November ballot, funding will fall by about $450 per student next year. In the meantime, the March 15 deadline for preliminary layoff notices to teachers is three weeks away.

“I don’t think this list accurately reflects how serious the situation is,” said Michael Hulsizer, head of governmental affairs for the Kern County Office of Education. “Imagine one of these districts facing a $450 per student cut on top of where they are; they have no place to go other than to make cuts right now.”

That’s what Superintendent Kent Taylor is working on in Southern Kern Unified School District. A year ago the district was on the negative list, facing insolvency. This year, after renegotiating all its vendor contracts and getting the unions to accept some furlough days and reduced medical coverage, the district has moved into the positive zone. Taylor intends to keep it there, and that means getting into the weeds himself, looking for any place to save money.

2010-11 California School Districts in financial distress.  (Source: Calif. Dept. of Education) Click to enlarge.

2010-11 California School Districts in financial distress. (Source: Calif. Dept. of Education) Click to enlarge.

“Superintendents nowadays, if they want their districts to survive, have to spend a lot of time on business. Half my day is spent on finances, and that’s how we’re going to stay strategically planned for the future.”

Even the best plans can’t compete with the recession. In San Bernardino County, where the unemployment rate is nearly 12 percent, a quarter of the school districts are on the qualified list. Riverside County, with 12.5 percent unemployment, has 40 percent of its districts in qualified status. But it’s the school districts around the state capital that are reeling the most. More than 95 percent of students in Sacramento County attend one of the eight school districts that ended up with qualified certification.

It falls to the county offices of education to monitor the districts and try to help them get back on sound footing. “I send them a letter which gives them the steps we think they need to take,” explained Dave Gordon, superintendent of the County Office of Education. “Our role of fiscal oversight is not to tell them what to cut; our role is to tell them what it will take to maintain their solvency.”

One of the most dramatic downturns in the county is in Elk Grove Unified, where Gordon spent nearly a decade as superintendent. During his tenure, Elk Grove was one of the fastest growing districts in the state; they couldn’t build schools fast enough. Since then, the housing market tanked, growth stopped, the district’s enrollment fell, and, of course, the state made huge cuts in education.

Gordon said one of the biggest problems is the state deferrals that push billions of dollars in Proposition 98 funding into the following fiscal year. The state shortfall gets erased that way, but districts are left scrambling for cash to cover their expenses, and as they run out of reserves they turn to loans, often with high interest rates.

That’s why there’s so much riding on the governor’s tax initiative. Gov. Brown said the first thing he’d do with the additional funds for education would be to start to pay down the deferrals.

County offices are advising districts to again prepare for the worst, but “worse is a matter of degree nowadays,” said Gordon. “It’s all a question of how much you’re willing to prepare for the sort of doomsday cuts. What we keep saying to people is that hope is not a strategy.”

This entry was posted in 2012 election, Initiatives, Revenue and taxes, State Budget, Taxes and tagged , , , on by .

About Kathryn Baron

Kathryn Baron, co-writer of TOP-Ed (Thoughts On Public Education in California), has been covering education in California for about 15 years; most of that time at KQED Public Radio where her reports aired on The California Report as well as various National Public Radio programs. She also wrote for magazines and newspapers before going virtual as producer and editor at The George Lucas Educational Foundation. Kathy grew up in New York in a family of teachers. She moved to California for graduate school and after spending one sunny New Year’s Day riding her bicycle in the foothills, decided to stay. She and her husband live in Belmont. They have two children, one in college and one in high school.

9 thoughts on “Financially strained districts on rise

  1. el

    If I understand this correctly, this list of negative and qualified does not take any of the deferrals into account – it’s the budgets showing negative balances assuming the state pays what is owed. Am I correct in understanding that these are for budgets two years out, not three? (I forget if the 2 year projection only fiction was last year or this year.)
     
    Some districts with a positive certification are expecting to have cash flow problems because of the deferrals, necessitating loans against their receivables, and the cash flow issue could be sending some of these qualified districts into a place of hurting even this year, from what I am hearing.

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    1. Kathryn Baron Post author

      el, Forgive me if this wasn’t clear. The report does include deferrals up to Oct. 31, 2011. It doesn’t include last month’s mid-year trigger cuts. Districts on the qualified list may run into trouble if none of the ballot initiatives to raise taxes passes in November 2012 because then the state won’t be able to start paying down the deferrals. Districts may have to take out loans to cover the deferred revenues, and those are generally commercial loans with high interest rates.

      AB 1200 passed by the legislature in 1991, requires districts to project two years out as a way of trying to identify potential insolvency before it’s too late. The problem is that with the unusual uncertainties surrounding the education budget in recent years, the two-year projection isn’t as reliable as it used to be.

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  3. el

    My question about the two years versus three years is that normally districts need to project out three years, but at some point with the last budget deal, the legislature said it only had to be two, as a pretend papering-over of the fact that they were cutting the budget hard and forbidding districts to lay off staff as a result. I couldn’t remember whether these would be Qualified with a three year projection or a two year projection.

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  6. John

    Kent Taylor, Has made some good steps in helping SKUSD get back into a Qualified Compliance and off the Negative list, I like some of the things that he has done and commend him in making these hard decisions.  His decision to Eliminate some positions Not Renew, not re-Hire and Reassign 10 of 12 total management positions in the district IE: Assistant Superintendent, Principals, Assistant Principals, Vice Principals, than Lower the Salary Schedule to bring in lower salaried people. I guess we will find out soon enough,  Next year will they have a Qualified School District Budget,  or will  it be all Smoke and Mirrors?  You Decide!

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