Schools Send Out Distress Signals

22 Bay Area districts, and 57 in state, may not be able to pay their bills 

NANETTE ASIMOV / SF Chronicle 4apr04

Five years ago, when California finances gleamed, just 15 school districts had money troubles bad enough to warn the state about. Today, districts in financial danger have nearly quadrupled, and experts see no end in sight.

As the state struggles to close a $12 billion budget gap, many school boards are also struggling to avoid the fate of districts such as Vallejo, which handed its reins to the state on Wednesday in exchange for as-yet unspecified help closing its $20 million budget gap.

Vallejo is the seventh district since 1991 to collapse under the weight of apparent mismanagement. But those seven are not the only ones in trouble.

Across California, 57 districts recently filed reports with the state warning they will not or may not be able to pay their bills sometime during the next two or three years. Twenty-two of those financially troubled districts are in the Bay Area.

And dozens of other districts—that are technically healthy—are so concerned about avoiding trouble that they have been calling the Fiscal Crisis & Management Assistance Team for advice and help.

"We've never been busier," said Tom Henry, chief administrative officer for the fiscal team, the state's rescue squad created in 1992. "We literally get a telephone or e-mail every single day" from school districts asking for help managing their finances.

California has 1,056 school districts, and most are in the black, filing "positive" financial reports. But many of them say they have stayed afloat only by cutting programs, increasing class sizes, laying off employees or eliminating jobs.

"Education is in trouble. Big trouble," said Jackie Goldberg, the Los Angeles Democrat who chairs the Assembly Education Committee. "I've never seen anything like this. But the difference between now and 1991 (the last recession) was that (Gov.) Pete Wilson raised taxes."

It's a different climate today—and not just politically.

Across California, conditions have converged to raise costs and reduce funding for schools: soaring medical insurance premiums, declining enrollment, and unanticipated increases in high-cost items such as special education.

The cash-strapped state, meanwhile, has been paying schools about 90 cents on the dollar with a promise of future refunds. The state has also stopped reimbursing schools for extra employees needed to comply with state mandates—from testing to immunization. And budget planners know that education remains vulnerable to more cuts from Sacramento as lawmakers are forced to choose between cutting classrooms and dropping life-saving services.

Berkeley is a good example of districts hit hardest by such conditions. Its superintendent, Michele Lawrence, calls them the "perfect storm."

It's more like a hurricane. Berkeley is one of the 57 districts to have filed a report warning of financial trouble—its third report in three years. It needs cuts or added revenue equaling $800,000 to reach solvency. It's one of five Alameda County districts to file "negative'' reports this year, meaning it may not be able to pay all its bills sometime in the next two years. The others were Hayward, Emery, Livermore Valley and Oakland (which is already under state control).

On April 15, the state will release new reports showing districts' fiscal pictures for the second half of the year.

In Berkeley, enrollment—and dollars—rose steadily throughout the 1990s. By 2000, there were 9,600 kids in the thriving district. But few foresaw the good times ending. As housing costs rose and jobs dried up, enrollment plummeted by 800 students. At $5,500 annually per pupil in Berkeley, their departure has meant a loss of $4.4 million in funding over the last four years.

But inflation marched on. Medical expenses rose about 10 percent last year—and the same amount each of the two years before that, Lawrence said. Special education costs rose $2 million last year alone.

"That's been Berkeley's story," Lawrence sighed. In three years, the district has cut $16.5 million of its annual budget, which now stands at $90 million.

Berkeley homeowners have generously helped, taxing themselves to pay for school maintenance, art, music, libraries and smaller classes in every grade.

With the cuts, however, class size in grades 4 through 12 has grown and is now as large as in other districts.

"But without the parcel tax," Lawrence said, "class size would be grossly larger than everyone else's."

The scenario that has devastated Berkeley schools is not uncommon in other districts.

Yet Dick Nichol, the fiscal manager of the Mount Diablo district in neighboring Contra Costa County, is quick to point out that filing negative or qualified fiscal reports—that is, warning of trouble before insolvency strikes—is not a sign of mismanagement.

"It was not, in our case," Nichol said. "I can't speak for others, but we view it as an honest reflection" of financial challenges.

Oakland, for example, filed a positive report last year—then promptly went bankrupt.

Mount Diablo is one of five districts in Contra Costa County that filed "qualified'' reports so far this year, meaning there was a strong chance the district could not pay its bills sometime in the next three years. The others were Antioch, Acalanes, Martinez and John Swett.

Earlier this year, Nichol pondered the state's budget uncertainties, then looked at Mount Diablo's bottom line and saw that by 2005 his district would be spending $5.8 million more than it would take in.

"Certainly it's some guesswork," he said.

But that guesswork means 26 teaching jobs will not be filled next year. Nor will the job of a specialist who worked with the parents of disabled students. Or a technology teacher. Or a custodial supervisor.

As a result of the cuts and the guesswork—and the news that the state probably will provide a cost-of-living boost—Mount Diablo will file a positive financial report for the second half of the year.

"It's all preventative—what you do ahead of time so you don't find yourself in a crisis situation like Vallejo having to slash whole programs," said Maria de la Vega, assistant superintendent in San Mateo County's Ravenswood Elementary district.

Like dozens of other districts, Ravenswood is in the black but has asked the Fiscal Crisis Management Assistance Team for help.

The agency, under contract with the state, was established a dozen years ago in response to the collapse of the West Contra Costa district, then known as Richmond. The state was forced to give Richmond a $29 million bailout. Until that time, the largest state loan to a district had been $3.3 million to West Covina in Los Angeles in 1987. Berkeley was not far behind, getting $3 million the same year.

But Richmond inaugurated the era of big-dollar bailouts, and the state has authorized a total of $160 million since 1991 to help the seven fallen districts—including Oakland, Emery and West Contra Costa. The bailouts come with big strings attached: school districts must turn over control to a trustee appointed by the state.

Assemblywoman Lynn Daucher, an Anaheim Republican, is sponsoring AB2756 to try and tighten the system that lets districts like Oakland look so buoyant—then drown in a sea of red ink.

"A certain amount is certainly bad management," Daucher said. "But a lot of it is the uncertainty from the state. Some falter because they don't anticipate what we're going to do."

And yet, she added, the impecunious state has hardly presented a model of austerity to its school districts.

"We just hope they don't do what we've done," she said.

EARLY WARNINGS In the Bay Area, 22 school districts warned the state earlier this year that they may run out of money in the next two or three years. Some may come off the list later this month if their financial picture improves due to cuts or recalculations. The districts are:

ALAMEDA COUNTY
Berkeley Unified
Hayward Unified
Livermore Valley Joint Unified
Oakland Unified
Emery Unified.

CONTRA COSTA COUNTY
Acalanes Union High
Antioch Unified
John Swett Unified
Martinez Unified
Mount Diablo Unified.

SAN MATEO COUNTY
San Bruno Park
Jefferson Union High.

SANTA CLARA COUNTY
Berryessa Elementary
Orchard Elementary
Sunnyvale Elementary.

SOLANO COUNTY
Vallejo City Unified
Benicia Unified.

SONOMA COUNTY
Cloverdale Unified
Geyserville Unified
Harmony Union Elementary
Healdsburg Unified
Wilmar Union Elementary

Email Nanette Asimov at nasimov@sfchronicle.com

source: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2004/04/04/MNG1060G0U1.DTL&type=printable 4apr04