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The Changes that Insolvency Can Make in a School District

October 18, 2011

If you are thinking that “it” – meaning Insolvency can’t happen to San Diego Unified Schools, you just need to shift your focus northward in our state to Oakland to see that it has already happened to a major school disctrict.

In a continuing series in the Voice of San Diego, Keegan Kyle explains to readers what can happen if a district has to claim insolvency and there is state takeover.  I find this stuff to be very interesting, I hope it isn’t too dry for my readers.  But, if you are a SDUSD teacher, this is the information you MUST know.

Top officials at San Diego Unified say the district’s financial health is teetering on the edge of a cliff. If the state cuts more funding this year, the district could soon fall over the edge and into insolvency.

As I explained yesterday, insolvency would then spur a radical shift in local control over San Diego’s schools for decades to come. The state would take over the district, firing its superintendent and stripping its school board of all authority. Until the district repays a bailout, the state would remain a fixture in the district’s financial affairs.

For a glimpse at what could happen to San Diego Unified, I examined what did happen to Oakland Unified in 2003. The district declared insolvency, received a $100 million bailout and then handed over control to the state.

Here’s a link-packed synopsis of what I learned:

In 2003, The New York Times examined Oakland Unified’s crisis through its ousted superintendent, Dennis Chaconas. It reported:

Mr. Chaconas acknowledges that as he focused on academics he paid too little attention to finances. Not enough money was allocated to pay for the raises for teachers, and the district did not count on a drop in state money because of its declining enrollment. Those and other problems went undetected, officials said, because of antiquated computer and bookkeeping systems.

Mr. Chaconas said he had been served poorly by his financial staff, which began warning him about a growing shortage only last spring. But his detractors say there is no excuse for the financial miscues, particularly since a state audit of the district in 1999 warned of a brewing financial crisis.

”I know everyone loves Dennis, but some of the poorest children in the state are going to be saddled with this debt for years because of our mistakes,” said Kerry Hamill, a member of the school board, which, after the state takeover this week, became an unpaid advisory body. ”He was not looking at our bank account while buying, buying.”

At the time of the state takeover, Oakland Unified had fallen nearly $65 million short of its expenses, the San Francisco Chronicle reported. A big chunk came from increasing teacher pay and salaries by 24 percent without knowing whether the district had enough cash to account for the increased costs, a problem similar to what San Diego Unifiedfaces today.

I think that San Diego Unified will be forced to roll back agreed upon raises so that the already stripped to the bone teaching force can keep their jobs.

The state appointed Randy Ward as Oakland Unified’s new leader. (Ward now leads the San Diego County Office of Education, which oversees San Diego Unified’s finances.) The Chronicle said Ward shifted the district away from a political climate that had hindered it for years.

Ward, 46, is beholden to none of that. His appointment as the state administrator of the district will halt the never-ending din of far-flung proposals, petty politics and favoritism that have dogged the Oakland schools like a plague.

Critics can still hound school board members, but it will do little good as their positions have been reduced to advisory roles.

But the transition to state control wasn’t a smooth one. The takeover spurred unsuccessful lawsuits and state legislation aimed at regaining local control and protests against Ward’s budget-correcting proposals, such as school closures. Families also appeared to be fleeing in droves for charter schools and surrounding districts.

In 2009, six years after the state took control of Oakland Unified, it returned most functions to the school board and a new superintendent. The district still owed $80 million in debt to the state and until it’s repaid, the state has veto power over the district’s annual budget.

Last year, the Oakland Tribune tried to assess whether conditions had improved since the state takeover. District officials reported a clearer picture of finances and better test scores, but continued budget stress, a tense relationship with unions and at times dysfunctional leadership.

San Diego Unified has faced some of the same financial challenges that plagued Oakland Unified running up to insolvency — mainly, declining enrollment and rising personnel costs.

District and county education officials say the district still has enough money to pay its bills this year.

Superintendent Bill Kowba and school board president Richard Barrera say they are more concerned about next year, when the district estimates a $100 million budget shortfall after possible state cuts. Even without the state cuts, the district estimates a $60 million deficit.

Across the state, more school districts are edging closer to insolvency, according to the state agency responsible for overseeing districts’ financial health. After the housing bubble burst and Wall Street crashed three years ago, the number of districts flagged by state officials as nearing insolvency spiked.

San Diego Unified is not currently flagged by state officials since the district last reported having enough money to pay its bills for at least the next two years. But district officials argue possible state funding cuts this year could change that forecast.

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