LEGISLATURE TAKING NOTICE OF RISK SCHOOL INSOLVENCY POSES TO STATE: “For 20 years, we had seven districts in financial trouble, now we have 188.”

By Kimberly Beltran SI&A Cabinet Report – News & Resources http://bit.ly/O0tV7D

Monday, August 06, 2012  ::  With a record number of school districts facing the serious threat of insolvency and news of yet another seeking a state bankruptcy bailout, key members of the California Legislature are beginning to take a harder look at the fiscal risks failing schools pose to the state.

Burdened with upwards of $20 billion in funding cuts and payment deferrals over the past four years, 188 local educational agencies were placed on a state list this spring designating them at risk for not meeting their financial obligations either this year or next.

Topping that list is Inglewood Unified, whose trustees voted late last month to begin the formal process for a state takeover after being unable to close a $10 million budget deficit on their own.

This week, a special legislative oversight committee will conclude a series of informational hearings on the status of the state’s school takeover process – an exercise, a staffer suggested, in preparation for what might be on the horizon.

“For 20 years, we had seven districts in financial trouble, now we have 188 in either negative or qualified status,” said Teri Burns, senior policy director at the California School Boards Association, which advises its member districts on various issues, including fiscal.

“You’re talking about almost 20 percent of the school districts in the state looking at this and saying, ‘We don’t know where we’re going to get the money to continue educating these kids,’” Burns said.

CSBA, like many education supporters, is advocating passage of two tax measures on the November ballot as a way to hold the line on more districts going into insolvency.

One of the measures, Proposition 30 backed by Gov. Jerry Brown, would provide between $6.5 billion and $8.5 billion that would protect schools by maintaining current funding. Proposition 38, the other tax measure on the ballot, backed by attorney Molly Munger, would provide closer to $10 billion to schools.

The problem, fiscal officials say, is that if both fail and state revenues don’t improve, the financial situation for these already-struggling schools is likely to get much worse.

Inglewood, hurt by several years of budget cuts and drastically declining enrollment, becomes the ninth district in California since 1991 to lose local control to the state.

Five of those districts have since repaid their debt and reclaimed administrative power, but Vallejo, South Monterey (formerly King City) and Oakland are under state control until they repay their emergency loans, which total almost $125.6 million and are typically spread over 20 years.

The record number of financially-troubled districts, combined with the fact that five of the nine districts requesting a state bailout did so within the last nine-year period, has legislators sitting up and taking notice. 

Led by Oakland Assemblyman Sandré Swanson, the Select Committee on State School Financial Takeovers has met in Sacramento, Oakland and King City to hear from administrators and school board members who have either gone through the process or are teetering on the edge of it.

The committee meets for the fourth and final time this Friday in Gardena, where it will hear from representatives of several southern California districts, including Inglewood, San Diego, Los Angeles and Compton.

Swanson, whose 16^th district includes Oakland Unified, did not respond to a request for an interview but a senior consultant in his office said the assemblyman is focused on finding ways to keep districts out of bankruptcy as well as returning them to solvency and local control as quickly as possible.

He has authored a bill, AB 2279, which would give the State Superintendent of Public Instruction discretionary power to remove a state appointed trustee and return full authority over a district to locally-elected school board members who have demonstrated their ability to maintain fiscal solvency.

But concerns remain about how the state would handle a sudden onslaught of districts needing financial help.

Emergency loans are made from the state’s Infrastructure Bank, or I-Bank, which sells tax exempt bonds on the capital public market to fund the loans. Districts repay the loans, plus state administration costs and interest, using their Prop. 98 funding.

The I-Bank’s Roma Cristia-Plant said it’s very difficult to say what the institution’s capacity is for issuing multiple school loans simultaneously because of so many varying factors.

She said no discussions have taken place about a possible “rush” on emergency loans and, for now, it has been “business as usual.”

As for California -- with its sluggish economy and near $17 billion budget deficit -- not being able to sell bonds for school loans, Cristia-Plant said, “The state has a proven track record of those kinds of bonds being repaid so I don’t see a problem with that in the future.”