1. 1. The threat of a State take-over is real, imminent and potentially devastating.
It’s important, first, to understand the circumstances under which the State takes over a school district. It does so when a district runs out of cash; when, over time, expenses exceed revenues to the extent that the school’s “bank account” runs out of cash. Since the State has a legal obligation to educate our children, school districts cannot declare bankruptcy, so the State has to loan money to the District, and it will not do that without taking control. That’s when a State take-over occurs, and that is the condition FUSD is facing today.
Appendix K contains the executive summary of the report from the Fiscal Crisis Management Assistance Team (FCMAT). It points out that if FUSD takes no action, it may run out of cash by early 2006. It’s helpful to think of school districts as having two “bank accounts”, one that holds “unrestricted” funds” and a second account that holds “restricted” funds. The latter account can only be used to fund specific functions and projects, even if it has surplus funds while the “unrestricted” funds bank account has run dry. It is, in fact, the “unrestricted” fund that will run out of cash by early 2006. The District can temporarily borrow money from its “restricted” funds account, but it must repay the borrowings within a maximum of one year. All that does is put off the day of reckoning, while choking off the academic improvement programs for which the “restricted” funds are intended to be used. In short, borrowing funds from the “restricted” funds account, other than for very short-term cash management purposes, is a very bad idea.
This is particularly true in view of the fact that the District has incurred deficit spending in four of the last five years (see Graph No. 15 below) and that the FCMAT projections show an anticipated cumulative deficit of $36 million in school year 2005-2006 and $80 million in 2006-2007. FUSD simply does not have the ability to repay borrowings from its “restricted ” funds account.
An analysis of projected revenues and expenses based on the provisions of existing bargaining agreements (over 90% of District expenses are related to salaries and benefits) leads FCMAT to forecast a deficit of $29.5 million dollars in 2005-06. In addition to that, State provisions require that the District increase its reserves from 1% to 2%, which will require an additional $6.5 million, making for a total annual deficit of $36 million for the 2005-06 fiscal year. FCMAT goes on to project an even greater annual deficit of $44 million for the 2006-07 fiscal year. Finding a structural fix for the $36 million hole in the District’s budget in 2005-06 would still leave an $8 million structural deficit in the ensuing year.
Some will argue that these are just projections, and that projections are always subject to change. The Task Force believes the projections to be based on sound assumptions and very realistic if no action is taken by the District to change the relationship between revenues and expenses.
It should be understood by the reader that FUSD, like all other California school districts, operates within the constraints of how California schools are financed. Of the $867 million current-year budget, only $367 million falls under the category of unrestricted General Funds. Another $227 million falls within the General Fund, but is restricted to prescribed purposes. The balance is in specific self-standing funds: the Cafeteria Fund, the Adult Education Fund, the Child Development Fund, the Internal Service Funds (health and Workers Compensation) and various building funds. The point is that in evaluating alternatives to solve its fiscal problems, the District cannot look at the totality of its budget, because so much of it is restricted to specific uses.
There are those who will voice the opinion that the State might as well take over the District. Let’s analyze that view. As discussed above, a State takeover occurs when a district runs out of cash and the State has no option but to make a loan to the District. The State’s priority then becomes payback of the loan. Financial management of the District takes precedence over instructional reform. The process of financial recovery generally takes years. The fiscal condition of the District is certainly not helped by the drop in credit rating and the decline in enrollment that inevitably follow a State take-over. Employers do not like to locate in districts where their employees’ children must attend schools that are under State takeover. Aside from parental concern about the quality of education their children will receive, a State takeover is the equivalent of putting a sign at the City’s entrance that reads “Local Officials Unable to Manage Their Community’. As pointed out in the preface to this report, Thomas Jefferson would urge our community leaders to take control of our own problems, not to turn them over to the State.
2. FUSD has more instructional personnel (teachers and other instruction related staff) per student than all other benchmark districts except Long Beach, and correspondingly higher Instructional Administrative Expenses.
As is illustrated in the next two graphs, FUSD has the third highest number of teachers per enrolled student, the second highest number of other instruction related staff and, in the aggregate, the second highest number of instruction related personnel per student enrollment. To a significant extent, this is a result of negotiated class sizes. However, it should also be noted that FUSD has a very high number of classes in secondary education with very low enrollment. Poverty rate is also a contributing factor because it makes FUSD eligible for more categorical programs, which in turn adds to the classroom staffing level. As shown on Graph No. 18, there is a correlation between instructional personnel and instructional administrative expense. Note that these instructional administrative expenses, comprised primarily of certificated personnel who are not assigned to a classroom, are primarily at the school sites rather than the Central District.
