The number of school districts in financial distress has fallen significantly after cresting last year, according to a state report released Monday.

Qualified (in yellow) certifications and negative (in red) district financial certifications from  1999-2000 through last year. This year's totals for the first interim for 2012-13, not shown, are 117 qualified and seven negative. Chart by FCMAT (click to enlarge).

Qualified (in yellow) certifications and negative (in red) district financial certifications from 1999-2000 through last year. This year’s totals for the first interim for 2012-13, not shown, are 117 qualified and seven negative. Chart by FCMAT (click to enlarge).

Seven districts received a “negative” certification, the state’s gravest assessment of a district’s financial condition. This means that the state believes these districts will have trouble paying their bills this school year or next. An additional 117 districts received a “qualified” certification – a warning that, based on revenue projections, employee pay obligations and other financial commitments, they may have trouble this year or over the next two years. Together, the 124 districts are one out of eight of the state’s 1,043 districts and county offices.

While down only slightly from the 130 districts on the state’s warning list this time a year ago, it’s a drop of nearly a third from the record 188 districts ­– 12 negative and 176 qualified – reported last May.

Two of the seven districts that received a negative certification  – Inglewood Unified and South Monterey County Joint Union High – have already declared insolvency, and, in return for receiving a state loan, are being overseen by a state administrator. Inglewood, with 14,275 students and a budget of $111 million, is the largest of the seven. Others on the negative certification list are Walnut Valley Unified and Wilsona Elementary District in Los Angeles County, Victory Valley Union High School District in San Bernardino County, Cotati-Rohnert Park Unified in Sonoma County and Denair Unified in Stanislaus County.

Districts with a qualified status include some of the state’s largest unified districts: Los Angeles, San Diego, Santa Ana, Elk Grove, Oakland, Garden Grove, Capistrano, San Juan and Sacramento City. Combined, districts facing financial troubles comprise about a third of the state’s six million students.

The report, known as the first interim report, only covered spending through October 31, the week before voters passed Proposition 30, which will pump an average of $3 billion per year into K-12 schools and community colleges for seven years. Not knowing what would happen at the polls, most districts had budgeted very conservatively for the current school year. Some approved two budgets, including one that assumed Prop. 30 would fail and there would be another big cut in state revenue, said Anthony Bridges, deputy executive director of FCMAT, the Fiscal Crisis and Management Assistance Team, the state agency that oversees financially troubled districts. The impact of Prop. 30 should be more of a factor in the districts’ next report, known as the second interim report, which will cover spending through Jan. 31. It will be released in May, after county offices have reviewed districts’ numbers.

Even with Prop. 30’s passage, school districts’ revenues will be approximately what they were last year. Gov. Jerry Brown has chosen to use some of the extra revenue from Prop. 30 to start to pay down deferrals, the billions of dollars in late payments from the state that have created a cash crunch for many districts – and a cash crisis for some, particularly for charter schools that don’t have the ability to borrow funds from banks or other outside sources to offset the money owed by the state. “There will be an improvement for everyone in terms of cash flow,” said Bridges.

For the past five years, there has been a spike of districts reporting negative and qualified financial status in the second interim period, as districts have gotten a better read on their finances, the state budget and, for those districts with declining enrollments, attendance figures. But Bridges predicted that this year’s second interim report might show a slight improvement in the number of districts experiencing financial difficulties.

Brown’s proposed state budget includes a 1.65 percent cost-of-living increase for K-12 districts – the first COLA districts will have seen in five years. Even so, districts with sharply dropping enrollments, resulting in declining state revenues, may still face difficulties next year, Bridges said.

Filed under: Featured, Proposition 98, Reporting & Analysis, School Finance · Tags:

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  1. el says:

    John, is there any discussion in Sacramento at all about ending the horrible requirement that the state preschools charge all parents, even very low income parents, for their kids to attend? Our local preschool has found this rule to be significantly disruptive as kids churn in and out for financial reasons, and it’s a waste of time for our district office. It’s hurting the kids who most need preschool.

    It’s a stupid rule and the money collected is not worth the hassle it creates let alone the rest.

  2. Hurley says:

    I agree with Navigio–it’s definitely too early to celebrate in San Diego Unified School District, the second largest in the state.
    Considered a “winner” under LCFF–and even counting those additional resources–SDUSD will continue a structural deficit of at least $34 million beyond 2013-14 (they have been selling real estate annually to prop up the budget). In addition SDUSD will be unable to restore three of the instructional furlough days, will raise class sizes in K-3 to 1:27, and will likely raise class sizes in other grades as they attempt to balance the budget using “attrition” and a hiring freeze to reap other savings.
    And this is the “best case” scenario. The picture is even bleaker if the state legislature rejects LCFF if favor of across-the-board distribution and/or if the sequester cuts are fully implemented.
    While the employees will enjoy some relief (43+% of all new revenue coming in is promised to pay deferred raises), the 119,000 students in the district will continue to be losers.

    1. navigio says:

      It saddens me to see the mention of selling off real estate to try to close the budget gaps. There is probably nothing more deathly-spiral than the slow-motion dynamic between budget, school size, enrollment and real estate.
      Having watched this process for a few years now, what I am seeing is something along these lines: standardized testing and its associated measures are tending to increase ‘performance’ segregation within districts. This causes enrollment movement toward higher ‘achieving’ schools. Those schools, in an attempt to accommodate the increase in enrollment (and associated increase in funding) use construction bond money to expand their classroom space, often at the expense of beautiful, open space. Budget cuts have district leaders and BoE members looking for ‘efficiencies’ and one of the first ones that seems to always come up is that of the ‘inefficiencies’ of small schools. As these enrollment movements reduce the size of some schools, those end up being closed. Districts are left with higher density schools with less free space and campuses that sit empty, are ‘rented’ out to charters or used for other district programs, and eventually are sold off for cash. That very process turns people away from the public system and so the process recurses. The worst part about all this is we think we are actually doing good by being more efficient. But in reality, we are slowly killing public education, and we are doing it for money.
      Our communities have always set aside property for the explicit use of educating its children. The idea that we should have to sell away that priority just so we can provide our children with less horrendous educational resources, is itself horrendous. I hate to be so dramatic, but for me, when I see this happen, it is truly one of the tragic failures of society.

  3. el says:

    A lot of the budgetary pain has been because the midyear cuts were not just against one year but always had to be projected out three years. So for districts that were already deficit spending (probably a majority), a cut went against the end balance x3. Just eliminating that uncertainty is going to help a ton with getting budgets back to stable and making it possible to use reserves for long deferred one-time expenses.

  4. navigio says:

    The easiest way to ensure you can pay your bills is to drastically cut your expenditures. The worst may be over for our accountants but is only starting for our students.

    1. Mark Wilson says:

      The Peralta Community College District has taken the Prop. 30 money and hired more administrators and faculty in an attempt to quickly increase enrollment. The dysfunctional and toxic environment created by the cuts of the past several years will only worsen as more students demand services from the overwhelmed staff. I agree with navigio: the worst is only starting for us students.