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