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‘LAUSD is not too big to fail’: School board members alarmed by LA County official’s dire financial projections — and warnings of the possible appointment of a ‘fiscal adviser’

Laura Greanias | August 27, 2018



Dr. Candi Clark, the chief financial officer of the Los Angeles County Office of Education, warns board members about district finances at the Aug. 21 meeting.

*Updated Aug. 27

As night drew near last Tuesday, after a drawn-out and divisive four-hour debate on how to replace a disgraced board member, a bombshell was dropped at school board members’ feet.

District finances are of such great concern that the Los Angeles County Office of Education’s chief financial officer showed up unannounced to make sure LA Unified’s board members knew the extent of it.

“The fact is that LAUSD is not too big to fail, so it is up to all of us to resolve the district’s fiscal challenges,” Candi Clark told the board after waiting her turn to speak at the end of public comment. She then warned that the county has the authority to place a fiscal adviser over the district. “Keep in mind, this is the start of our support to ensure that the district remains fiscally solvent.”

The two board members who have served as superintendents at other school districts immediately took notice at the words “fiscal adviser.”

“She just said the magic word, fiscal adviser,” said George McKenna, who had experience with a county fiscal adviser at Inglewood Unified, which the state later took over. “I heard this, and I heard things I had not heard the county come and say before.

“That was the most serious thing that was said all day. I’m shocked, and I’m glad you came, but it wasn’t on the agenda.”

Richard Vladovic, formerly superintendent of West Covina Unified, said, “What that means is that they looked over our forecast. … We have one pot of one-time money that’s already spent. We’re in deep trouble.”

He added, “This blew me away. … I want everybody to know, this is not chicken little.”

WHAT’S AT STAKE

Installing a fiscal adviser would be a serious — and unprecedented — development at LA Unified.

LA County has already taken that step with Montebello Unified, a neighboring Los Angeles-area school district, which now has a county-imposed fiscal adviser after a state audit found poor financial management, the hiring of unqualified staff, inappropriate use of bond money, and failure of the board to heed warnings from the county about deficit spending, as reported in the Whittier Daily News.

While the fact that the county is talking about a fiscal adviser for LA Unified was news to the board members, the details of the district’s bleak finances were not. The district’s CFO, Scott Price, has been patiently relaying it at meeting after meeting this past year. His predecessor, Megan Reilly, had done the same thing, routinely warning that reductions would have to be made. Reilly resigned a year and a half ago to take a similar position at the Santa Clara County Office of Education.

On Tuesday, Clark also warned that cuts are needed.

“While the budget presented to LACOE shows that the district can meet the minimum reserve in all three years, the district has to make $144 million in reductions between 19/20 and 20/21. Those reductions are outlined in the district’s fiscal stabilization plan. However, the problem is that these reductions do not eliminate the structural deficit in the district’s budget, so there is more work that needs to be done.”

She pointed out that LA Unified is required to keep money in reserve, which for the 2020-21 school year must be $3.9 million.

“The only thing standing between the district and a qualified budget right now is $3.9 million, which is next to nothing. This is a major concern for me and my team as we review the district’s budget considering the fact that the district is declining in enrollment, has uncapped health and welfare benefits for all staff and dependents, and the fact that negotiations are still unsettled. We are carefully monitoring negotiations, and we urge the district to continue to make progress towards implementing with fidelity the fiscal stabilization plan.”

The district’s negotiations with United Teachers Los Angeles are at an impasse, and the two sides are scheduled to meet with a mediator Sept. 27. On Monday, Superintendent Austin Beutner welcomed an offer by LA Mayor Eric Garcetti to help in the negotiation process. The district is offering to give teachers a 6 percent salary increase, matching what it has already negotiated with other labor partners. But the teachers union is demanding further concessions that the district says would cost more than $1 billion beyond what the raises will cost and which the district can’t afford, as it is already spending $400 million to $500 million more than it brings in each year.

Union members are voting this week whether to authorize their leadership to call a strike, which one member said in an op-ed in the Los Angeles Times has already been scheduled for Oct. 3. “A strike date before mediation and fact finding are completed would be a violation of the law,” the district stated in a response to the op-ed.

But before the two sides sit down with the mediator, LA Unified’s budget will get a thumbs up or thumbs down from the county, which is legally required to oversee the budgets of the school districts in Los Angeles County.

“We are currently in the process of reviewing the budgets of all 80 districts in the county, including LAUSD. This process will be completed by Sept. 15 and at that time we will have more information to provide on LAUSD’s fiscal situation,” Margo Minecki, a spokesperson for the LA County Office of Education, said in an email Friday. She said Clark was not available for comment.

WHAT HAPPENS NEXT — AN INTERVIEW WITH SCOTT PRICE, LAUSD’s CFO

LA Unified’s chief financial officer, Scott Price, previously held Clark’s job at the county. He spoke with LA School Report on Friday to explain how Clark — and the district — got to this point, and what could be coming up next.

In the end, he gave some comfort to parents: They will not likely see any changes in their children’s classrooms this year.

Price’s answers have been lightly edited for clarity and length.

Can LAUSD afford to give teachers a 6 percent raise?

The current budget has funds set aside for what is equal to a 6 percent raise across the board. So we set those funds aside. We made sure that those were in the budget, because that was the direction we were going.

Currently, UTLA is talking about the 2 and 2 that has been talked about at the table, but the superintendent has made very clear that we are willing to get to the same place we are with the other groups. But we can’t go past that.

Why is the county concerned about this deal if LAUSD can afford a 6 percent raise for teachers?

The package or the proposal that UTLA has on the table is much, much more expensive than what a 6 percent raise would be. So that’s why they are concerned about what’s going on with bargaining right now.

If you look at the proposal that is out there by the teachers, it would actually increase over what is over a 6 percent by almost a billion dollars a year.

So that would be $1 billion over what the 6 percent raise would cost?

Correct. All of their proposals are up on the web — all things we would love to do, class-size reduction, add extra people at our campuses to help service kids. We would love do to all those things. It’s just that we have financial constraints. So we have to live within our budget.

Tell parents what happens if LAUSD doesn’t meet its legal reserves.

There’s a process the county goes through. What happens is if there’s a district that you are concerned about, and you’re looking at their budget and you say, you know, we’re right on the edge here, we could have an issue — then you make sure you start working with the CFO of that district, which they’ve already begun doing.

And you begin to reach out to the superintendent of the district, which is what happened on Tuesday. The county superintendent, Dr. Debra Duardo, and Dr. Candi Clark, the CFO over at LAOCE, had scheduled a meeting with Mr. Beutner (LAUSD’s superintendent) to talk to them about their concerns: Listen, your current budget that you submitted to the county, which still hasn’t been approved by the county, by the way — it’s been approved by our board, but the county has to approve that budget — we have some clarifications we need, we want to make sure that you’re solid here, we want to make sure that you know that you are on the edge.

Which is a good, healthy conversation. So the first step of the process is already begun.

So when they came and met with Mr. Beutner, one of the questions you ask at the county is, How do we make sure people understand that we’re here and we’re starting to look? And Mr. Beutner said, Well, you can come to our board meeting today.

And when I was county CFO, that’s one of the things I did on a regular basis. If we had a district that we were concerned about, I would go, just ast Dr. Clark did, and speak to the board, mention some of the high-level particulars about the budget, and begin that process. And you talk about the next step of the process. And that’s what Dr. Clark did.

She talked about, possibly if things progress along and if for some reason we move past what’s already in our budget, that third year would drop below the reserve level. The county then has some options, to put in either a financial expert or a financial adviser.

The first thing would be to put in a financial expert, which is more of a person that talks to the CFO, the board, the superintendent, and says, You know, you really have to be careful. But they don’t have any real official power to stop what’s going on in the district.

The next level is a fiscal adviser. A fiscal adviser happens or is able to be installed once the district gets to a point where it is clear that they’re not going to be able to meet their financial obligation in the second year. And depending on the severity of that, a financial adviser can be placed by the county.

A financial adviser has stay and rescind power, which means decisions that are coming to the board for ratification or for approval, the county fiscal adviser can say, “Nuh, uh,” to the board decisions.

They can’t go back into old labor agreements, but they can stop ones that are upcoming. So there’s quite a bit of power that a financial adviser has.

When you get to the point where there’s a financial adviser, that means the county has grave concerns and they already have to start the process, or they’re starting to look at the process for the district to get a state loan. And that’s the final stage of the process, which is the beginning of a whole nother process.

If the state has to come in and loan money to LAUSD, then the state basically has to take over the district, and the board becomes an advisory board, the superintendent is fired by law, and even though it’s not in state law, the CFO also gets fired.

So the superintendent and the chief financial officer or chief business officer get fired, the board becomes an advisory board, and the state puts in a state administrator who works as the superintendent but has all the decision-making power.

Have any of these steps ever happened before at LAUSD?

I don’t believe there’s ever been a fiscal expert put here, which is the first step. Not in the time I was over at the county. I’ve been here a little over a year, and I was at the county three years in that position. So, no, not that I am aware of.

If LAUSD is able to reach a deal to give teachers a 6 percent raise, is the county concerned about that deal?

That’s within our budget now.

Here’s what is concerning the county. They see the reoccuring deficit that we have, we’re spending more money than we’re bringing in. So as they look at the budget that we have, they know the projections that the state gives us that we use. If the state projections are correct and as we move forward, the amount of increases that we’ve had in years previous, we’re not going to have those type of increases that we’ve had before.

The state is projecting about a 2.5 percent increase each year, which is a lot lower. We’ve been getting about a 5 percent average over the last few years.

So state revenue increases are slowing by projection, so when you look at how our spending is moving over those three years, when we have to go into the next year, say we stay strong at 6 percent and we get through this year, the next upcoming year, there will have to be cost savings found in order to take care of this reoccurring deficit as we move forward.

What happens when LAUSD goes below the county-required reserve level?

Right now with the budget the way it is, and we even eke out a tiny little reserve above our 1 percent required reserve in the third year. But if we do anything over what’s already budgeted, then that disappears.

So you are put on watch, basically. Right now, the county is looking at all the details of our budget and deciding whether or not they are even going to approve the budget or ask us to make further changes to it to strengthen the budget.

But one of the reasons they are here is they’ve looked at our fiscal stabilization plan and they see that some of the elements there, we are using one-time monies to bolster the line, and so that’s why they’re concerned. They want to make sure that we understand that, which we do.

When will the county either get back to you or approve your budget?

They have to make those decisions in mid-September. And so that’s why they are here now. They’re trying to figure out what they’re going to do exactly. And that’s why they’re meeting with the superintendent and meeting with us.

The school board just chose a March 5 election date to replace Ref Rodriguez in Board District 5. But the county is citing a $4.5 million cost to the district to run that election. On Tuesday, the county CFO said, “The only thing standing between the district and a qualified budget right now is $3.9 million, which is next to nothing.” So is the county concerned about the cost of that election and how that will impact LAUSD’s reserves?

We will work with those costs. The county office of education will be aware of that. If our budget is approved, they write a long letter, and they put all those things in there: Hey remember this, remember this. And one of those remembers will be, you committed yourself to an election. And everyone understands the cost may be “X,” so make sure you make adjustments for it as you are moving forward. So the letter outlines all those, “be careful, be careful, be careful.”

Will any of those adjustments mean parents will see impacts in their classrooms this year?

It shouldn’t filter down to the classroom. We will be able to make adjustments somewhere to make sure that classrooms aren’t affected by that.


*This article has been updated with Beutner’s statement welcoming the LA mayor’s help with the union negotiation process. 


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