Oceanside schools warned of insolvency
State offers district guidance to avoid ‘moderate risk’ of financial collapse.
OCEANSIDE, Calif. — The Oceanside Unified School District is at risk of financial failure, according to a state agency that helps school districts manage business issues.
The Fiscal Crisis & Management Assistance Team, which serves school districts statewide, released a report analyzing the district’s fiscal practices and budget projections, and concluded that Oceanside Unified is at “moderate risk” of insolvency.
“This district should take measures to gain control of staffing and fiscal information necessary to make informed decisions and make prudent recommendations to the governing board,” stated the report released May 17. “The district’s governing board should act immediately to balance the budget, respond to declining enrollment trends and reduce the forecasted deficit spending. Failure to act quickly and decisively may result in fiscal insolvency and loss of local control.”
The report also offers advice for improving the district’s fiscal condition, school officials said.
The report consisted of questions about the financial practices and conditions that contribute to school districts’ financial health. Topics include accounting procedures, spending priorities, facilities use, staffing and others.
Analysts checked “yes,” “no” or “not applicable,” to indicate whether the district is following best practices, and explained the shortfalls identified by “no” answers. The more “no” answers the district receives, the more dire its financial status.
Oceanside Unified received a score of 31.4% on that rubric, with the high risk category constituting a score of 40% or more, moderate risk at 25% to 39%, and low risk at 24% or lower.
Oceanside Unified has struggled with deficit spending, bitter labor negotiations and declining enrollment for several years.
For the last two fiscal years, it has issued “qualified” budgets, meaning it may not meet all its financial obligations for its three-year budget cycle. Although it expects to stay in the black for 2019-20 and 2020-21, it may not have adequate funds for the third year out, district spokesman Matthew Jennings said in an email.
Those problems have been brewing for some time. Oceanside’s funding base has eroded as student enrollment dropped from 21,973 in the 2003-04 school year, to 18,055 last year, according to the district.
Meanwhile, charter school enrollment in Oceanside rose from 511 to 2,404 during the same period. District enrollment is expected to decline to 17,238 in the coming school year, the district stated. Tight finances created acrimony among the district’s workforce.
Talks with the Oceanside Unified teachers’ union dragged out for more than a year and a half. The union and district struck an agreement in February 2018.
In June, the district adopted a $221-million budget for the 2019-20 fiscal year, noting that revenues would fall short of those expenses by more than $7 million, so it would make up the difference by drawing on reserves.
Some issues, such as declining enrollment, have roots in demographic and economic changes of the surrounding community, and others are due to changes in the district’s compensation obligations.
Other factors, however, are within the district’s control, the report stated. For instance, the report described an assemblage of outdated data systems used for budget development.
“The district uses several unconnected systems to store, retrieve, and report personnel data,” the report stated. “The lack of integration of systems used to maintain position control inhibits timely access to staffing data and decision making.”
Jennings said the district will adopt an “integrated position control system” as suggested by the analysts.
The district is piloting the software, and entered an agreement with a firm, Digital Schools, to introduce the software in August, he said.
In another section, the report described how the district did not routinely expend its restricted funds before tapping unrestricted funds, leaving it with less financial maneuverability.
It also found that the district’s actual expenditures weren’t always consistent with its budgeted expenses, leaving a shortfall of about $1.5 million in employee benefits, services and capital outlay.
“A comparison of actual expenditures and encumbrances to budget as of February 14, 2019 indicates that several categories of expense may be underbudgeted,” the report stated.
The district is not expected to retain the minimum required reserves in coming years, the report stated, and did not reconcile its books and bank accounts as frequently as it should.
The most fundamental problem appeared to be the district’s failure to keep costs in line with income.
“The county office (of education) has warned the district about its pattern of deficit spending since 2016-17 budget adoption, but the district continues to deficit spend,” the analysts stated.
The district projected ongoing deficit spending in future fiscal years, the report noted, and the board has not approved a plan to end that.
Although the board passed a resolution in December identifying how much it would need to trim spending to balance its budget, it didn’t spell out where those cuts would come from. Jennings said staff presented a plan to the board during its third interim budget report for the last fiscal year, and will expand on that plan for the first interim budget report for the current year.
The district’s spending on salaries and benefits averaged 90.7% for the last two fiscal years and 90.9% for the 2016-17 year — more than 3 percentage points above the state average of 87.06%, the report noted. The district hasn’t adjusted staffing to match its reduced enrollment, it stated. Nor has it downsized its facilities use to make sure that school sites are used efficiently.
“District school sites are not at capacity loads,” the report stated, with most facilities at 76.5% capacity, and some below 50% capacity.
The district plans to address those issues by staffing employees based on declining enrollment, and looking at consolidating some school facilities, Jennings said.
Although the district doesn’t expect to lay off employees, it may not fill some vacant positions.
The district recently moved all its alternative education programs to one location and will consider the vacant school site, Ocean Shores, for possible uses including sale, lease or joint use, Jennings said. And it will work to recover lost enrollment, he said.