East Bay college district at risk of going broke, review finds.
District near ‘insolvency,’ fiscal crisis team leader says
The Peralta Community College District of 50,000 students at four East Bay campuses is at high risk of insolvency after years of mismanagement that had administrators regularly breaking their own rules, says a dire new fiscal review.
The dereliction leaves the district ripe for fraud thanks to poor internal controls, says the report from the state’s Fiscal Crisis and Management Assistance Team, which helps guide public schools and colleges out of financial calamity.
It’s been no secret that the Peralta district — with Laney and Merritt colleges in Oakland, Berkeley City College and the College of Alameda — has been on the rocks. But until this year, Peralta’s leaders appeared to look the other way. The Board of Trustees came close to censuring a trustee in November who spoke out about the problems, claiming he had no legal right to do so. Last summer, a law firm the administration hired to investigate a whistleblower’s allegations of mismanagement found no hint of wrongdoing, and district officials took no further action.
But after election day in November, the majority on the Board of Trustees shifted. And in February, Chancellor Jowel Laguerre resigned under pressure. He had led Peralta since 2015. A month before Laguerre’s departure, under pressure from auditors, the accreditation agency and the California Community College Chancellor’s Office, he and the trustees asked the state to bring in the crisis team.
“Peralta is at a high risk of insolvency,” said Mike Fine, chief executive officer of the crisis team that will present its report to the Peralta trustees on Sept. 10.
The problem, Fine told The Chronicle, “is that they don’t have sufficient cash resources to
meet their payroll. If they continue on a course without corrective action, they’ll run out of cash.”
A $319,373 deficit is expected this fiscal year in the $246 million district, and pension liabilities have soared by $50 million since 2004. Yet the crisis team said the trustees haven’t considered budget cuts because Peralta staff has not revealed the extent of the problem — or understood much about it themselves.
“College staff have expressed some doubt about the urgency of addressing a shortfall, mainly due to the district sending out inconsistent messages regarding the size of the deficit and the need to address it,” the team reported.
The team didn’t calculate how long it would take Peralta to tap out altogether. But using a “fiscal health risk” score, it found the Peralta district at “by far the highest risk” for insolvency in the state, including K12 districts, Fine said.
On a scale of 100 — where anything over 40% means trouble — Peralta is “excessively high at 69.9%,” says the report.
“The district has suffered from years of ineffective and inconsistent guidance, nonadherence to policies and procedures, and difficulties in receiving consistent information and communication,” it says.
Among the crisis team’s findings:
Student enrollment has dropped more than 20% since 2015, while faculty hiring increased. Over five years, the equivalent of 2,261 fulltime students have left (some attended part time), while the teaching staff grew by the equivalent of 48 fulltime faculty members (some taught parttime).
Peralta fails to make enrollment projections based on historical trends.
Labs and lecture halls on Peralta’s campuses are used less often than the California Community College Board of Governors requires.
Peralta routinely returns grant money and other funds because the staff misses deadlines for spending them on the purposes they were provided for.
Peralta provides insufficient oversight of its voterapproved facilities bond expenditures.
Peralta is wide open to fraud. Numerous opportunities for that include a lack of controls over “the ability to change pay rates” (time card “miscalculations” have already been identified) and several financial accounts that have not been reconciled for up to eight years.
“We have a functioning new majority on the Board of Trustees,” said Nicky González Yuen, the trustee who escaped censure for speaking out about the district’s troubles. But because prior leaders looked the other way for so long, he said, “The chickens are coming home to roost.”
The crisis team’s report contains numerous recommendations intended to help Peralta get back on its feet and avoid having to request an emergency bailout from the state.
To escape that fate, “the district needs to take action,” said Christian Osmeña, vice chancellor of finance at the California Community College Chancellor’s Office, which is keeping an eye on the Peralta situation.
Peralta’s leaders, including acting Chancellor Frances White, whose oneyear contract expires in March, and board President Julina Bonilla and Vice President Karen Weinstein, say they are up to the task and have hired a team to tackle the fiscal overhaul. White says the district has already shaved the projected deficit down to $286,000.
“We believe (White) will be an agent of positive change here, and she has already begun working on addressing the most serious items in the report, under our direction,” Bonilla and Weinstein said in a statement. “The leadership at Peralta is committed to ensuring that our excellent students, faculty, staff and programs continue to thrive.”