West Contra Costa Unified’s Stege Elementary School in Richmond. (File photo 2019)
Credit: Andrew Reed / EdSource
Top Takeaways
- West Contra Costa Unified gets out from a cloud of possible insolvency by coming up with a budget approved by the County Office of Education, rating it as ‘positive.”
- “Positive certification” is dependent on the district implementing cuts and sending layoff notices by May 15 as agreed to by the elected school board in February.
- District still faces budget challenges, including negotiating a new contract with its teachers and eliminating a structural deficit in three years after it has spent all the funds in a special reserve.
In a significant development, the West Contra Costa Unified District has made substantial progress in balancing its budget and averting the possibility of insolvency.
Last week, the Contra Costa County Office of Education notified the district that it approved a positive certification in the latest version of its budget for the 2024-26 school year, the second time it has done that this year.
“Positive certification” means the county concurs with the district that it can meet its financial obligations during the current school year and the next two years – but only if it follows through on its plans to make further cuts of approximately $13 million over the next two years.
“If they do everything they say they’re going to do and keep going down the path that they submitted to us, they should be okay,” said Contra Costa County Superintendent of Schools, Lynn Mackey.
The county’s concurrence has come as a relief to district officials. Interim Superintendent Kim Moses, who was the district’s business manager until last year, described the positive certification as “great news.”
“We are able to say that we can meet our obligations over the next three years with the changes that we’ve made,” she said. “And that is something to celebrate.”
The latest development for the 25,000-student district in the San Francisco Bay Area, which includes the city of Richmond, offers lessons for other California districts experiencing financial difficulties.
Number one among them: school boards have to make hard decisions to make cuts and reduce the number of employees proportionate to their revenues, said Michael Fine, CEO of the Fiscal Management Assistance Team, a state-funded agency that assists school districts get out of financial difficulties.
For several years, the county office of education had concluded that the district was no longer “a going concern” based on its shaky finances. And as recently as last year, FCMAT rated the district as being at a high risk of insolvency.
To get to the “positive rating,” the district cut $19.7 million from its budget this year, and its board voted in February to cut another $13 million over the next two years.
Going Deeper
Under state oversight regulations, a school district’s financial situation can fall into three categories:
- A positive certification means the school district has the resources to meet its financial obligations to get through the current school year, and two subsequent ones.
- A qualified certification means that the district may not to meet its financial obligations in the current school year, or the next two years.
- A negative certification is the most dire category: a district will be unable to meet its financial obligation in the current year, or subsequent school year.
West Contra Costa’s positive rating is especially good news because in 1991, the district became the first district in California to get an emergency loan from the state which took two decades to pay off.
But the district still faces substantial challenges. In its May 1 letter to Moses, Daniela Parasidis, the county’s deputy superintendent for business services, said its approval of the district’s positive certification “comes with significant caution.”
“The district must remain vigilant and continue the implementation of its solvency plan to ensure long-term financial stability,” she wrote.
She also pointed to potential hazards that could affect the district’s finances, which underscore the multiple pressure points school districts face. In West Contra Costa, these include the impact of declining enrollments, increased absenteeism due to fears around immigration enforcement, expiring parcel tax revenues, and possible loss of federal funds as a result of actions by the Trump administration.
County officials say maintaining the district’s “positive certification” is dependent on it doing two things: sending out layoff notices which the board voted to do in February by May 15, the deadline specified by state law, as well as adopting a budget for the coming school year by June 30.
One unknown is that the district is in the final stages of prolonged contract negotiations with unions representing all its staff, including its teachers’ union which is demanding pay increase and other changes in the way teachers are compensated, along with improved health benefits. The teachers’ contract expires on June 30.
However, there is deep disagreement between the district and its unions over just how severe the district’s financial difficulties are. Francisco Ortiz, the president of United Teachers of Richmond, said the district routinely “under projects revenue and over projects expenditures.” As for the cuts planned for the next two years, Ortiz said, “we feel that none of these cuts are necessary.” He said the district needs to, instead, “reprioritize how they’re actually spending their funds.”
“We deeply value our educators and agree they work hard and deserve to be fairly compensated,” Moses wrote in an online message last week. “Our challenge is not about disagreement, but about how we responsibly meet this need while ensuring our district remains fiscally sound.”
Another pitfall is that despite making significant budget cuts, the district is still operating with a structural deficit which it is closing by drawing on one-time reserve funds.
Those are so-called “special reserves” called Fund 17 valued at over $37 million at the beginning of the school year.
West Contra Costa was able to accumulate these special reserves at least in part because when it got its state bailout loan decades ago, the state required the district to maintain reserves of 6%, double the required amount, Moses said.
To balance its books, the district is drawing down $11.5 million of its Fund 17 reserves this year, another $20.25 million next year, and $6.2 million the following year, fully depleting that reserve. It will still have the 3% minimum reserve required by the state which amounts to about $15 million.
John Gray, CEO of School Services of California, the largest school consulting firm in the state, says it is quite acceptable for a district to use its Fund 17 reserves to get through a fiscal crisis.
But, he says, it means that “there will be a reckoning in three years” when all those funds are spent. ““If. you spend it (Fund 17 reserves) all the way down,” he said, “you’re not going to have a place to grab money, and you’re going to have to make additional cuts.”
Interim Supt. Moses is hoping that over the next two years, the district will be able to “align expenditures with our revenue so that we will no longer have a structural deficit, and we’ll begin to build back up that reserve for economic uncertainties.”
She said, “any responsible, budget-minded person is going to make sure they save something for hard times.”