CAVANAUGH: I'm Maureen Cavanaugh. It's Wednesday, November 23rd. Our top story on Midday Edition, recently a state legislative analyst predicted we are one step closer to a worst case scenario for budget cuts. That may mean San Diego's largest school district faces both a mid-year deficit, and a possible shortfall of $100 million next year. Officials say this could make the district insolvent. One man who has a unique perspective of what happens when a school district can't pay its bill system my guest, San Diego County school superintendent, Randolph Ward. Welcome to the show. WARD: Thanks for having me. CAVANAUGH: As I said, the state budget analyst predicted a 13 budget deficit shortfall in state revenues, that cuts to schools and social services could be triggered mid-year. And what does that mean for schools around San Diego County? WARD: Well, for most schools in San Diego County, we actually prepared for a cut of approximately 350 there's per student. And many districts are prepared to take that should it happen in January. Others frankly after making the cuts then came back and rehired people. And those are the ones that will be hit the hardest. CAVANAUGH: Well, of course you're probably talking mainly about San Diego unified school district, our largest in the City of San Diego. It's already talking about the possibility of insolvency. When will we know how close San Diego unified is to insolvency? WARD: There has been a lot of talk. And as you know, I've also not got very involved in that talk because this is as much an internal issue as it is an external. We all know the State of California is under funding public education. But you know, quite frankly, many districts have gone under when times were good. So it's really not as much about the under funding as it is about the controls and the internal issues as well. Not to say that funding is not important. But there are a number of things that happen to school districts who are on their way to insolvency. CAVANAUGH: Let me ask you a technical question. Doesn't San Diego unified have to submit a budget in mid-December? WARD: That's correct. And there are three mechanisms that the counties use to work with school district, and those are two interim reports which occur as of October 15th. And they have to have it in by December. And another one is January 31st that you have to have in my March. Then there's a budget passing. Now, on all of those cases, our districts, except for four not including San Diego unified have been positive. Positive means that those districts expect to pay this year's bills as well as its coming two years. So there really isn't a closeness to insolvency. Many districts can be qualified. If you're qualified, you're on a unstable ground in terms of paying those bills for the current year and subsequent two years. If you're negative, then you have real problems. You're almost guaranteed that you won't be able to pay your bills. CAVANAUGH: I understand you're either insolvent or you're not is what you're saying. >> Insolvency has to do with running out of cash. Cash is king. When you cannot pay your bills, salaries, etc, that's when you are considered insolvent. But many a district have overspent, deficit spent for year, and not become insolvent. CAVANAUGH: So if you were to receive a budget from a school district in San Diego, that was, as you say, negative, what would be the county's step then? What would you be doing? WARD: First of all, we would know when they're going in that direction. The work that the county office does and our fiscal staff does with the fiscal staff of our districts is the 365-day a year process. It's not a let's wait at the county office and see what they come up with. So we work with cool school districts to identify the areas they're in need, the amount of money they need to make reductions, etc. What we don't do is don't get involved in the politics and the collective bargaining and/or the what to cut. In terms of the list. What happens is many districts make -- all of our districts have made the appropriate reductions in their budgets, which is why San Diego County is probably one of the only counties that has very few, very few qualified districts. So let me talk about how do you get there. CAVANAUGH: Sure. WARD: School districts in general, and I'm not talking necessarily about San Diego unified, but as you know, I spent ten years coming in after the insolvency. And it's interesting that I'm here now trying to prevent districts from becoming insolvent. CAVANAUGH: You were the state's appointed caretaker for two of California's bankrupt school districts up in Oakland and Compton. WARD: That's correct. I spend seven years in Compton which had a $20 million bankruptcy loan from the state, and Oakland which had $100 million loan from the State of California. CAVANAUGH: How does a caretaker actually cake over a school district? WARD: Once the district has determined that all of their loan capacity, their reserves, and their ability to make internal loans or external loans to pay their bills, then they begin a process, a six-month process of developing a legislative bill that would allow for them to receive a loan from the State of California to fill the hole that they've created. That process has moved from the state funding that loan to actually a bank funding that loan. That had process has moved from 1 to 2% interest rate to over a 5% interest rate because banks own it. So we now have school districts like king city up in northern California who have a loan for 13 million, let's say, but in order to pay it back at a 5% plus rate, they're going to take 23 years. And which -- when I went to Compton, we were able to pay back in the five years that I was there, three years prior, there were four other state administrators, but the five years I was there we were actually able to pay back the loan. But we were the first in the country, and that's been very few since. CAVANAUGH: When it comes to the actual administration of the school district, when there is a state appointed caretaker for an insolvent district, does the school district, the School Board, are they all basically removed and the appointed caretaker calls all the shots so to speak? WARD: Yes. The State of California, once that bill is passed, they give the authority to the State Department of education. California Department of Education, whoever happens to be the state superintendent of public instruction then chooses a state administrator. Now, that choice is made in a number of ways. Sometimes it was a situation where we have this guy down in Compton, let's put him in Oakland. Or it's a regular type of superintendency interview process. When they person goes in, simultaneously when they hire one, they let go of the superintendent, traditionally, and they let go of the board, so to speak. Their entire authority is now granted to the state administrator. So the state administrator becomes a quorum of one at a board meeting, and also the superintendent. So it's a lot of authority. But that authority many need to know, many of your listener it is need to understand is not an all-out authority that allows folks to do what they want to do. Many state administrators work with their community, work with the community groups, and try to do what's right for children and for the community while simultaneously doing their due diligence that the building and the fiscal realities were taken care of. CAVANAUGH: How were you in charge of the schools in Compton and Oakland? WARD: Ten years total. And it's difficult work. The burden of running the district, every decision is yours. So it's not a 3/2 vote, it's not a 4/1 vote, it's yours. And you have to hang sure that while you do take the fiscal responsibility, which unfortunately can be a lot bit of bean counting, you have to make sure that all that bean counting is going to affect children in the right way. And as an educator that is for me my first responsibility, to make sure that children and quality are taken care of. Well, let me get to some of the things that happen in school districts: There's mult years of deficit spending. This is long-term deficit spending. There's not enough budget monitoring. And numbers change all the time, etc. There's no position control. So they don't really know for many -- each time I went into a school district and I literally had to have a pick up your paycheck month because we actually didn't know who we were paying. And many times, we had 100 to 200 paychecks left over. So there's a lot of that. And then there's an avoidance by the previously controlling School Board to make difficult decisions. And when a state administrator comes in, those are some of the low fruit, they make those decisions immediately. And then there's a contract misalignment, the contract itself meaning with all employees, with consultants, etc, are misaligned with the actual fiscal and should be or academic realities of the district. So once those expire, they have to be realigned. When is commonly misunderstood, that somehow some steak takeover means that the contracts with your various associations go out the window of the that's not the case. CAVANAUGH: Now, of course the school districts here in San Diego, because of this extraordinary problem up in Sacramento for the last few years, our recession, and our hard economic times have taken -- have cut back for years. So a lot of the things that are talking about there perhaps apply as starkly as may might in some other districts. However, however, and you say you keep your hands off as much as you can, I'm wondering if you think that that lack of hard decision making could account for some of the problems San Diego unified and having. And I'm speaking specifically about their decision to rehire some teachers and also their decision to scrap their plan for school closures. WARD: Well, some of the most difficult decisions are closing schools. As a parent of a second and third grade, believe me, I understand. Yet I needed to close 15 schools in three years in Oakland. Very difficult decisions. And the other issues in terms of -- let me explain this hiring and rehiring, etc, and how that occurs. It is somewhat external to a School Board. For a School Board in March, many month before you even get your budget and understand what you really need to do, we have a legislative time line that says you have to announce to people that you will potentially lay them off. Talk about a misalignment at the state level. That is truly a misalignment of when you get the amount of money you're going to get to when you have to notify. So this happens every year. Secondly, the situation with the funding is something that all of the -- let me put it this way. You and I have a household. We understand we have a certain budget to pay for electrical, to pay for our utilities, whatever we have it do for our families. And every month, it's around the same amount. But if we know that next year we're going to get a cut in pay in our paycheck for some reason, and when we have planned a certain amount to go out and then we have to cut back, and then certain amount of money comes back into the household, do we spend it right away? If you have, 5, $10 over every month? Do you spend it? A household that's smart saves it for when times are going to be tougher. A household that goes from check to check goes out and spends it. I got five bucks left. What can we buy? What can we undo that we've done? And that's what happens to school districts. They live from check to check, from year to year or from budget to budget rather than making some difficult decisions, understanding things may have gotten a little better because the building -- but you expect that to get worse next year. Why would you go out and spend again? Why wouldn't you save that? CAVANAUGH: I've been speaking a lot about San Diego unified because it is the largest, and it's the one that we've heard had many money troubles. But what about other school districts? San Diego? I hate to use the term close to insolvency because I understand that you either are insolvent or not, but are they struggling as well? Are there 1 or 2 of them that are really on the line there? WARD: Yeah, there are a number of districts that have to make larger cuts this year to make sure they remain on a path to continued solvency. Some have tried to avoid making cuts in the past, and the time has come. You got to make those choices. CAVANAUGH: So is that your, even though your keep your hands off position, is that your advice to school districts? WARD: Oh, yes. By hands off, I mean publicly hands off. There's conversations with superintendents, there's literally sometimes I've sat in closed session with boards and tried to convince them not what to cut, but that they have to. And so there's a lot of backdoor support, and I mean support because of the idea is to help districts to do what they need to do to maintain a quality but also their fiscal solvency. CAVANAUGH: One last quick short question for you. Do you think San Diego unified is going to remain positive? WARD: That all depends on what they do as much as what the State of California does. And it is a balance. The State of California, if they go with triggers but also they have a situation next year, next jeer not looking any brighter, so that's the external part that controls their destiny. But the internal part is how they're going to react to all of this. And some of what they've done they can't take back because it's already spent. But hopefully they will move forward in a very responsible and wise way. CAVANAUGH: I have a feeling we could talk about this for a very long time but our time is done for now. I've been speaking with San Diego County school superintendent, Randy ward. Thank you so much for coming in and speaking with us. WARD: Thank you, Maureen. Thanks for having me.
Upbeat revenue predictions this summer in California seem to be turning into the worst case scenario for budget cuts. And that may mean San Diego's largest school district faces a midyear budget deficit and possible budget shortfall of over $100 million next fiscal year. The threat of insolvency at San Diego Unified School District inches closer to reality and with that a state takeover of our schools. One man who has a unique perspective of what happens with a school district can't pay its bills is San Diego County Schools Superintendent Randolph Ward.
