The “Good”, Bad and Really Bad News on the OUSD Budget

The good news is OUSD might have enough money to make it through next year.  The Bad news is that it might not, given how unreliable its numbers are, and has huge issues a year or two out.   OUSD had a deficit last year, will have one this year and runs deficits of $20 million and $60 million in the next two years.  So while the OUSD board rearranges the seat cushions on the deck chairs of the titanic, we have one iceberg (can we even trust this year’s numbers?) going alongside the ship and we have two mountainous icebergs coming.  Those are the results of the latest two data points we have—the report from our financial overseers (FCMAT) and the districts own budget projections and approvals.

FCMAT’S backslap of OUSD and the Budget Slide you Need to See

Look at this slide, from the 6/20 board meeting—yes you are reading this right—next year the structural budget deficit is at $20 million plus, and the following year it’s at $60 million.  OUSD is struggling to cut 5 million dollars this year, how is it going to do 20 and then 60 0n top of it?



And I know some folks are thinking we can run to the State for help.  Well given the latest report by FICMAT (the state’s agent in overseeing our finances since the last bailout), I don’t think we can expect much.

You know that friend who borrows money, and they buy the new Iphone while you have a Samsung from like 3 models ago, and they say they can’t pay you back.  Yeah that’s OUSD.

A Scathing Review from FCMAT

I will quote the report some below, but after reading a lot of auditor type reports, which are typically very dry and tend to understate issues to the casual eye, this report is screaming at OUSD for its continued mismanagement and also arguably deceptive practices.

There really isn’t much good news here, but we are starving for some so let me start with the “good” news,

On March 23, 2018, FCMAT provided the Alameda County Office of Education, Oakland Unified School District, DOF and CDE with its preliminary findings, among which was the conclusion that the district had sufficient cash reserves for the 2017-18 fiscal year that did not warrant the deferral of its state loan payments

But they then go on to tear into the district, and how it stopped answering the calls after the report was provided

Between the March 23 meeting and the April 13 retreat FCMAT had only received eight district e-mails regarding document requests, and the district seemed to be further slowing its already measured pace in providing documentation.

FCMAT contacted the interim CFO to discuss a final deadline for documentation. On April 17, 2018, FCMAT was informed by him that the district would no longer be providing FCMAT with further documentation unless it was a “critical path” request. The rationale provided for the cessation of docu- mentation was that the district did not have the staff to devote time to the requests.

And then they start digging into the districts actual practices and whether you can even trust their numbers,

First, there is a roughly half million dollar difference between the districts cash and what it has in its accounting software, which “caused FCMAT to question the accuracy of these numbers” and ultimately resulted in, “FCMAT’s determination not to use the district’s budget numbers”

And its not a declining enrollment issue– “Based on the district’s CALPADS information, enrollment has increased by 288 students since the prior year.”

There are 10 pages or so of specifics discussed, and within those FCMAT actually found over a million dollars that the district had lost, and it also uncovered some shady practices that either violated the law, or the spirit of oversight.

There were more minor issues in failing to distribute property taxes on the correct schedule (EC 47635(b)), failing to disclose collective bargaining settlements (AB1200), but the big issue was “Off book interfund borrowing and liabilities” basically shifting money between accounts to make the overall finances look better, as FCMAT described it

in the course of FCMAT’s work to determine if activity in other funds would impact the general fund, inappropriate activity was discovered. Current interim and regular district staff appear to have cooperated throughout most of thediscovery and analysis of this information; however, that cooperation did not extend through the entirety of FCMAT’s engagement. Regardless of the district’s cooperation or lack thereof, a thorough audit reaching back multiple years will be necessary to properly assess the extent of the activity…

As is discussed above, FCMAT encountered what appears to be a past pattern of intentional manipulation of the general fund balance to sustain the minimally required state reserve levels by inappropriately transferring general fund obligations to and from other funds and other funds transferring cash into the general fund. This has hindered an honest and open assessment of the district’s current financial condition by its current leadership and outside agencies. These practices are highly unusual, could be considered suspicious and should be further investigated.

And beyond the suspicious activity by staff and general inactivity by the board, how is the district doing financially?

FCMAT believes that Oakland Unified School District will end the current fiscal year with a positive cash position in the general fund. Specifically, FCMAT estimates that ending cash in the general fund will be approximately $17.4 million, which is approximately $6.2 million less than the current year’s beginning cash balance and approximately $22.5 million less than the beginning cash in 2016-17. The district’s cash is on a declining trajectory – a 56.5% reduction in the past two years –

Meanwhile the district continues to deficit spend, and not make cuts or generate revenue that would get us out of this mess.

This is the Titanic and some small course adjustment wont save us from another takeover—only bold and new ideas will—which unfortunately are in short supply— as the Board argues over seat cushion color on the deck chairs of a sinking ship.







What do you think?

One thought on “The “Good”, Bad and Really Bad News on the OUSD Budget

  1. I thought with CFO Hal replaced that everyone in the Administration would be focused on getting the budget numbers right. Wrong!

    Work of FICMAT to verify District’s figures is unfinished with Interim CFO Hilty having cut off cooperation with FICMAT.

    Oakland School Board should hold Interim CFO Hilty accountable for cutting off District’s cooperation with FICMAT and demonstrate its serious about making its budget figures reliable and no longer fake news!

    Interim CFO Hilty justified cutting off cooperation with FICMAT’s study to verify the District’s budget figures telling in its report that finance department’s staffing shortages was reason for cutting off cooperation with FICMAT after April 17.

    Seems to me, that if folks are serious in the Administration about ending dysfunction of its budgeting process, that the District needs FCMAT to complete its work of verifying what budget figures are reliable in building its multi-year budgets. And, for completing its work of verifying the reliability of District budget figures it needs the full cooperation of the Administration.

    And, there needs to be an audit that follows on the completed work of the FCMAT study. FCMAT are not auditors, but they found unreliable District budget figures that the District’s chosen auditor did not find.

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