The State recently passed a “bailout” bill for OUSD that would ease the coming fiscal crisis. Here Nima Tahai, GO’s director of educator leadership, breaks down the bill and the implications for Oakland, you can also see a video here that covers some of the same content.
What is the so called bailout bill and why did OUSD need this?
At the beginning of this school year, OUSD announced that they needed to cut $30 Million from their budget for next school year. This needs to happen because as expenses are rising in the district, the money we are getting from the state to run our schools is flattening out. As you can imagine, a district cutting $30 million all at once could be devastating. The “bail out” bill was initiated to help provide the district some money it can use to spread out the $30 million in cuts over 3-4 years. The cuts will still be really hard, but at least the entire system and schools will have more time to adjust to the reductions.
What does the bill do to help the district financially
The bill acknowledges that OUSD has a structural deficit. That is just a fancy way of saying that OUSD is spending more money than it is bringing in. The bill says that over the next three years the state will pay a part of OUSD’s deficit.
- In the first year (school year 19-20) the state will pay up to 75% of OUSD’s deficit.
- The second year the state will pay up to 50% of OUSD’s deficit, and
- The third year the state will pay 25% of OUSD’s deficit.
So OUSD will still need to make cuts every year, but it will be spread out of three years.
If we say that OUSD has a budget deficit of $30 million, then this is one possible way the “bail out” bill could work:
| Year: | 19-20 | 20-21 | 21-22 |
| State pays: | ~$22.5 Million | ~$11.25 Million | ~$2.8 Million |
| OUSD cuts : | ~$7.5 Million | ~$11.25 Million | ~$8.45 Million |
Are there things OUSD needs to to do on its end?
The short answer is yes. The long answer is that the specific list of expectations and the determination of whether or not those expectations are met will be an interesting interplay between OUSD, FCMAT and ACOE.
The most important thing is that OUSD continue prioritizing fiscal vitality throughout the organization, and demonstrating a commitment to making significant budget reductions. OUSD has shared some specific expectations they are likely expected to meet, including exploring the sale or lease of property to increase revenue and continuing to consolidate the number of schools in OUSD.
GO Public Schools will continue following AB 1840, and sharing updates on OUSD’s progress towards fiscal vitality, budget cuts for 19-20 and opportunities for community to engage with district leaders about the difficult decisions ahead.
We have heard a lot about the “too many schools” problem- does this bill address that?
Indirectly, yes. While OUSD has not shared any data or information on how much money would be saved by closing schools, it does seem to be a recurring topic that comes up when discussion the district’s need to cut expenses. It is important to note that reducing the number of schools is not just about reducing staff at schools, but also the amount of central staff that it takes to support the number of existing schools. On the other hand, if the district closes schools and loses students to schools outside of the district, then those savings may not be realized. The current district process called the Blue Print has started naming schools that will merge or expand. This seems to be the current approach to reduce the number of overall schools and the bill does make mention of OUSD consolidate schools.
Here is a good look at the issue from the East Bay Times
How will OUSD prove to the state that they are taking the right steps to get the money from the relief bill?
It is currently unclear who makes the final decisions in assessing the districts progress towards meeting the requirements in the relief bill. There are currently at least two key points of contention worth naming, but without a clear answer yet:
- What is the clear criteria that OUSD must meet to receive the full amount of state relief, and who decides if that criteria has been met?
- Who decides the full amount of OUSD’s deficit? If the state relief is framed around the state paying a % of the district’s deficit – determining that number will be critical.
The bill references a partnership between three entities in working out the details of the relief and reporting to the state.
- OUSD will obviously be a key player in reporting their finances and sharing their projected deficit.
- FCMAT (Fiscal Crisis Management Assistance Team) is an independent organization that partners with districts and county teams to provide fiscal advice and management assistance. It should be noted that in the last two years, FCMAT has completed two reports on OUSD’s fiscal challenges. One report presented directly to OUSD and the other report was written for Alameda County Office of Education.
- Alameda County Office of Education will play the role of approving OUSD’s annual district plan, and certifying OUSD’s budget.
If this district needs to reduce spending by $30 Million over the next three years, how should they approach this work?
There is currently a school board sub-committee that has been meeting to better understand the existing policies around district spending and interviewing different departments to better learn how central office spending is supporting schools and students. A recurring theme in these meetings has been the importance of Academic Return on Investment, which is a fancy way of saying, “how do we know the money we are spending is doing the most good things for kids?” During a time of making significant cuts, the district quickly needs to get very good at making sure every dollar spent is doing as much good for kids as possible. That approach requires the district to have the discipline of setting very clear goals for every dollar spent and regularly comparing how one program or investment is doing compared to another program or investment. This is easier said than done, but an important approach that is considered a national best practice. This approach could be a guide to help OUSD do less things, but be better at the things they choose to do for kids.
If you want to keep getting this info from GO can sign up for their budget e-mail updates by clicking here: https://www.tfaforms.
Governor Brown also signed related AB 1840 SB 874 on the sale/leasing of OUSD property.
“This bill would authorize the Inglewood Unified School District, the Oakland Unified School District, the South Monterey County Joint Union High School District, and the Vallejo City Unified School District, if those school districts have an outstanding emergency apportionment loan as of July 1, 2018, until the emergency apportionment loan is repaid, to sell or lease surplus real property, together with any personal property located on the real property, owned by the school district and use the proceeds from the sale or lease to service, reduce, or retire the debt on the emergency apportionment loan, or for capital improvements of the school district’s facilities.”
To sell or lease OUSD property what must be kept in mind is that the payoff of the 2003 State debt loan is 2026. The sooner the payoff the more interest is saved. If the decided number under AB 1840 was about $30 million then 75% would be $22.5 million. I saw a figure of $40 million left on the debt so debt reduction at $40 million would be $17.5 million balance for 2019-2020 school year. But, in order to receive the $22.5 million grant the District would have to cut its budget the $30 million or sold off District property worth $30 million for school year 2019-2020.
Or, the District could use the granted $22.5 million on submitting a plan reduction of $30 million to replace the paper statement of structured debt and only have to actually cut $7.5 million. But, that means there is an ongoing $6 million a year hole in the District budget remaining until 2026.
The State bailout will not both reduce the State debt and the anticipated $30 million shortfall for school year 2019-2020 unless bailout money is coupled with $30 million dollar or more sale of public property.
The decision is not only whether to sell/lease public land; but in this complex relationship defined by SB 847, a decision must be made by OUSD Board on whether to use the funds from sale of public land to cushion budget cut or pay down the State loan and save the interest.
And, SB 847 further complicate the Board’s decision making because it provides the option of selling/lease public land to pay for new central administration building.