Five Minutes to Midnight on the OUSD Takeover, and Micro-Managing Won’t Help

Things went from bad to worse for OUSD’s finances.  Three new data points came in this week and they all point towards insolvency.  At the same time, we saw some board members digging in on employee contract clauses, trying to regulate their way out of this, and asking the Superintendent to develop a training plan for them.  Relatively small fish to fry in a large ocean of debt.

I get that feeling, when things seem out of control, so you want to control the things you can—you want to control something—even if the wrong things.  You have a tough conversation coming up with family, so you wash the dishes.  But clean dishes won’t solve your family issue.

Three Horsemen of the Fiscal Apocalypse

The bad news we got last night:

1. The district is over budget on expenses.
2. The mandated pension contributions are threatened to increase.
3. A statewide effort to increase revenue by reforming Prop 13 is being pushed back to 2020.

Further, we are already below the state mandated reserve of 2%, so technically the state could come in now if they wanted.

Revenues are going to be flat—unless some of those “evil philanthropists” help.  And expenses are going to rise.  And we are already below the savings we are supposed to have—that is a tough position.  That will take tough decisions, which still may not be enough.

Let me share the budget slide:

We are 3.7 million above the budget on expenses.  These are the usual categories that are “over” or they are areas where the services were already rendered and contracts had to be paid, even if the actual budget line was reduced.  So they are very tough costs to control.  And who knows what else will emerge from the dark confines of the OUSD financial “system” (using the term loosely).

Meanwhile, the pension costs are potentially rising even faster than that the extreme escalations in the budget, here is an astute board watcher’s tweet:

And here’s the CalPers document, where they are proposing the roughly $1.5 million jump in costs—that jump will compound each year, since we estimated our budget on a lower base number.  So this is an additional cost each year going forward.

There are very few new revenues on the way.  The hope many had was that Prop 13, which has decimated education funding in CA would be reformed this year—it won’t.  The supporters of Make It Fair pushed the measure back to the 2020 ballot.  So we aren’t going to see a large influx of funding form the State—though there were some smaller proposals presented at the meeting by the district’s lobbyists.

To summarize, we are still struggling to contain costs in OUSD and are over budget, our hope for a large influx of new revenue is at least 2 years away, and our mandated costs on pensions are rising, and may rise much faster than anticipated.  We are also already under the state mandated reserve.

It is not looking good.

How NOT to Fix It

We won’t nickel and dime or micro-manage our way out of this problem.

I get the frustration—every report, every year, we are over budget, and it’s never anyone’s fault.  These things just happen.  It’s OUSD.

You demand a spending freeze, then all the schools push through invoices before the deadline and costs go up.  You seem to be paying exorbitant salaries and benefit packages, but nobody else likely to succeed wants to be at the helm of an out of control ship.  The Board approves budget cuts and some can’t be implemented because that money has already been spent, just not paid out on the books.

And so on and so on.  No matter what you do you can’t actually control or even understand the district’s real finances.

That said, we need big bold action now, not whittling around the edges, scrutinizing employee’s contracts and amending them at board meetings, requiring a renegotiation.  Similarly, we won’t regulate our way out of this either, requiring the staff to develop a thousand new financial regs (which will likely be ignored or evaded) when we don’t even have a CFO, and the house is on fire, does not seem the right move now.  Or requiring the superintendent to develop a training plan for the board.

There isn’t a lot of good news right now, and beyond calling CalPers and trying to get them to not raise pension costs, there really isn’t much to do, that will have immediate effects.  The superintendent described where we are financially—they are digging in the dirt and still finding and pulling up weeds.  And if you have ever gardened, you know how tedious and strenuous that can be, many weeds have very deep roots, and if you leave a broken root that can still grow beneath the surface.

Weeds are strong they can often overshadow crops.  We need to let the experts garden some and see what they can grow, the nursery has long been in disrepair, and won’t be fixed easily or quickly.

I honestly don’t know if the garden can be fixed, but I think our best bet is giving the superintendent and her team the room to try.

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