OUSD Close of Books: What is it, and what does it mean for you?

The OUSD financial crisis which unfolded last year still looms large in Oakland, and a community-wide effort will be necessary to fully understand the issues and problems that the district needs to address. This year, we plan to bring you key financial updates as they unfold.

This past Wednesday, OUSD “closed the books” on the 2016-17 school year. “Closing the books” is the process of understanding the final financial statement for a school year, and it is one of a few key moments in the budget process.

First, why is this important? The district is required to adopt this year’s budget BEFORE it finishes last year’s budget. That means that if OUSD ends up spending more money than it planned on, then it might have to adjust this year’s budget.

Why does it take so long? Imagine having to balance your checkbook, but 1,000 people are allowed to write checks. Some of them meet deadlines and some do not. Some follow rules and some, not so much. In concept, that is why there is always a lag in terms of the District knowing exactly where it stands financially.

Background:  In June 2017, OUSD adopted a final 2017-18 budget with a 2% (approx. 11 million) projected reserve and $5 million to either add to the reserve or to pay for extra expenses discovered during closing of the books (The district received the $5 million in last minute one-time dollars from the state in late May).  

How did it go? For a number of reasons, OUSD had $9.1 million more in expenses than it thought it would during the closing of the books. This is troubling. It also had some additional unexpected revenue come in. Bottomline, OUSD finished the 2016-17 school year with a 0.5% reserve ($2.9 million), which was lower than projected. OUSD will start this year with an adopted budget that gets it back to the state minimum 2% reserve.

What does this mean?  Right now, it seems likely that OUSD will have to present an amended 2017-18 budget to the Board of Education which makes changes to current funding levels. There are several reasons for this:

  1. Zero Margin of Error: OUSD starts the year with the state minimum 2% reserve (savings account). This is important because having a 2% reserve means OUSD has a thin margin of error, like last year. The reason a 2% reserve is important is that it is a state requirement. Failure to maintain it is among the key reasons a district might go into state receivership.
  2. Mid-year Budget Corrections: In October/November, there will be an amended budget for the current year because, among other reasons: (1) OUSD begins the year with no margin of error, (2) there have been overages each of the past couple of years, and (3) it seems likely that there are oversights in the current budget due to the chaos of last year’s budget process.
  3. State Receivership:  During the Closing of the Books presentation, the new state receiver, Chris Learned, shared that the state will not loan OUSD any additional money because OUSD already owes the state $44 million dollars. Therefore, he said that if it appears that OUSD will get to a place where it will not be able to pay its bills, the state will re-enter and make the necessary decisions to correct course prior to it needing additional cash to pay its bills. He did not name a specific and/or mandatory trigger, but did name looking at the multiyear projections as an important indicator of financial health.
  4. Self Insurance fund:  In order to get through last year, OUSD spent $8.0 million from its “self-insurance fund.” It will have to pay this back in the next couple of years. Self-Insurance means that OUSD is holding money in an account to pay for claims, such as workers compensation, instead of having an insurance policy. It tends to be cheaper because you don’t have to pay for insurance company profit margins in your rates.  However, it is important to keep enough money in the account.  Right now, the recommended fund level is $35-40 million, and OUSD currently has only $6.8 Million.

All of this means that there is both no room for error in the current budget and major budget challenges in the immediate school year.  There are going to be tough, but necessary choices ahead.

The GO team remains committed to keeping you informed and working with you to advocate for decisions that both address significant short-term issues and help OUSD improve its financial systems once and for all, so we can avoid reliving these recurring budget challenges.

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