Three Critical Budget Issues
As news of OUSD budget crisis is heating up, I wanted to share some important information that helps set the context for what is happening by sharing updates on three keys issues: (1) State Receivership; (2) the Self-Insurance Fund; and (3) the Reserve [rainy day fund].
Each issue is critically important and and could have impacts far beyond this year’s proposed cuts. All three are a little wonky, but are actually critical to resolving OUSD finances. This blog will give some very high level information on all three issues and offer links to a deeper-dive post for each.
- State Receivership: If OUSD gets taken over, the state will make immediate and deep education cuts and close many schools without any community input. Avoiding state receivership is what is driving the midyear cuts. Is this likely to happen? The State of California testified at a recent Board meeting that it would take action to take over OUSD (again) if it *appears* that OUSD might not be able to pay its bills. The County and State have both put OUSD on notice that the District has to make significant changes to this year’s budget. (To read more, click here).
- Self-Insurance Fund: OUSD’s self-insurance fund is dangerously low and it could cost the districts millions of dollars. (click here to find out more about Self-Insurance). Last spring during the budget crisis, OUSD’s self-insurance fund balance dropped steeply from $14.8 to $6.8 million and currently is at only 17% of its total liabilities (many district funds are at 70-80% of their liabilities). This drop was partially fueled by the budget crisis and use of the fund to help pay for expenses that, while allowable, have not historically been paid from the fund. If OUSD’s balance drops further, it would have to either pay its insurance claims with general education funds or possibly lose its ability to self insure and have to pay $11 million more for private insurance. The OUSD school board is attempting to rebuild this fund. (To read more, click here )
- Reserve (savings account): OUSD does not have a savings account and therefore, anything unexpected is an emergency. When dealing with a budget of $540 million, projecting all costs with 100% accuracy is highly improbable. You need a reserve for rainy days and not having one means you have no margin for error. When errors are made, state receivership can be the consequence. Best practices guidelines suggest a 10% reserve. Oakland currently has the state mandated minimum 2% reserve. That means that even a small change will send the district into a crisis. This is part of the reason for OUSD’s instability and why the Board is trying to rebuild this fund. (To read more, click here).
On a different note, unfortunately, some in the community are calling for the district to make the absolutely minimum cuts necessary to meet the state required minimum level of reserve. This sentiment – while understandable and rhetorically effective – is misguided. The call to doing the minimum will almost certainly lead to state receivership. Further, even if OUSD was able to avoid state receivership, it just sets the district up for yet another year of fiscal turmoil.
I look forward to hearing any questions or feedback on these issues. Please share this information with others. If you have any questions please send them to me at marc@gopublicschools.org, and I hope we can share some answers.
