Will Oakland be taken over by the state again?

In the coming weeks, the Oakland school board will likely vote on over $15.1 million in mid-year budget adjustments for this current school year. While most Oaklanders rightly worry about the immediate impact on students, we should also be worried about possibility of returning to full state receivership.

So, how bad is the problem and are our leaders making the right decisions for our kids?

If OUSD does not make significant budget adjustments this year and next year, it is at risk of going back into full state receivership.  On Nov. 8, a letter from Alameda County Office of Education, in which Supt. Karen Monroe approved OUSD’s 2017-18 budget, notes:

Read on to learn more about state receivership and develop an informed opinion about the OUSD’s financial future.

State Receivership 101

First, what is state receivership?  If District Cannot Meet [Financial] Obligations, State Provides Emergency Loan and Takes Administrative Control.” (The Legislative Analyst Office) When a district enters state receivership, the state appoints a state administrator to essentially become the Superintendent and Board of Education. The existing Board becomes advisory, the district loses “local control” and the the Superintendent typically loses his or her job.

History of State Receivership of OUSD

Much has been written about the history of state receivership in Oakland. In 2003, OUSD went into state receivership. During this time, the OUSD took out a total of $100 million in state loans to help stabilize the district and upgrade systems. OUSD currently owes $44 million and pays back about $6 million annually. During its time in state receivership, Fiscal Crisis & Management Assistance Team (FCMAT) examined OUSD’s operation in using a framework with seven (7) main factors (see here for the 2003 report).  

By 2008, according to FCMAT, the district had addressed 6 out of the 7 issues and was put back into partial local control.  The Oakland Unified board became the governing body and hired a Superintendent. Since 2008, OUSD has remained under partial state control and has had a state trustee overseeing District finances. OUSD’s current State Trustee is Chris Learned.

What would cause us to be back into State Receivership?

The easiest way is to run out of cash. The second is to look like you might run out of cash. At a recent Board of Education meeting, the state trustee testified that since OUSD already owes the state $44 million, there will be no more loans and that the state will make changes if it appears that the district is going to run out of cash and not be able to pay its bills.

This is the importance of OUSD making budget cuts to this year’s budget. It has to make sure it has the cash flow to pay its bills and balance its budget. Unfortunately, with the threat of state receivership looming, the issue is not whether cuts will be made, it is whether the Oakland community will have a say in those cuts.

Making significant cuts to the district’s budget is the fiscally responsible thing to do—ignoring the need to make these cuts would be a dangerous step towards going back into full receivership.

[Technically, OUSD is still under state control, and the mechanisms for going back under full state control have not been spelled out. To our knowledge, no other district has gone back under full state control while it was under partial state control.]

Is State Receivership a bad thing?

When the state takes over a district, its top priority is to fix the district’s finances. This means that the state administrator is looking for every possibility to create cost savings and eliminate what they determine to be “unnecessary spending.” This is done without community input or the knowledge and values they bring to these types of decisions. In this case, for example, both the County and a 2017 FCMAT report named having far too many schools as a significant reason for OUSD’s budget problems. It is easy to imagine that a state administrator would move to close and consolidate schools as a way to cut costs.

What to keep an eye in the coming months:

There are three “Interim reports” that give the district, county, and state and update on the district’s finances. The first interim report happens in December, the second interim report happens in March, and the third interim report happens in June.  Each update will be critical.

On December 13 the Alameda County Office of Education will review the revised 2017-18 budget and its first interim report. This year the County has been clear that they need to see revisions to this year’s budget to ensure that the district will remain fiscally solvent.

If the county decides to take action, OUSD could end up not having enough cash on hand to pay its bills (because, for example, the county does not provide them a line of credit), and the district could be headed back into full State Receivership.

The State can also intervene: If the state disagrees with the county and finds that OUSD is still financially unstable, they can take regain full control of OUSD and assign a new State administrator to take over the Superintendent’s job and put the board back into an advisory role.

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