This story was originally published by EdSource.
In a significant development, the West Contra Costa Unified School District has made substantial progress in balancing its budget and averting the possibility of insolvency.
Last week, the Contra Costa County Office of Education notified the district that it approved a positive certification in the latest version of its budget for the 2024-26 school year, the second time it has done that this year.
“Positive certification” means the county concurs with the district that it can meet its financial obligations during the current school year and the next two years but only if it follows through plans to make further cuts of about $13 million over the next two years — $7.3 million in cuts for the 2024-25 school year and an additional $6.4 million in cuts for 2026-27 year.
“If they do everything they say they’re going to do and keep going down the path that they submitted to us, they should be okay,” said Contra Costa County Superintendent of Schools, Lynn Mackey.
The county’s certification comes as a relief to district officials. Interim Superintendent Kim Moses, who was previously the district’s business manager, described the positive certification as “great news.”
“We are able to say that we can meet our obligations over the next three years with the changes that we’ve made,” she said. “And that is something to celebrate.”
The latest development for the 25,000-student district offers lessons for other California districts experiencing financial difficulties.
No. 1 among them: School boards have to make hard decisions to make cuts and reduce the number of employees proportionate to their revenues, said Michael Fine, CEO of the Fiscal Management Assistance Team, a state-funded agency that helps school districts get out of financial difficulties.
For several years, the county office of education had concluded that the district was no longer “a going concern” based on its shaky finances. As recently as last year, FCMAT rated the district as being at a high risk of insolvency.
To get the “positive rating,” the district cut $19.7 million from its budget this year, and its board voted in February to cut another $13 million over the next two years.
School financial health categories
Under state oversight regulations, a school district’s financial situation can fall into three categories:
- A positive certification means the school district has the resources to meet its financial obligations to get through the current school year, and two subsequent ones.
- A qualified certification means that the district may not meet its financial obligations in the current school year, or the next two years.
- A negative certification is the most dire category, meaning a district will be unable to meet its financial obligation in the current year, or subsequent school year.
WCCUSD’s positive rating is especially good news because in 1991, the district became the first district in California to get an emergency loan from the state which took two decades to pay off.
But the district still faces substantial challenges. In a May 1 letter to Moses, Daniela Parasidis, the county’s deputy superintendent for business services, said its approval of the district’s positive certification “comes with significant caution.”
“The district must remain vigilant and continue the implementation of its solvency plan to ensure long-term financial stability,” she wrote.
She also pointed to potential hazards that could affect the district’s finances, which underscore the multiple pressure points school districts face. In WCCUSD, these include the impact of declining enrollments, increased absenteeism due to fears around immigration enforcement, expiring parcel tax revenues, and possible loss of federal funds as a result of actions by the Trump administration.
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Approval of the district’s positive certification “comes with significant caution.”
County officials say maintaining the district’s “positive certification” is dependent on it doing two things: Sending out layoff notices, which the board voted to do in February by May 15, the deadline specified by state law, as well as adopting a budget for the coming school year by June 30.
One unknown is that the district is in the final stages of prolonged contract negotiations with unions representing all its staff, including its teachers’ union, which is demanding pay increase and other changes in the way teachers are compensated, along with improved health benefits. The teachers’ contract expires on June 30.
District using reserve fund money to balance budget
However, there is deep disagreement between the district and its unions over just how severe the district’s financial difficulties are. Francisco Ortiz, the president of United Teachers of Richmond, said the district routinely “under projects revenue and over projects expenditures.” As for the cuts planned for the next two years, Ortiz said, “we feel that none of these cuts are necessary.” He said the district needs to, instead, “reprioritize how they’re actually spending their funds.”
“We deeply value our educators and agree they work hard and deserve to be fairly compensated,” Moses wrote in an online message last week. “Our challenge is not about disagreement, but about how we responsibly meet this need while ensuring our district remains fiscally sound.”
Another pitfall is that despite making significant budget cuts, the district is still operating with a structural deficit which it is closing by drawing on one-time reserve funds.
Those are so-called “special reserves” called Fund 17 valued at more than $37 million at the beginning of the school year.
WCCUSD was able to accumulate these special reserves at least in part because when it got its state bailout loan decades ago, the state required the district to maintain reserves of 6%, double the required amount, Moses said.
To balance its books, the district is drawing down $11.5 million of its Fund 17 reserves this year, another $20.25 million next year, and $6.2 million the following year, fully depleting that reserve. It will still have the 3% minimum reserve required by the state, which amounts to about $15 million.
John Gray, CEO of School Services of California, the largest school consulting firm in the state, says it is quite acceptable for a district to use its Fund 17 reserves to get through a fiscal crisis.
But, he says, it means that “there will be a reckoning in three years” when all those funds are spent. “If you spend it (Fund 17 reserves) all the way down,” he said, “you’re not going to have a place to grab money, and you’re going to have to make additional cuts.”
School board’s handling of latest budget draws criticism
Go Public Schools West Contra Costa, a group of parents, educators, and community allies working to improve West Contra Costa public education, published a blog post April 16 criticizing how the WCCUSD school board approved the Fund 17 transfer and interim budget report without discussing it, saying the presentation was abruptly cut short before the board meeting extended ending time of 10:30 p.m.
The school board said it would discuss the budget at a retreat the following weekend and then opened the floor for two public comments on the report. Although it was listed as a discussion item on the agenda for the March 20 board retreat, the board did not get to that item at that meeting, and instead tabled it for the next board meeting on April 16. However, it did not appear on the agenda for that meeting.
“The sequence of events — voting before questions, discussion, or listening to public comment — was highly irregular and troubling,” Go Public Schools stated. “As Trustee Cinthia Hernandez asked, ‘So, we’re going to approve and then ask questions after?’ Monitoring the district’s financial health and certifying the district’s projections are crucial functions of the school board. Questions, and discussion must come before a vote, otherwise the vote simply rubber stamps the district staff’s report, without allowing the board to fulfill its oversight responsibility.”
Moses is hoping that over the next two years, the district will be able to “align expenditures with our revenue so that we will no longer have a structural deficit, and we’ll begin to build back up that reserve for economic uncertainties.”
She said, “any responsible, budget-minded person is going to make sure they save something for hard times.”
Richmondside Editor-in-Chief Kari Hulac contributed to this report.
