Inglewood Unified School District Comprehensive Review
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Inglewood Unified School District Comprehensive Review July 2013 Inglewood Unified School District Comprehensive Review July 2013 Introduction and Executive Summary Introduction The Inglewood Unified School District was established in the early 1950s as the successor of the Inglewood School District, which came into existence in 1888. It encompasses nine square miles in Los Angeles County and is about 13 miles south west of the city of Los Angeles. Inglewood Unified has an estimated 110,623 residents within district boundaries and serves approximately 12,000 students in grades kindergarten through 12 in the city of Inglewood and an adjacent section of unincorporated Los Angeles County (Ladera Heights). The district operates 10 elementary schools, two middle schools, two K-8 schools, two high schools, a charter high school, a continuation high school, a preschool child development center, and a community adult school. For fiscal year 2012-13, the district’s average daily attendance (ADA) is approximately 11,300 students On September 14, 2012, the governor approved SB 533, Chapter 325, bringing the district under state receivership with a state-approved emergency appropriation for $55 million to avoid fiscal insolvency. The district’s previous management made efforts to avoid the takeover with last- minute expenditure reductions, but after years of deficit spending, the district’s structural budget imbalance was too large. The district was projected to have a negative cash balance by March 31, 2013. Stated reasons for fiscal insolvency included: OverstatingADA, understating California State Teachers’ Retirement System payments, understating certificated salary expenses, continued deficit spending, and declining enrollment. The funds for the emergency appropriation (loan) to support cash flow in the Inglewood Unified School District were to be issued, as provided for in the legislation, by the California Infrastructure and Economic Development Bank (I-Bank). The I-Bank typically would sell bonds to investors to raise the capital for this purpose. During the period before the I-Bank bonds are sold, cash flow for the district is managed through temporary loans made from the state’s general fund. With the passage of Assembly Bill 86, Statutes of 2013, the provisions requiring the district to enter into I-Bank financing were superseded by language that would authorize the district, through the California Department of Education, to request cash flow loans directly and permanently from the state’s general fund in an amount not to exceed $55 million. In the first year of state takeover, the California Department of Education on behalf of the district has drawn 53% of the emergency state loan funding and has not made significant fiscal adjustments as was projected when the state loan was sized. State emergency appropriations are sized based on many assumptions, but their underlying purpose is to provide cash-flow assistance to allow the district time to make the necessary reductions to correct the structural operating deficit for the current and two subsequent fiscal years in order to be fiscally solvent. Of the $55 million authorized, the district has drawn $29 million from November 2012 through February 2013, leaving a balance of $26 million. The district’s most recent general fund multiyear financial projection (which includes many components of the recovery plan dated June 20, 2013 subsequent to fieldwork) indicates that it will draw $6 million during 2013-14 and the balance of $20 million in 2014-15, and yet the structural deficit is projected to be $13.6 million in 2013-14; $14.1 million in 2014-15; and $14.3 million in 2015-16. The district must reduce budget expenditures in the general fund to reduce the structural deficit immediately or the emergency appropriation will not be adequate to sustain the organization. The state loan will have a repayment period of 20 years and includes an annual debt service payment, with principal and interest beginning in the 2014-15 fiscal year. The annual debt service payment cannot be calculated until the loan is refinanced and the interest rate is set; Introduction and Executive Summary 1 however, the repayment of the loan will come from the unrestricted general fund. Fiscal recovery efforts are constrained by ongoing costs to the district’s general fund to cover the annual debt service payment coupled with the current structural deficit. The district will need to make budget adjustments commensurate with the structural deficit including the additional loan burden to stabilize its current financial situation. Under state receivership, the superintendent of public instruction assumes all the legal rights, duties, and powers of the governing board and appoints a state administrator to act as both the governing board and superintendent. The district’s five-member governing board will serve in an advisory role until the district shows adequate progress in implementing the comprehensive review recommendations in the five operational areas, including finance, human resources, community relations and governance, facilities, and pupil achievement. Even when the governing board resumes control, a trustee will have stay and rescind authority until the loan is fully repaid to the state. During the first months of state administration, the state administrator resigned because of a contractual dispute regarding a collective bargaining agreement that was signed without the consent of the California Department of Education (CDE). The assistant superintendent of business services, also a state appointee, subsequently became the interim state administrator and remained in this position, filling a dual role, until July 1, 2013. The district’s 2012-13 second interim report received a negative certification because of its reliance on the state loan and included a $17.8 million operational deficit.After taking into account the $29 million in draws from the state loan, the district ended the year with an $11 million surplus and $14.1 million in its reserves, equivalent to 11.8% of expenditures. No major expenditure reductions were identified in the 2012-13 fiscal year. Instead, this year was used to understand the full extent of the district’s fiscal crisis and begin a recovery plan. Before the district was placed in receivership, it slowly and continually drew on its general fund balance. The district’s 2012 audited financial statements showed a $3 million deficit and reserves at $2.6 million, 2.5% of expenditures which is below the state’s mandated minimum of 3%. The interim state administrator identified significant key expenditure reductions for 2013-14 that, when combined with anticipated revenue enhancements, are estimated to decrease the district’s operational deficit to $5 million to $7 million, a reduction of more than $10 million from the previous year’s deficit. These estimates do not take into account additional revenue generated through the local control funding formula (LCFF) that was included in the July 1, 2013 state budget, and will enhance the district’s revenue. However, under this scenario, the district would still rely on the additional, unused state loan proceeds to remain operational in fiscal year 2013-14. Subsequent to this report being written (August 2013), the state trustee revised the planned expenditure reductions for 2013-14, which altered the estimated savings to the general fund. The full extent of the effect on the budget was not known at the time this report was written and will be discussed in the next progress report, which will be issued in the next fiscal year. A significant reason for the district’s fiscal decline is ADA, which decreased from approximately 16,320 in 2005 to 11,300 at 2012-13 or 31%. Management has identified several ways to increase ADA in future years such as adding transitional kindergarten students and expanding its dependent charter enrollment. The district’s multiyear recovery plan, once developed, will need to identify multiple solutions to increase ADA in future years. 2 Introduction and Executive Summary The district placed a $90 million bond called Measure GG on the ballot on November 6, 2012, and won 86.1% approval, the highest support for a K-12 state bond election since 2002. The first issuance from Measure GG is anticipated to be $25 million, and management expects to continue to issue bonds over the next several years as it addresses its capital facilities plan. The bond proceeds, along with several other revenue sources, will help modernize schools, upgrade technology, and expand services to increase enrollment. The plan is to transform the district through a major $300 million capital investment in conjunction with the Hollywood Park and Inglewood Forum development projects. Although the district is making progress, unless it can enter into negotiations with its collective bargaining groups and further decrease expenditures, the reductions made thus far, as well as any reductions in nonsalary and benefit categories, will be insufficient, and the district will be unable to achieve fiscal solvency. The district has struggled with leadership issues for some time, both before and after state administration. It has had an interim state administrator since December 2012, and a permanent state trustee filled that position on July 1, 2013. There is a tremendous amount of unrest in the district for a number of reasons, most recently because of the high number of staff reductions that the interim state administrator initiated as part of the district’s