W. Covina Schools Short $2.7 Million, May Close Early

If the West Covina Unified School District can’t get $2.7 million to meet its expenses in June, the school year will have to be ended early, officials said last week.

The district is seeking an emergency loan from the state to cover the unexpected shortfall.

“If we don’t get the assistance, we’ll run out of money on May 30,” said Jimmie L. Duncan, district assistant superintendent for business services. “We can’t operate. We will close the doors. We’ll have to.” School for the district’s 8,000 students is scheduled to end June 18.

A California Department of Education official said that such a loan must be approved by the state Legislature and that it could take three to six months to make the money available to the district.

“How we will deal with West Covina needing money immediately, we do not know,” said William C. Piper, deputy superintendent for administration for the department.

Loans Usually Slower

“I don’t personally know of any situation where a state loan has been processed so fast,” said Piper, who was informed last week by the Los Angeles County Office of Education that the West Covina district would be seeking the money.

Piper said he would probably ask the county treasurer’s office to lend the district money to cover the shortfall until the appropriation is approved by the Legislature.

Kathleen H. Snook, finance officer for the county treasurer-tax collector, said her office has not been contacted. She would not comment further.

West Covina Unified School District officials told the Board of Education last week about the shortfall, which is about 10% of the district’s $27-million budget.

Controls Didn’t Work

“We have control mechanisms within the organization,” Duncan said. “What we will be analyzing is why the district’s control mechanisms did not work when they have worked in the past.”

He said that for the last 10 years the district received an average of $1.2 million a year more than was budgeted, and this year had expected to receive $1.5 million more than budgeted.

Instead, Duncan said, this year’s costs have exceeded projections and revenues have fallen short.

For example, when the budget was adopted last summer, the district planned to spend $1.3 million from its contingency reserve fund to pay for employees’ raises. But when contracts were settled in January, giving raises averaging 7% to the district’s 850 employees, the total was $1.6 million--$300,000 more than expected.

Lottery Revenue Down

The district anticipated receiving $900,000 from the state lottery, but got only $600,000. Officials budgeted $770,000 for books and materials, but spent $1.1 million.

The district budgeted $2.3 million to pay for services the system cannot do for itself, such as legal and consultant work, but spent $3.7 million.

In addition, $330,000 more than the $300,000 budgeted for repair work and capital outlays was spent, and $200,000 will be needed to cover other assorted expenses.

“We’re running hard and fast to find out” how the deficit occurred, Duncan said. “We’ve never had a financial problem before. We’ve had tight years because of limited resources, but we’ve never had this type of crunch.”

Audit Required

Before a state loan can be granted, the district must undergo an independent audit to confirm its financial condition, said Albert A. Nault, management assistance team leader for the county Office of Education. The office serves as an intermediary between school districts and the state.

Duncan said an Ontario accounting firm is conducting the audit, which is expected to be completed this week.

The district must also undergo a management review from an independent consultant who will analyze its management practices and financial condition and “help them define where they are and what changes they should make,” Nault said.

The management consultant will also help the district devise a repayment plan before any money is allocated, Nault said. Typically, districts have up to five years to repay the money, Piper said.

If the loan is approved, a trustee would be appointed to oversee the district until the loan is repaid, he said.

‘Don’t Trust You’

“If you haven’t managed your affairs well enough to stay out of trouble in the first place, we don’t trust you to pay off the loan,” Piper said.

Nault said he is confident that the district will receive the loan.

West Covina would be only the third district in Los Angeles County in the last four years to get an emergency state loan to meet its obligations at the end of a budget year, Nault said. The county oversees 95 school districts, including elementary, secondary and community colleges.

In 1983, the Compton Community College District received two emergency loans from the state, totaling $1.1 million, to finance a deficit that was attributed to declining enrollment and the effects of Proposition 13.

Charles Cropsey, director of public information for the district, said $250,000 is still owed on the loan, but he expects it to be paid off next fall, six months ahead of schedule.

The South Whittier School District received an emergency loan of $450,000 from the state in 1983. The district has until next year to pay it off, and so far has paid $337,500 on the principal and $131,400 in interest.

Loss of Confidence

“I hate to see another district go through this experience,” said Robert L. Whitacre, assistant superintendent for South Whittier. He cited a loss of confidence in the district by parents, students and staff.

“The board and the administration have worked hard to regain that confidence and public trust,” Whitacre said.

The Santa Monica-Malibu Unified School District is in a similar financial crunch. The system, facing a $800,000 deficit, is planning to seek an emergency loan from the state if the money cannot be found elsewhere.

Kathleen J. Jones, president of the West Covina Board of Education, said she is confident the district will survive the financial crisis.

“It will be difficult, but I’m very confident that we will find out what occurred and make sure that it will not happen again,” Jones said.