Legislature’s Bailing Out of Insolvent School Districts Becoming Routine : Education: Lawmakers have rescued several Bay Area districts. But the problem of cash-strapped schools looms for other parts of the state.

First the Emeryville School District went under, requiring state assistance in order to continue holding classes. The same thing happened to the Berkeley schools and to the Alameda County education department. Next the Oakland system collapsed financially amid allegations of corruption.

Now it has happened to another school district in the Bay Area. Gov. George Deukmejian recently signed legislation authorizing a $9.5-million state bailout loan to the Richmond schools.

While the problem of California school failures has been confined largely to the East Bay, education officials warn that other parts of the state are increasingly vulnerable. The state has already come to the aid of one district in Southern California--West Covina in 1987--and legislators are concerned that inner-city areas like Compton and Inglewood may be next.

Experts are not certain why most of the school failures have occurred in the East Bay. State Sen. Gary K. Hart, chairman of the Senate Education Committee, said “it’s interesting (that) in the last four or five years there have only been three or four districts from elsewhere in the state who have come to the Legislature hat in hand. It’s like cancer clusters in the Bay Area.”

Many education officials say its merely a fluke that the crisis has largely been confined to the Bay Area. But they also point to a variety of problems that exist elsewhere, but are especially severe in the East Bay--an influx of non-English speaking students, aging buildings, high equipment costs, soaring utility and insurance rates, gangs, drugs, overcrowded classrooms and teacher shortages.

In recent years, the Richmond Unified School District, with its 48 schools and 31,000 students, has had to struggle with all this and more. Its biggest challenge has been a rapid increase in the number of “high-risk” students and students with special needs. According to Assistant Supt. Santiago V. Wood, the district’s student body is now composed of more than 60% ethnic minorities, including many Latinos for whom English is a second language. And the families of 30% to 35% of the students are probably living near the poverty line, he said.

Trying to meet the many challenges, Richmond school officials have made their district a statewide leader in programs involving disabled children, bilingual education and nutritional services. But the state has paid for only a part of the costs, forcing school officials to dip into their own general fund.

Richmond also implemented a sweeping program designed to improve the quality of education and keep middle-class students from switching to private schools. Under the System for Choice program, each school in the district specializes in one field of study--such as mathematics or performing arts--and parents are free to send their children to whatever school they want. Wood said the program has succeeded in raising test scores and attendance. But the cost has been high: more than $14 million, only part of which has been paid for by the state.

Finally, the Richmond district offered the powerful teachers’ union a long-term contract that included comparatively substantial gains. The teachers received a 7% raise in 1989 and will get a 9% raise on July 1, pushing top salaries to $48,500 annually. Wood said the money is necessary to attract and retain qualified teachers in this inner-city area, but the raise will cost the district $10 million this year alone.

What finally sent the district plummeting into insolvency was that school officials based their 1990-91 budget on a too-rosy projection of student attendance. When attendance dipped below expectations, the district lost almost $1 million in state money and went into the red.

“The Richmond School District ignored a state law that says you can’t budget money that’s not already in the bank. That’s bad management,” said state Assemblyman Robert J. Campbell (D-Richmond), who introduced the bailout bill signed last week.

Elsewhere in the Bay Area, the Emeryville schools received a $600,000 state loan in 1982, the Alameda County Office of Education got $3.5 million in 1984, Berkeley schools got $3 million in 1986 and Oakland got $10 million last year. In each case, school officials let spending get out of line, seemingly losing sight of their financial limitations.

“In the case of our office, the deficit was caused by overspending over long periods of time, and we have nobody to blame but ourselves,” said Alameda County Supt. of Schools William Berck. “In Berkeley, Oakland, and Emeryville it was a political question. The school boards wanted to do things that they couldn’t afford to do.”

West Covina received a $3.3-million loan after the district discovered a deficit caused by cost overruns and financial mismanagement. The state appointed a trustee with experience in education, management and finance to monitor district operations.

So far, the districts have proved themselves to be good financial risks. Emeryville, Alameda County and Berkeley have repaid their loans. West Covina still owes about $2.5 million.

Education officials say that the ease with which these districts went belly-up underscores the precarious financial condition of many urban schools. The basic problem, they argue, dates from 1978. By approving Proposition 13 that year, voters drastically slashed school districts’ main source of revenue--property taxes. This shifted school funding almost entirely from the local to the state level.

“District funding is entirely determined at the state level yet the schools have the responsibility of making budget decisions locally,” said Rick Simpson, consultant to the Assembly Education Committee. “This fundamental split between authority and responsibility creates major problems. When districts want to expand programs or sign a contract with their employees, for example, they don’t have much control over the revenues needed to make the commitments.”

Although Proposition 98, approved in 1988, and the state lottery have somewhat alleviated the funding woes, education officials say they have not yet delivered a windfall for schools. If anything, they say the lottery and Proposition 98, which dedicates 40% of the state budget to schools, have raised expectations among local school officials too high, causing some of them to spend money recklessly.

As a result, many urban districts--as many as two-thirds of them, Campbell estimates--are in bad financial shape. It only takes a little shove, a bit of bad luck or mismanagement, to push those schools from borderline solvency to bankruptcy, he said.

Even the state’s largest schools, like the Los Angeles Unified School District--where the board must cut $220 million from its budget--are feeling the pinch, although they are in no immediate danger of going under because of their sheer size and resources.

But smaller school districts, especially in troubled inner-city areas, may soon go the way of Richmond, officials warn.

“You’re going to see more and more of this around the state,” said state Sen. Diane E. Watson (D-Los Angeles). “It’s coming to a head after 12 years of Proposition 13. The Bay Area is like Los Angeles and San Diego. They’re spots that attract high-risk students and have (school) boards that can’t cope with the problems. You’re going to see the same thing happening in L.A., not in the LAUSD . . . but in Inglewood, Compton-those are the weak spots.”