Another Budget Crisis, Threat of Takeover for School District : Education: Officials had already cut $18 million and laid off 150 employees. Now they must cut another $8.9 million.

Already facing the most severe budget crisis in the history of the Montebello Unified School District, board members were told Tuesday that they have three weeks to cut $8.9 million, about 9% of the budget, or face bankruptcy and a possible takeover by the state.

The news, delivered by acting business manager Glenn Sheppard, is a twist of the knife for the district, which had already sliced about $18 million from its budget and laid off about 150 employees, most of them teachers. The district had already cut 20% of its nurses and all of its elementary school librarians. Class sizes had also been increased.

The remaining options are limited, board member Eleanor Chow said.

“You cut salaries, or you do something about fringe benefits,” Chow said. “We took pride that we were able to give our employees and their families health insurance. Do we take that away and insure only our employees? Or do we cut the salaries that we were so proud of? I don’t know how we are going to do it.”

The announcement stunned spectators in the board chamber, including records clerk Carol Seare. “I can’t see any way they’re going to do it,” said Seare, president of the employee unions for non-teachers.

Difficult or not, the cuts must be made because both state and county officials “are looking at us very, very closely,” Sheppard said.

In May, the state controller’s office put Montebello near the top of its list of 32 California school districts facing insolvency.

With that listing came the implied threat of state auditors taking over district affairs. If board members do not balance the budget, Chow said Wednesday, “then the state will come in and take over, and they will do the chopping.”

The latest crisis stems from a number of sources. For one, state auditors have rejected part of the district’s claims for reimbursement of earthquake repairs related to the October, 1987, Whittier temblor and its aftershocks. Auditors said the district spent too much on costly asbestos removal and they questioned whether removing the asbestos truly counted as an earthquake-related expense. Unless the district successfully appeals, the audit will cost the district $1.4 million.

Orders for other cuts come from Los Angeles County and the district’s bond creditors, Sheppard said. The county is insisting that the district eliminate its accumulated spending deficits from past years, an estimated $2.6 million. In addition, the district must make $3.1 million in further cuts to fulfill a promise exacted by the district’s bond creditors before the district floated $12.4 million worth of bonds in June. Without those bonds, the district would not have been able to meet its June payroll.

Seare questioned why the district had waited so long to realize the extent of its problems, why it had missed the mark by so much when making the earlier cuts. “I don’t understand it. There was nothing new,” she said.

District officials had anticipated some of the problems before going public with them Tuesday. The board’s tentative budget, adopted in June, penciled in a 4% pay cut for all employees. That pay cut has yet to be approved by employee organizations. And, although district officials knew that some earthquake repairs were in dispute, they did not expect to lose $1.4 million in reimbursements from this year’s budget.

To make matters worse, the district is renovating nine schools, projects that began years ago in better times. District officials say the schools need rehabilitation, but the expense could not come at a worse time. Stopping the projects in midstream would also be costly, officials say.

“We did it (the renovations) to make the schools better, to make the schools safer,” board member Darrell Heacock said.

The district’s financial problems also have been caused, in part, by higher-than-average salaries, overestimates of state funding and ambitious educational programs.

The district raised salaries and benefits by more than 20% in the last two years alone, while revenues rose only 8%, according to state auditors. The district also planned on $6 million in revenue from the state lottery last year and built that into the salary schedule. Instead, the district received only $4 million. And lottery proceeds are expected to decline further.

The district launched an ambitious bilingual program ahead of many other districts and kept librarians in every elementary school long after other districts had abandoned the practice.

Board member Chow said the district policy has always been to give its students the best of everything, regardless of the cost.

“I still say I would rather us not cut anything and keep everything intact, and close down the schools when the money runs out,” board member Chow said. “If the public demands a quality education, this is the kind of money it takes to do that.”

But board President Willard Yamaguchi said it was time for sober realism to prevail. “We have to cut back. We’re not here to rationalize. I’m not going to rationalize anymore.”