Schools Face Takeover if Court Voids Pay Cuts : Education: L.A. County official warns that insolvency is near if district’s teachers are paid in full.

In his first key move toward a historic takeover of the Los Angeles Unified School District, the county superintendent of schools said Thursday that he will intervene in the district’s financial decisions next week if it loses a court fight to cut teachers’ salaries.

“The district in our opinion will not make it to the end of the year” if it is forced under court order to make a second $20-million payment next month to 35,000 teachers, said Los Angeles County Supt. of Schools Stuart E. Gothold, who sent letters to state and district officials. The district was ordered to restore this month’s full salary by Tuesday.

Under a new state law giving county offices of education the authority to intervene when a district’s financial stability is threatened, Gothold ordered Los Angeles school board President Leticia Quezada to immediately provide him with any additional measures that the district can take to meet its financial obligations for the remainder of the fiscal year.

“We will tell him that . . . there is no way that in November, in the middle of the school year, we are going to be able to find budget cuts of that sort,” Quezada said.

To explore all legal options to fend off the refund, the district will request an emergency meeting of the State Board of Education to ask for a waiver of a provision in the education code that is at issue in the court case.

The board has also asked former state Atty. Gen. John K. Van de Kamp to reconvene a special commission that reviewed the district’s finances this year. It also is seeking his help to mediate contract negotiations with the teachers union.

Thursday’s developments came as California educators were urging the district to settle its own financial problems. For many, the district’s slide toward insolvency is evoking chilling comparisons with the wrenching financial collapse of a much smaller Bay Area school system.

The Richmond Unified School District went bankrupt and was taken over by the state in 1991, events that led to a strict new state law giving county education officials oversight power when districts begin to slip into serious financial trouble.

This law will guide the fate of the Los Angeles district, the nation’s second-largest public school system, if it cannot bring its $3.9-billion budget into balance.

Education leaders from around the state say the high price that students, teachers and others are paying for Richmond’s budget debacle generates a single, strong message for Los Angeles: Do whatever it takes to avoid losing control of your district.

“We want Los Angeles to solve its own problems. We’re saying, to all the parties, work it out,” state Supt. of Public Instruction Bill Honig said. “It gets harsh if someone else comes in. . . . It’s much better to have these decisions made locally . . . by the parties directly involved in the district.”

The crucial decision that could prompt the county to take command of the district’s finances rests with Los Angeles Superior Court Judge Stephen E. O’Neil. On Wednesday he will rule whether the district can go forward with a cumulative 12% teacher salary reduction imposed last month, along with other employee pay cuts, to help close a $400-million budget gap.

The case was initiated by United Teachers-Los Angeles as a last-minute attempt to halt the deep reductions. It would cost the district $163 million to pay teachers their current salary. District officials said that would render the district insolvent and they plan to appeal if they lose in court next week.

The district is in the process of issuing supplemental paychecks this month, leaving only $11 million in emergency funds and no way to meet the December payroll at the higher rate, district officials said.

“Because of the magnitude and immediacy of the problem and because all efforts by the district to effect relief in court have thus far failed, we are greatly concerned that the district is heading toward insolvency,” Gothold wrote to Honig.

He requested an urgent meeting with the state schools chief to discuss options and outcomes.

Teachers union President Helen Bernstein, who is in the midst of contract negotiations, said the union leadership “feels that the district is posturing to put pressure on the legal process and the public. The district is trying to make teachers--who are trying to save their livelihood--the villain, when it is the district that has spent itself into the ground.”

Gothold said he is preparing to initiate the appointment of a financial adviser who will consult with the school board and help members devise a plan to solve the problem. The adviser is empowered to rescind or amend budget appropriations but cannot cancel previously approved collective bargaining agreements.

At least four other California districts face possible county takeovers because of grave fiscal problems. They are: Laguna Salada Union Elementary School District in San Mateo County, where a budget review committee has already found the district’s budget to be insufficient; Visalia Unified in Tulare County, Jurupa Unified in Riverside County, and Pajaro Valley Unified in Santa Cruz County. Budgets for these last three districts are under review, the first step toward a county takeover, state officials said this week.

For Los Angeles, county intervention could affect teacher contract negotiations. It is unclear whether the tentatively approved contracts of service workers, clerical employees and other non-credentialed employees could be affected.

If the county adviser and district officials cannot find a way out of the deficit, the next step would be state intervention, which brings far more serious implications.

The state steps in when the district’s only way out is to borrow more than 200% of the amount required for its emergency reserve fund. For Los Angeles that would mean a loan of more than $62 million. As with other spending issues, a loan would require approval from the Legislature and governor.

The state trustee would take over management of the school district, suspending the school board’s authority and possibly terminating key contracts. The trustee would have the power to file for district bankruptcy and cut or revise education programs to save money. Under bankruptcy proceedings, a federal judge would have the power to rescind the union contracts and make other major financial decisions.

“If the stage moves from Los Angeles to Sacramento, the intensity of the debate and the stakes for the school district will go way up,” said Tom DeLapp, director of communications for the Assn. of California School Administrators. “When you put your future in the hands of the California Legislature, you’re taking a big gamble on politics.”

Maureen DiMarco, Gov. Pete Wilson’s secretary of Child Development and Education, warned that turning to the state for financial help “is certainly not the solution.” She said the 24% salary increases granted to most of the district’s employees after the 1989 teachers strike, although deserved, were the primary cause of its troubles. Nor does she believe that the union’s insistence on guarantees of no pay cuts next year is realistic.

“There is no white knight, no leprechaun with a pot of gold. There is nothing out there, and things are not going to get better anytime soon,” DiMarco said, referring to the state’s projected deficit and its struggles with the recession.

DiMarco said both sides in the pay dispute should stop “trying to win their case in the media” and instead begin private, round-the-clock negotiations to reach a settlement.

“It’s time all parties in the Los Angeles Unified realize they’re all in this together,” DiMarco said.

Barbara Miller, research director of EdSource, a Menlo Park-based organization specializing in public education finance, said the district has few options at this point besides pay cuts. Although her organization will not take sides in the dispute, its officials “are watching this situation very closely. . . . Everybody has a concern that the students not be the innocent victims in this.”

The district’s labor and financial turmoil is fueling a growing movement based in the San Fernando Valley to break up the school district, which some say will bring more confusion and instability.

Only two California districts have sought protection from their creditors under Chapter 9 of the federal bankruptcy act. In 1983, the San Jose Unified School District began proceedings but halted them once officials renegotiated employee contracts to ease the district’s financial troubles. Thus Richmond became the first to go bankrupt when it ran out of funds last spring, a few weeks before the end of the school year.

Richmond’s troubles had begun a few years earlier, with 16% raises for employees and a superintendent who spent millions on an experimental education reform program before he was ousted by the school board. It took $28.5 million in state loans and full takeover by a trustee before the district’s budget could be brought into the black.

All employees received 9% pay cuts, the academic day was shortened for secondary school students and about 400 jobs were lost. Support services were reduced so sharply that only one school nurse remains for the district’s 31,000 students.

Although the district emerged from bankruptcy in October, 1991, and the school board has been put back in charge, the state trustee continues to have veto power over all spending decisions and the district is struggling with ways to repay the loans.

“My advice to Los Angeles teachers is to do whatever you can to avoid a takeover,” said Jerry Brooks, president of United Teachers of Richmond, which is fighting in this year’s contract negotiations to keep the district from cutting employee benefits.

“Once the trustee steps in, you are pretty much at the mercy of the state. The state has just one goal in mind, and that’s getting back what they say we owe them; local issues, the kids, the employees are just not important.”