County to Check Schools’ Finances in Takeover Step

Concerned that the Los Angeles Unified School District may not be able to meet its financial obligations between now and June 30, Los Angeles County Schools Supt. Stuart Gothold has ordered district officials to come up with a new plan spelling out how they will cover a possible budget shortfall.

This is the first step in an intervention process that could lead to a state takeover of the financially beleaguered school system.

District Supt. Sid Thompson on Monday acknowledged the seriousness of the district’s position, saying he agreed with Gothold’s concerns that a prolonged state budget crisis that reduces school funding could lead to district insolvency.

“If the state has a major problem between now and June and it hits us, then this district indeed has a huge problem,” Thompson said. If district revenues fall short of projections by $10 million to $15 million, the district may not be able to finish the year in the black, he said.

In a letter sent Monday to district officials, Gothold criticized the district’s spending plan for leaving little or no money in reserve to cover “economic uncertainties,” including an anticipated drop in property tax revenue.

“We have serious concerns that the district, by completely eliminating its reserves, is leaving itself financially unprotected for the remainder of the 1992-93 fiscal year,” Gothold said in the letter.

“Because of (state funding) uncertainties, we believe that operation of a $3.1-billion budget with no identifiable reserves to handle these potential risks is fiscally inadvisable and jeopardizes the district’s solvency.”

In addition, Gothold said he cannot certify the district’s financial stability unless it receives waivers from Sacramento allowing funds from restricted accounts to be used to cover the cost of restoring 2% of the 12% cut from teachers and other employees’ salaries last fall.

Without those waivers, the district faces a projected deficit of $30 million this school year, Gothold said.

Thompson said Monday that the district is depending on Assembly Speaker Willie Brown (D-San Francisco)--who forged the contract, with its $36-million, 2% pay-back provision--to make good on his promise to help the district obtain the waivers or find additional funds.

In its budget report to the county this month, the district said it will only make the pay-back if it gets special state permission to use money in restricted textbook and school material accounts.

It was that March 15 budget report that triggered Gothold’s intervention and dropped the district’s financial standing from “positive” to “qualified.”

District budget chief Henry Jones said the qualified rating could affect the district’s bond rating, allowing banks to raise the cost of lending it money.

Jones is in the process of identifying accounts that could be tapped if the state’s deficit worsens and leads to reduced school funding.

“We are not going to be finding new money,” Jones said. “We will be redirecting accounts on a temporary basis, looking for areas that can be delayed for one or two months that could provide an emergency source of reserves.”

If the district does not devise a satisfactory plan to cope with the projected shortfall, the county could take further steps to control its finances, including appointing an outside fiscal adviser or conducting an audit of district finances.

“The district has been very cooperative; we’re not adversaries in this process,” Gothold said. “My concern is that the district’s fiscal situation has eroded, their reserves have dropped from $30 million to $6 million because of things the district has no control over. . . . My task now is to work with the district and help them avoid a worsening of an already bad financial situation.”

State Department of Education spokeswoman Susie Lange said about a dozen of the state’s 1,000 school systems have received “qualified” ratings this month, most because of temporary imbalances between revenue and spending.

“It’s sort of like a caution light system,” she said. “The purpose is not to signal that everything’s gone haywire permanently, but to put everyone on alert that there’s a potential problem. They’ve simply been put in a class where they need to fix something, or eventually they could be risking a takeover by the state.”