Schools Pass Economics Test : Bankruptcy: Despite predictions of deficit disaster, O.C. districts get by with subtle cuts that spare students.

Shortly after Orange County was thrust into financial chaos by the worst municipal bankruptcy in history, school officials in Santa Ana unveiled a $5-million potential hit list that would have cut athletic funding in half, eliminated elementary music and enlarged classes at all secondary schools.

“As you read these, your reaction may be one of horror. It may be one of anger. It may be one of disgust. That’s expected because there really is no place to go,” Superintendent Al Mijares said then.

School leaders throughout Orange County offered similar pictures of doom, predicting massive teacher layoffs, major cuts in sports and arts programs and even the closure of some campuses.

But as school reopens for the first new year since the financial crisis occurred, it is clear the bankruptcy did not, for the most part, incapacitate the 27 elementary and secondary school districts.

Despite losses that now stand at a whopping $74 million, the vast majority of the county’s public school districts escaped having to make the kind of drastic cuts that directly jeopardize students. Rather, the cuts in most districts have been more subtle, putting the onus on school officials to work harder and longer and make do with fewer supplies to educate their students.

“We will open schools in September, and the schools will be clean, staffed with good personnel and will provide students with a high quality education,” John F. Dean, superintendent of the Orange County Department of Education, said last week. “We are as lean as we are going to be, and we don’t have as much money in the bank, but we’re operating. I’m very proud of all the districts and school boards for getting through this financial devastation.”

Districts throughout California were aided by an unexpected windfall of about $200 more per student in state education funding for the 1995-96 school year. Although there are stipulations as to how districts can use some of the money, it will help Orange County districts offset at least some of the money lost in the crash of the county investment pool.

“We lost about $5.4 million from the bankruptcy, and we gained about $5.4 million more from the state,” said Alan Trudell, a spokesman for the Garden Grove Unified School District. “It’s the most generous increase in state funding that we’ve seen in more than a decade. . . . Certainly, this was welcome news to us.”

School officials also spent much of the past nine months sifting through their budgets to come up with cuts that least hurt students.

“It seems like they’ve managed the money really well, so it doesn’t affect the kids,” said Diane Merchan, PTA president of the Placentia-Yorba Linda Unified School District. “I know some parents were worried about sports teams being cut, but none were cut. Everything’s going on just as they have in past school years.”

One of the biggest fears many school leaders have, however, is that the financial losses will have a long-term impact. For instance, some districts had to forgo plans to update their computer systems. Other districts, now in the midst of labor negotiations, wonder how long teachers will stay if they are not offered pay raises. And many districts have lost the money they planned to spend on much-needed construction and remodeling projects.

“We’re trying to do as much as we can to keep up to date with technology and other projects, but it’s difficult,” said Gaylen Freeman, assistant superintendent of business at the Santa Ana Unified School District. “There’s a lot of concern over things we could have done with the money we lost. We’re going to be hurt from that.”

Schools remain short 10% of the money they invested with the county. If a recovery plan now in the works is approved, they will have to count on the uncertain outcome of litigation against brokerages and others to make them whole.

But schools were spared the worst-case budget scenario because they were given favored treatment in a settlement several months ago between the county and the 200 public agencies that sunk money into its investment pool. While other investors recouped about 80% of their money from the county, protecting the educational system was deemed top priority and schools were allowed to recover 90%.

Three school districts, Placentia-Yorba Linda, Irvine and Newport-Mesa, along with the county Department of Education and North Orange County Community College District, face even worse losses because they borrowed a total of $250 million to invest in the county pool.

“Everyone’s anxious to see what’s going to take place,” said Paul Harvey, whose children attend schools in Irvine. “Certainly, parents are going to look to see whether the cuts impact their children’s education. But I think given the fact that the district had to make cuts, they’ve done a responsible job of keeping it as far away from the classroom as possible.”

After the investment pool collapsed, nearly every district went into a panic, freezing vacant positions, making only essential purchases and canceling all trips. Some of the losses were absorbed this way, but many districts had to make deeper cuts that will continue through the upcoming school year.

The Irvine Unified School District, for instance, chopped more than $2 million from its 1995-96 school budget, mostly by eliminating dozens of administrative jobs. Tenured teachers were offered early retirement packages and replaced in many instances by entry-level teachers. Elementary lunch periods were shortened to decrease the amount of supervision required, and every school had to chop its supplies budget by 10%.

The district also was forced to borrow money, which will require it to spend $1.2 million a year for the next decade to pay off the debt.

“From a human standpoint, we lost some of the heart of the school district,” said Margie Wakeham, a board member in Irvine, which lost $8 million. “Everyone is carrying on and going through the motions, but people are beaten down. What parents will see is pretty much the same, but we’ll have to wait until school starts to know how things are really going to work with a significantly reduced support staff.”

The Newport-Mesa Unified School District, which lost $8.4 million, eliminated its elementary counseling program and laid off a number of secretaries, maintenance workers and other employees.

In addition, the district chopped its book and supplies budget by $10 per student, and reduced its stipends for teachers who coach athletic and other extracurricular teams.

But the district recently solved most of its financial problems when it sold a surplus school site on Bear Street for $5.3 million, about $800,000 more than what the district expected to clear.

“We entered this crisis in a position of fiscal strength and we are emerging with considerable strength,” said Michael Fine, the district’s director of fiscal services. “We took a hit and there’s definitely an impact, but we’re on the road up.”

The Placentia-Yorba Linda Unified School District also bounced back from its $8.4-million loss by tapping into its reserve funds, which left its reserve at the state minimum of 3%, said Kim Stallings, the district’s assistant superintendent of administrative services.

Parents initially were afraid that the district’s losses would result in larger classes and fewer programs, said Jan Wagner, PTA president at Bernardo Yorba Middle School.

“But I don’t think the average parent saw much change last year, nor do I think they’re going to see a significant change this year,’ Wagner said.” If you stop a parent at a grocery store and ask them if the bankruptcy has hurt their children’s school district, they’d say, ‘No.’ ”

That’s not to say students won’t feel the pinch. Some districts have made significant cuts, but not anywhere near predictions.

* The Santa Ana Unified School District has not been able to reinstate a seventh period at its middle schools. The district planned to spend $2 million last year to add an additional class period, but the bankruptcy halted that plan.

* Class sizes increased from an average of 28.5 to 29 students in the Cypress Elementary School District as a result of the district’s $600,000 loss.

* And the Capistrano Unified School District, facing a $7.4-million loss, will be charging students who participate in extracurricular activities a transportation fee. The fee will vary depending on how many activities a student participates in, but it will range from $80 per season to a maximum of $360 per family.

“I thought something like this might be coming,” said Susan Radley, whose son, Matt, plays football at Capistrano Valley High School in Mission Viejo. “I support my son in football, and I think it’s a cheap fee. These are extracurricular activities. I’d be more upset if they charged for classroom necessities, because then everyone is involved.”

Radley said some parents might be upset about the fee, but so far she hasn’t heard any complaints.

“We have what, five away games to be bused to and back from? That’s a little over $15 a game,” she said. “You pay more than that to take the shuttle to the airport.”

Although school districts largely have spared students from the brunt of the cuts, there is some fear that the bankruptcy will hurt school districts as they prepare for the future.

For instance, many districts had to forgo remodeling or construction projects, even at schools where repairs are sorely needed.

The bankruptcy also forced many districts to put off buying computers, laser printers, CD-ROM drives and other high-technology equipment.

The Irvine district had to postpone plans to implement a $10-million state-of-the-art computer network, which would have linked all schools to each other and to universities, libraries and even students’ homes. The program, called “Foundations for the Future,” was considered a model for incorporating new technology into public schools, and is on hold indefinitely.

“Our whole district is saddened because it stopped the campaign for ‘Foundations for Our Future,’ ” said Ron Fritsch, principal of Bonita Canyon Elementary School in Irvine. “We’re also concerned about the deferred maintenance of our buildings, because it will be difficult for us to maintain our infrastructure. But our staff, community and parents continue to be optimistic, and are trying to make the best out of the situation.”

District officials also are worried that funds might be unavailable to give teachers adequate pay raises, which could lead to an exodus of qualified educators.

“Everyone would like a pay raise, but we have to see what happens,” said Steve Garretson, president of the Irvine Teachers Assn. “Teachers are cautiously optimistic, because the state is finally sending schools some new money. Everyone’s just waiting to see where that money goes.”

Despite the somewhat gloomy forecast, special-education teacher Randy Dennis said he is approaching the start of the new school year with a positive attitude.

“Personally, I’m going in with the attitude that it’s a new year,” said Dennis, who is president of the Placentia-Yorba Linda United Educators Assn. “I always try to do the best job I can, and I think all teachers are going to go in like that. In my opinion, the district was very successful at avoiding panic and keeping everyone calm.”

Times staff writer Mike Terry contributed to this report.

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Schools Coping

Orange County’s school districts lost more than $74 million in the investment pool but administrators made cutbacks without affecting students. A look at each district:

School District: Orange County Department of Education

Amount lost: $4 million

Cuts: Delayed nonessential expenditures, eliminated positions through attrition

****

School District: Anaheim City

Amount lost: $795,000

Cuts: Delayed purchases of nonessential items, canceled travel plans

****

School District: Anaheim Union High

Amount lost: $1.8 million

Cuts: Reduced instructional supplies, delayed maintenance projects

****

School District: Brea-Olinda Unified

Amount lost: $900,000

Cuts: Made only essential purchases last year, canceled travel plans

****

School District: Buena Park

Amount lost: $436,000

Cuts: Delayed maintenance projects, scaled back plans for districtwide intercom systems

****

School District: Capistrano Unified

Amount lost: $7.4 million

Cuts: Laid off some classified workers, added student transportation fee for extracurricular activities, eliminated Saturday school

****

School District: Centralia

Amount lost: $874,000

Cuts: Delayed purchases, including computers; canceled travel plans

****

School District: Cypress

Amount lost: $600,000

Cuts: Raised class sizes from 28.5 to 29 students, eliminated one district position

****

School District: Fountain Valley

Amount lost: $500,000

Cuts: Made only essential purchases last year, delayed computer purchases

****

School District: Fullerton

Amount lost: $500,000

Cuts: Delayed computer purchases

****

School District: Fullerton Joint Union High

Amount lost: $2.5 million

Cuts: Delayed filling vacant positions, curtailed spending on supplies, canceled travel plans

****

School District: Garden Grove Unified

Amount lost: $5.4 million

Cuts: Delayed purchases of nonessential items, delayed filling vacant positions

****

School District: Huntington Beach City

Amount lost: $923,000

Cuts: Delayed filling vacant positions, delayed computer purchases, canceled travel plans

****

School District: Huntington Beach Union High

Amount lost: $1.99 million

Cuts: Canceled field trips, delayed computer purchases

****

School District: Irvine Unified

Amount lost: $8 million

Cuts: Eliminated dozens of administrative and other positions

****

School District: La Habra City

Amount lost: $1.3 million

Cuts: Delayed remodeling plans, delayed equipment purchases

****

School District: Laguna Beach Unified

Amount lost: $700,000

Cuts: Added student bus fee, cut back on gardening and landscaping projects

****

School District: Los Alamitos Unified

Amount lost: $1.2 million

Cuts: Reduced classroom supply purchases, canceled teacher workshops

****

School District: Magnolia

Amount lost: $595,000

Cuts: Implemented hiring freeze last year

****

School District: Newport-Mesa Unified

Amount lost: $8.4 million

Cuts: Decreased supplies budget by $10 per student, reduced stipends for extracurricular coaches

****

School District: Ocean View

Amount lost: $883,000

Cuts: Canceled field trips and staff travel plans, delayed computer purchases

****

School District: Orange Unified

Amount lost: $1.9 million

Cuts: Abandoned plans to reduce class sizes

****

School District: Placentia-Yorba Linda Unified

Amount lost: $8.4 million

Cuts: Withdrew funds from reserves, delayed computer purchases

****

School District: Saddleback Valley Unified

Amount lost: $6.2 million

Cuts: Hiring freeze placed on nonessential positions, delayed/canceled maintenance projects

****

School District: Santa Ana Unified

Amount lost: $4.9 million

Cuts: Combined job duties, delayed computer purchases, cut back on supplies

****

School District: Savanna

Amount lost: $356,000

Cuts: Delayed capital projects

****

School District: Tustin Unified

Amount lost: $1.2 million

Cuts: Delayed computer purchases, maintenance and construction projects

****

School District: Westminster

Amount lost: $1.3 million

Cuts: Delayed or canceled major maintenance projects

Source: Individual school districts

Researched by DIANE SEO / Los Angeles Times