Affluent Town’s District Is Short of Funds

For at least the past three years, the high-achieving Manhattan Beach Unified School District has relied on a plump reserve fund and the generosity of an affluent community to pay for things it couldn’t really afford.

Now the reserves have dwindled, and cost overruns on construction projects and other controversies have eroded public trust, casting some uncertainty on future fundraising prospects. In the spring, voters rejected a parcel tax for the district and last month they tossed out the two incumbent Board of Education members seeking reelection.

The 6,400-student district’s new superintendent and its new business administrator have their work cut out for them.

“I came in fully aware that the district had some fiscal challenges,” said Supt. Gwen E. Gross, hired in August to replace retiring schools chief Gerald F. Davis. “I wasn’t as aware of the depth.”

Gross and Stephen L. McMahon, the new assistant superintendent for business services, concluded that the district needed to cut about 10% of its operating budget for 2004-05. It is spending nearly $49 million this year, almost $3 million more than it expects to receive in state and other revenue, and the gap is expected to grow to almost $5 million in the next year.

“There is no way we can say we’ll be a going financial concern in three years if we don’t do something,” McMahon said, noting that the state requires school districts to demonstrate annually that they can balance their books for at least the next three years. It also requires districts to maintain at least some reserves.

The Manhattan Beach district’s reserves have dropped from about $20 million in 1995 to less than half of that, much of it already committed.

The Los Angeles County Office of Education, which tracks local schools’ finances for the state, has warned the district about using the reserves to offset operating expenses.

Manhattan Beach is not alone, said Robert W. Bennett, president of School Services of California, a firm that advises districts statewide and is probing Manhattan Beach’s construction problems.

Facing a third straight year of reductions in state aid, many districts are anticipating cutting at least 5% from their operating budgets next year, and nearly all California districts have been spending their reserves, Bennett said.

“It’s a risky thing to do, because you don’t know how long the bad times will last,” he said. “But there is also a risk when you take away educational opportunities from students that not only affects the students’ education but also affects test scores and other things by which a district is measured.”

And in communities that expect a lot from their schools, such as Manhattan Beach, making cuts poses special challenges.

Gross and McMahon have been meeting with school and community groups. They hand out detailed budget spreadsheets and solicit ideas for cutting costs and adding money.

“I’m encouraged, because they are communicating with every stakeholder, and they seem to be listening to everyone and be willing to explore every option,” said William Cooper, who recently retired from teaching after more than four decades at the district’s high school, Mira Costa. He was the top vote-getter in last month’s 10-way race for two school board seats, and earlier this month, fellow board members elected him president.

Although the budget year does not end until June 30, Gross and McMahon must make their recommendations next month to the board, which is scheduled to decide on cuts in February. Teachers, school administrators and others with credentials must be notified in March if there are to be layoffs -- and district officials expect there will be.

“We are overstaffed in several areas,” Gross told a meeting of local business leaders last week. “With 84% of our operating costs going to pay for people, we are probably going to lose some. We want to be as thoughtful and as humane about it as possible, so we need to let people know as soon as we can.”

As have other districts in upscale communities throughout California, Manhattan Beach has long turned to its residents and local businesses to augment the often bare-bones funding from the state.

The Manhattan Beach Education Foundation raised nearly $600,000 for this academic year alone. The money pays for, among other things, art and music programs in the five elementary schools, student advisors in the middle school, and college and career counselors and library upgrades at the high school. The PTAs at each campus raise money for the individual schools as well.

In addition, when the state budget crisis forced big midyear cuts on school districts around the state earlier this year, Manhattan Beach softened the blow by raising about $1.7 million more from families and businesses to save jobs and programs.

District officials have long credited community commitment to the schools with helping maintain high quality, even during tough financial times. Real estate agents tout the schools, often handing out copies of the California Academic Performance Index, which places the district among the top in the state.

The districtwide score in the last round of testing was 869 out of a possible 1000, and all the elementary schools scored between 924 and 961. Ninety-four percent of Mira Costa’s latest graduating class entered college.

But the emergency donations are spent, and, barring another big fundraising campaign, the teachers and services the fundraising saved could end up on the chopping block this time.

Gross and McMahon are building next year’s budget by putting in money for only those things the district is required to do by state mandates and employee contracts. They figure that will take about $39 million of the roughly $44 million they expect in public funds next year, setting up the need for tough choices among the many “extras.”

The state’s ongoing fiscal crisis could spell even more trouble for school districts, which rely on Sacramento for much of their funding. The governor and Legislature have spared schools so far this year, but that could change if voters reject a complicated budget bailout plan on the March ballot.

But some of Manhattan Beach’s troubles lie much closer to home --in the form of anger over how the district handled money from two school construction bond measures: $47 million from 1995’s Measure A and $26 million from Measure M, approved in 2001.

The district refurbished all of its aging elementary campuses and built a middle school, but it ran out of money before it could complete all the promised projects at Mira Costa High. It used reserves for some of the construction and scrapped plans for a new library and a performing arts center at the high school while building a controversial new district headquarters. The board later hired Schools Services of California to investigate what went wrong (the report is due soon) and revived a bond oversight panel.

The construction problems, which surfaced publicly over the summer, became a top issue in the school board races. And many fear that the building controversies have added to a climate of distrust that may hinder future fundraising efforts.

“I’m not sure this is the year we want to do another panicky fundraising campaign,” said Carolyn Leserman, president of the local education foundation.

“This is the year to build trust,” she said. “Maybe we need to be mean and lean for a year and see what that feels like.”

Cooper, the new school board president, said he understands such hesitation but does not believe that Manhattan Beach residents will turn their backs on the schools in the long run.

“We have to reverse this trend” of spending more than the district receives, he said, but added: “Each time we’ve had a problem, this community has sought solutions and held the schools in high priority. I see no reason the community won’t do that again.”