Schools Put on Fiscal Watch List

Battered by budget cuts and spiraling employee costs, more than a dozen community college districts across California have been placed on a state fiscal watch list because of their precarious financial condition.

The move means that community college budgets in Compton, Glendale, Santa Monica, Ventura County and several other areas will be closely monitored by the state chancellor’s office until they are able to regain their standing. The districts were named in a list drafted last week, and officials cautioned it may be revised.

Districts must file recovery plans with the state, scour budgets for further cost-savings and may be asked to renegotiate labor contracts, said Robert Turnage, the community college system’s vice chancellor for fiscal policy.

In extreme cases, the chancellor’s office could step in and take over a college’s operations -- something Turnage said was not yet being contemplated for any campus.

“That’s like dropping the atom bomb,” Turnage said. “You don’t want things to deteriorate to that point. This whole thing is designed to make sure that contingency doesn’t have to happen.”

Just two years ago, none of the state system’s 108 colleges were considered financially unstable, Turnage said. But as many as 15 colleges could bear that unwanted distinction when the chancellor’s office presents a finalized list to the state’s board of governors today.

After nearly a decade of healthy growth, community colleges have been struggling with soaring worker’s compensation, health care and pension costs. Then, last spring, the college system took a $161-million state budget cut midway through its funding cycle, necessitating widespread faculty layoffs, reductions in classes and fee hikes.

Several colleges turned to their reserve funds to cover some of the losses, Turnage said.

“The last 18 months have been hell for community college funding,” he said. “Some have been able to weather the shock better than others.”

State officials examined several indicators of financial health in making the list, Turnage said. Key was the percentage of reserve funds a college carries from year to year, he said.

The chancellor’s office recommends that colleges maintain a reserve equal to 5% of operating budgets to help ease problems with cash flow and to deal with unexpected cost increases. Most of the targeted districts had dropped below that standard, he said.

But three -- Compton, Santa Monica and Palo Verde -- are operating at such lean margins that they have been directed to take immediate corrective action.

Sierra College, in the suburban Sacramento area, was also listed as a high-risk “priority 1” campus on the draft list. But it is expected to be removed today, a Sierra College official said Tuesday, because state officials have agreed it was placed there in error. Officials said the San Diego district is also expected to be removed.

Turnage confirmed that one college would be taken off the list, but declined to specify which one.

A spokesman for Santa Monica College said the board of trustees, faced with tough budget decisions last summer, chose to dip into reserves rather than lay off teachers. Reserves are at about 1% of budget, an admittedly “razor-thin” level, said spokesman Bruce Smith.

“What this really indicates is that tough choices had to be made,” Smith said. “And the choice we made was to keep our reserves at a very low level rather than make painful cuts that will hurt our services.”

Officials at Compton and Palo Verde, in Northern California, could not be reached for comment. Turnage said Compton and Santa Monica have been on the watch list for two years running.

No one likes landing on the watch list and local governing boards usually make every effort to stay off it, several college administrators said.

But last year’s state cuts were so painful that many colleges had little room to maneuver, said Bill Studt, chancellor of the three-campus Ventura County district.

It offered early retirements to 47 faculty members and 37 managers and supervisors. It also laid off 33 staff members and trimmed 5% of its classes.

Despite those efforts, the district ended the 2002-03 fiscal year with just 3% in reserve, Studt said. At the same time, the district is facing $600,000 in state fines because it has failed to comply with a regulation requiring that at least 75% of its faculty be full-time instructors.

The Ventura County district is petitioning the state for relief from that rule, at least temporarily, Studt said. Five other college districts are doing the same, citing the higher cost of full-time staff compared with part-time.

Double-digit increases in health care coverage and retirement rates are also a major factor, Studt said.

“We will be able to solve these problems; it just won’t be easy,” he said.

Glendale College’s reserves slipped to about 3.8% this year, even though faculty and staff agreed to take a 1% pay cut and 20 people were laid off, said college President John Davitt.

Like several of the districts on the list, Glendale is a so-called “low-revenue” district. Because of vagaries in funding formulas, Glendale and several other colleges receive up to $300 less per student than other districts, such as Los Angeles, he said.

“It’s not something we are panicked about,” Davitt said. “If we were a priority 1, then we would be a lot more worried. But it’s not a list we like to be on.”

Erin Cohn, spokeswoman for the Coast Community College District in Costa Mesa, said the district has been forced to dip into its reserves because of cuts of nearly $15 million in state funds over the last two years. Reserves stand at $5.3 million, 4% of the district’s general fund.

In addition, she said, the district has had to pay increases in health care costs and contribute more money into its employees’ retirement fund.

“If this isn’t a contingency, I don’t know what is,” Cohn said.

She said Orange Coast College, one of the three two-year colleges that make up the district, has cut hundreds of classes this academic year and that 60 professors who retired as a result of an incentive program for faculty have not been replaced.

The funding crunch is not limited to the colleges, Turnage said. The state chancellor’s office in Sacramento has been hit so hard in the past two years that one-third of its staff has been let go, he said.

All of the colleges, meanwhile, are bracing for another round of cuts, either this year or next. Budget managers will be listening hard when Gov. Arnold Schwarzenegger unveils next year’s budget Friday, Turnage said.

“We are hoping that the budget the governor is proposing will at least give the system the necessary resources to stabilize things and begin to turn them around,” he said.

Times staff writer Jeff Gottlieb contributed to this report.

*(BEGIN TEXT OF INFOBOX)

Watch list

The state community colleges chancellor’s office has compiled this draft list of college districts requiring close review of their financial condition. The list is based on the severity of problems faced by each district, with Priority 1 being the most critical. Districts must file corrective action plans with the state and scour budgets for areas of further savings, and they may be asked to renegotiate labor contracts. In extreme cases, districts may face takeover if they fail to meet certain requirements.

Priority 1

Compton

Palo Verde

Santa Monica

Sierra*

Priority 2

Glendale

Marin

Ventura

Peralta

San Diego*

West Hills

Priority 3

Contra Costa

Imperial

San Francisco

Victor Valley

*College officials say that the state made an error and that these schools will be removed from the list.

Source: California Community Colleges Chancellor’s Office

Los Angeles Times