Thu 01/19/2023 13:42 PM
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Relevant Documents:
Ventura County Letter
Fiscal Risk Report
Agenda

Ojai, Calif.’s school district faces a deadline of tomorrow, Friday, Jan. 20, to submit a detailed $2.3 million personnel expense reduction plan to the Ventura County Office of Education, or VCOE, as state and county officials warn that the school district faces imminent insolvency unless dramatic measures are taken. During a Wednesday, Jan. 18, meeting, the governing board for the Ojai Unified School District, or OUSD, agreed to hold a special meeting Friday to consider a personnel cuts plan. The board will also meet again on Monday, Jan. 23, to discuss school consolidation options.

The Jan. 20 deadline for the jobs cut plan was set by Ventura County Schools Superintendent César Morales in a Jan. 12 letter to the OUSD governing board. Morales said the county is downgrading its certification of the district’s first interim report for the period ending Oct. 31, 2022, to “negative” from “qualified” after determining that the district “will be unable to meet its obligations” in fiscal 2024. Meanwhile, a Jan. 13 fiscal health risk assessment by California’s Fiscal Crisis and Management Assistance Team, or FCMAT, found that the school district is “at high risk of insolvency” and highlights its revenue loss from a year-over-year enrollment decline as a “significant concern.”

During last night’s board meeting, OUSD Superintendent Tiffany Morse told the board that the administration expects that an upcoming audit on district financial operations “will identify further issues that we will need to address.” Board members also discussed both the VCOE letter and the FCMAT report during the meeting.

The OUSD reported outstanding long-term liabilities of $55.05 million, including $51.55 million of bond debt, as of June 30, 2021, according to its fiscal 2021 audited financial statements. The long-term liability grew 34.1% during the course of the year from $41.05 million at the close of fiscal 2020, according to the report. The district’s outstanding general obligation debt is “significantly below” the state’s statutorily imposed debt limit of 5% of the assessed value of all taxable property within district boundaries.

The district’s net pension liability totaled $29.69 million at the close of FY 2021, 12% above the $26.51 million in net pension liability reported at the close of FY 2020. OPEB liability, meanwhile, increased 8.6% during FY 2021 to $10.11 million as of June 30, 2021, according to the report.

Jan. 18 Board Meeting

During Wednesday’s meeting, board members acknowledged that the job cuts plan would be based on “broad categories” of employees rather than the detailed description of eliminated positions sought by the county but said they need additional information from the district in order to provide such detail. Board members also said the school consolidation plan would help drive decisions about personnel cuts and noted they have until March 15 to publicly announce positions to be eliminated and could further refine the plan in the coming weeks. The job cuts would take effect on June 30, according to board members.

Morse said the administration has already identified $1.5 million in personnel cuts that are positions currently paid for with one-time federal Covid-19 pandemic funds, which are expiring. Morse indicated additional positions would be eliminated through a school consolidation plan. Board member Jim Halverson said the school consolidation is expected to save $250,000 annually for each site shuttered and that a plan is being reviewed to consolidate four elementary schools into two.

Halverston and fellow board member Phil Moncharsh argued against submitting the personnel reduction plan despite the deadline set by the county until the board had more details about the plan, expressing doubt that county could take additional punitive action against the district. Other board members, however, asserted the board should comply with the deadline even if it will have to be revised.

Board member Shelly Griffen said the board has already been “slammed” in the past for not addressing previous county directives, and member Atticus Reyes said county officials have indicated that “the meat and potatoes” of a cost reduction plan will come through personnel cuts. About 85% of the district’s costs are for personnel.

VCOE Letter

The VCOE’s finding that the district will be unable to meet its obligations in FY 2024 stems from a review of the Ojai district’s first interim report for the period ending Oct. 31, 2022, according to the letter.
Ventura County schools chief Morales explains in the letter that negative certification stems from “inaccurate and inadequate information” in the first interim report and “our cash flow analysis demonstrating the District will deplete all cash before the end of the fiscal year 2023-24.”

Morales noted that the county’s analysis, which takes into account “unsubstantiated revenue and omitted expenses,” shows “a potential negative result to the District’s multiyear projection of a three year impact totalling $5.6 million.” This indicates that the Ojai district will not be able to meet required reserves in fiscal 2023 and fiscal 2024 and will have a negative general fund balance of $3 million in fiscal 2025, according to the letter.

“In addition, based upon our projection of the District’s cash balances, there will be an inability to pay employees and vendor obligations through 2023-24 without intervention and immediate reduction of expenses,” the letter warns.

The Ojai district had identified a personnel reduction plan for 2023-’24 of $1.15 million, but Morales said that has to be increased to $2.3 million to account for inaccuracies in the interim report. “The March 15, 2023 layoff timeline for certified and classified positions is imminent, and the District must ensure the implementation of position reductions and associated total cost reductions,” Morales said in setting the Jan. 20 deadline for the new personnel reduction plan.

“It is highly recommended that more than $2.3 million of reductions are identified and acted upon to account for the potential seniority and particular kinds of services challenges, when reducing positions,” the letter adds.

The negative certification provides the VCOE with authority to undertake a number of extraordinary actions, and Morales said the county agency will be assigning a fiscal expert to work at VCOE’s direction to help improve the Ojai district’s business processes and the accuracy of its budget and actual expenditures. The district will cover 75% of the expert’s pay, with VCOE picking up the remaining 25%.

With the negative certification, the Ojai district must also get VCOE approval for any new debt issuances, including tax revenue anticipation notes and certificates of participations, and submit any new collective bargaining agreements to VCOE for review prior to adoption. The negative certification also makes the district subject to an audit by the state comptroller, according to the letter.

Fiscal and operational concerns cited in the letter include the failure of the district to include health and welfare costs for several active employees and retirees in the first interim budget and current monthly payroll expenses, causing a $500,000 understatement of expenses for the current and two subsequent years. The district also must account for a $400,000 health and welfare liability from fiscal 2022 and a $730,000 understatement of pension expenses in fiscal years 2023 and 2024 that is causing an overstatement of general fund ending balance estimates for those years.

During the Jan. 18 board meeting, OUSD’s Morse said the VCOE letter “is especially painful” after she informed the board last month that the district was “headed in the right direction,” which she said she believed to be true at the time. “To find out that there are issues we have to fix that we did not know about or we did incorrectly is crushing; it feels like it erases months of hard work that we have done,” Morse said. Morse took responsibility for the lapses that led to the VCOE action. However, the local Teachers Federation announced at the meeting that the group does not support Morse as superintendent and called for new leadership of the school district.

FCMAT Report

The FCMAT report, which is the result of a September 2022 agreement between the district and FCMAT to conduct a review of the district’s fiscal health, focuses on the period of the district’s 2021-’22 second interim report, covering July 1, 2021, through Jan. 31, 2022. The FCMAT report was completed in March 2022. In addition to warning that “difficult decisions” need to be enacted “quickly and decisively” to avert fiscal insolvency, the report also notes that the district has been without a qualified chief business official since June 2022. The report also identifies the following “significant risk” factors:
 
  • Budget development and monitoring;
     
  • Inadequate cash and cash management;
     
  • Analysis and disclosure of tentative collective bargaining agreements;
     
  • Deficit spending;
     
  • Enrollment and attendance projections, analysis, processes and procedures;
     
  • Erosion of the unrestricted fund balance and inadequate reserves; and
     
  • Internal controls and position control.

“These factors require considerable staff training and cross-training, documentation of procedures, and a significant focus on budget development and monitoring activities to ensure accuracy of the budget, multiyear financial projections and cash flow projections,” the report warns. “These risk factors will also require the governing board and administrators to continue to make and implement difficult decisions to ensure that the district remains fiscally solvent. Failure to act quickly and decisively may result in fiscal insolvency,” the report adds.

Diane Branham, FCMAT chief management analyst, provided an overview of the report during the Jan. 18 meeting and highlighted that a major challenge at the district is a lack of trained financial employees to undertake required budgeting and reporting work. “The constant churn of people isn’t helping,” Branhan added, indicating that once staff receive financial training, they often move on to other jobs.

Branham reported that the OUSD board approved a $5 million tax and revenue anticipation note issuance in June 2021, but because the second interim report does not include a line item for current loans, “it is unclear how much the district borrowed and when the funds were to be repaid.” The report also lacks a cash flow projection for the upcoming fiscal year so the district is “unable to determine if it has sufficient cash to support its projected obligations.”

FCMAT said the second interim report shows unrestricting fund balances declining to $493,495 in 2023 -’24 from $783,920 in 2021-’22. The report did not include “nonspendable components of ending fund balance for revolving cash and stores, which would have further reduced the available reserved,” according to a FCMAT presentation to board members.

Branham also discussed the erosion in OUSD enrollment, which extends back seven years. Enrollment fell more than 5% since the 2019-’20 year and stood at 2,244 at the close of the 2021-’22 year. Board members said the enrollment decline is expected to reduce district revenue by about $2 million over the next couple of years and then stabilize at that lower level.

FCMAT was created as “an external, independent agency of the state” through a 1992 state law to help local educational agencies, or school districts, comply with fiscal accountability standards by providing management assistance and fiscal crisis intervention. Branham said its aim is to keep districts from becoming insolvent and having to take out a state loan. The 2018-’19 State Budget Act calls for mandatory FCMAT intervention, including a fiscal risk assessment, when district budgets are disapproved or when interim report certifications warrant action.

FCMAT intervenes in an average of 15 to 20 school districts annually but noted there has not been a “state takeover” of a school district for 10 years since the Inglewood, Calif., district faced insolvency, according to Branham.
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