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What Happens if City Schools Go Insolvent

The superintendent would be fired. The school board would become an advisory body. An appointed trustee would be in charge. And the state would be involved in San Diego Unified’s business for a long time.

 

Last week, top officials said the San Diego Unified School District is on the brink of financial collapse and may require a state takeover to remain afloat.

So what does that mean?

A takeover would push the state to loan the district millions of dollars to pay for its bills. Declaring insolvency would spur radical changes in the district’s operations.

In exchange for the loan, the law requires local officials to hand over control of the district to the state. Ironically, it would either fire or relegate the top two officials that are sounding the district alarm, Superintendent Bill Kowba and board President Richard Barrera.

Here’s how the beginning steps would unfold:

• The superintendent would be immediately fired and replaced by a state appointed administrator.

• The school board would lose all powers and become an advisory panel.

• The state administrator would essentially become the district’s new leader and have the power to unilaterally make decisions, such as which property to sell, what academic programs to cut, which schools to shutter and who to lay off. After labor contracts expire, the administrator could impose district-wide cuts to pay and benefits.

No longer beholden to an electorate, the administrator could make politically unpopular decisions in the community that can be difficult for a board to make under pressure from parents and teachers. The school board, employees and residents could still offer their input on major decisions, but the administrator could ignore them.

After a few years, if the district appears to be on the right track, the state could return some control of the district to local officials. The district could hire a superintendent and the school board could get some its old powers back.

But until the loan is repaid with interest, the state would remain a fixture in the district’s affairs. Though the superintendent and school board could make financial decisions, a state administrator or trustee could veto them.

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The length of a state takeover depends on the size of the loan and the district’s repayment schedule. The state issued a $100 million loan to the Oakland Unified School District in 2003, for example, and it’s expected to be repaid in 15 years from now. (Randy Ward, the San Diego County Office of Education’s superintendent, previously served as the state-appointed overseer for Oakland.)

The road to insolvency also isn’t a quick one. If San Diego Unified or County Office of Education officials deem the district insolvent, its financial books would likely undergo months of review before the state writes a check. A state legislator would have to propose a loan and have it be signed off by the Legislature and the governor.

So what’s next?

The dire warnings issued last week by district leaders marked a significant escalation in its battle with the state.

District officials are closely watching the state to figure out whether it will cut an estimated $30 million from the district’s budget this year. The cuts are tied to economic indicators. If the economy improves and the state collects more taxes, it won’t make the cuts. If the indicators fall below state goals, as they have been recently, the cuts will happen.

The district finds itself in this situation as a result of the state’s financial condition and a series of self-inflicted wounds that compounded the state’s woes, our investigation last month found.

Check out our reader’s guide for a quick three-step wrap up of the district’s money mess.

Keegan Kyle is a news reporter for voiceofsandiego.org. He writes about public safety and handles the Fact Check Blog. What should he write about next?

Please contact him directly at keegan.kyle@voiceofsandiego.org or 619.550.5668. You can also find him on Twitter (@keegankyle) and Facebook.

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