The Newport-Harbor Exchange Club held their annual fundraiser at the Lido Theater this month. This year’s feature was "All Square" (see https://www.imdb.com/title/tt6927880/). The definition for this term is "to mutually clear all debts or obligations." (Except for the rough language, the movie provided humor, the dark side of human ambition, and, perhaps, redemption from inappropriate cycles that can be generational, passing from the father to the son.)
While driving down the street, the main character notices someone who owes him money unloading a large television from his car. The frustration? How can he purchase a new appliance, when he owes money to someone?
How can LAUSD give pay raises to the teachers’ bargaining unit when it has obvious and massive debts that need to be reduced? LAUSD has created such a deep hole, every resident of the district would have to fork over more than $4,200 each to be "all square." A pay raise? A new television? Who are we kidding here? The OC Register (digital) provides my insights in the submittal below.
For more, see MOORLACH UPDATE — LAUSD vs. OC School Districts — September 18, 2018, MOORLACH UPDATE — Judicious Budget — December 18, 2018. and MOORLACH UPDATE — Masking Fiscal Problems — December 10, 2018.
Can we prevent the LAUSD budget crisis from taking down the California state budget?
By JOHN MOORLACH | Orange County Register
Even as its teachers consider going out on strike, the Los Angeles Unified School District’s budget clearly is in crisis. The problem is so big it might wipe out whatever surplus the roaring California economy might generate in 2019 – and then some.
The LAUSD just released its Comprehensive Annual Financial Report, or CAFR, for the fiscal year ending June 30, 2018. As I have been predicting, the LAUSD’s new CAFR doubled the size of its negative Unrestricted Net Position (UNP), the best number I’ve found for judging financial soundness. The reason was, for the first time, municipalities are now required to include unfunded liabilities for retiree medical care on their balance sheets.
The unrestricted net deficits for 2016 and 2017 were $10.5 billion and $10.9 billion, respectively. For 2018 it is $19.6 billion, or 80 percent higher! That’s what a $15 billion obligation will do when it’s recognized.
In bureaucratic language, the CAFR itself explained, the negative UNP “is largely the result of net other postemployment benefit (OPEB) liability and net pension liability for various retirement plans.” They blamed this transparency on the recent accounting standard they just implemented.
According to Assembly Bill 1200 from 1991, called the Eastin Act, the state of California is required to maintain the financial soundness of public school districts. Since that year, nine districts have been given emergency loans under what’s called the AB 1200 System.
Until recently, CAFRs were hard to locate because they only were printed and likely lost to the world since many were not put on the internet. But here’s what I have been able to find:
· Oakland Unified’s UNP for 2003 was $48.7 million, in the negative. So the state’s 2003 emergency loan of $100 million was 205 percent of this deficiency.
· Vallejo City Unified’s deficit for 2004 was $16 million. So their 2004 emergency loan of $60 million was 375 percent of the negative UNP.
Looking at Oakland Unified’s history, doubling LAUSD’s $19.6 billion fiscal hole may require a $39.2 billion emergency loan from the state. Unfunded liabilities were not on the balance sheet in 2003; but even foregoing a multiplier, a $20 billion loan will be tough to make.
This coming year, the State of California might have a $15 billion general-fund budget surplus, plus the $15 billion in the Rainy Day Fund. Will this be sufficient to bail out the LAUSD?
What about the Public School System Stabilization Account from Proposition 2 in 2014, which was supposed to be on top of the Rainy Day Fund? According to a Nov. 14, 2018 report by the Legislative Analyst, “To date, these formulas have not resulted in any deposits being made into the school reserve.” The cupboard is bare.
In my October report on the CAFRs of all 944 California public school districts, I also ranked them by per-capita UNP. That was based on the population census of each district from the California Department of Education.
LAUSD ranked 922nd, at a negative $2,315 per capita, based on its 2017 CAFR; only a few districts were worse off. Using the LAUSD’s new 2018 CAFR, that number now jumps to a negative $4,180 per capita. This is what every man, woman and child would have to pay to get LAUSD out of its negative condition.
As 2019 progresses, revised data will come in for all the other 943 school districts, which will now include their respective retiree medical liabilities. If a substantial number of them also need emergency loans, where will that money come from?
For a partial solution, may I suggest that, as Gov.-elect Gavin Newsom crafts his first budget for release on January 10, he start funding the school stabilization account? Next, the new governor must assist the school districts in renegotiating retiree medical benefits, thus potentially reducing these unfunded liabilities.
California’s future is our kids’ future. So in addition to making sure our kids get decent educations, their districts should also be fiscally well managed and solvent. Don’t make the students suffer with the weight of unfunded liabilities on their tiny backs. The time to act is now.
John M.W. Moorlach, R-Costa Mesa, represents the 37th District in the California Senate
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