MOORLACH UPDATE — Fountain Valley Elementary — November 10, 2018

Let’s accentuate the positive and celebrate that the Fountain Valley Elementary School District has a positive unrestricted net position (UNP).

That was cause for the OC Register to find out why. Every school district has a different story. This district has a unique one and it is provided in the first piece below.

The key quote was made by the spokesman for the Orange County Department of Education, concerning the UNPs. “’They do . . . signal a need to develop long-range plans (regarding pensions), and this work is already taking place,’ [Ian] Hanigan said.” also provides its perspective on the fiscal circumstances and also gives Fountain Valley Elementary School District a positive mention.

Why do we care? Because the long-term liabilities creating these massive unrestricted net deficits will find that the students currently in these school districts won’t likely see these obligations paid down by the time their children, and maybe their grandchildren, are going to school unless massive budget changes are made now.

At least by one measure, Fountain Valley Elementary is Orange County’s lone district not in the red

When public-spending watchdog John Moorlach singled out Fountain Valley Elementary School District as the one and only in Orange County boasting a positive balance sheet, Superintendent Mark Johnson didn’t take the honor personally.

“It’s largely due to the decisions of people who came before me,” he modestly responded. “I’ve only been superintendent for four years.”

In a column that ran last month in the Orange County Register, California State Senator Moorlach wrote that out of the county’s 27 public school districts, only Fountain Valley Elementary is in the black.

According to his math, Moorlach said, Fountain Valley Elementary clocks $78 per capita – putting it in the top 10 percent financially of California’s 944 school districts.

“It’s all negative after that,” he said. Laguna Beach is Orange County’s “second best” at minus $223. Santa Ana Unified, at minus $1,805, places last.

A certified public account, Moorlach found fame after predicting the county’s bankruptcy in 1994. He served as Orange County Treasurer-Tax Collector from 1995 to 2007.

Moorlach still enjoys crunching numbers.

“I like to open the hood and see what’s inside,” he said in an interview. “And what I’m seeing is massive debt.”

Over the past few months, Moorlach has been studying the financial soundness of not only school districts but also cities and colleges. For school districts, he scoured online annual financial reports. Then he divided each district’s “unrestricted net position” figure by its population.

And only Fountain Valley Elementary, a century-old district that oversees 10 elementary and middle schools, won bragging rights.

“We’re thrilled whenever we get positive press,” Johnson said. “But most districts do a great job managing their budgets thoughtfully. We have a few advantages. Because we’re small with fewer employees, we don’t have the same scope or scale of unfunded pension liabilities that other districts face.”

Serving about 6,300 students, the district has 680 employees.

By comparison, SAUSD has 48,000 students and 5,000 employees. Superintendent Stefanie Phillips said that in a larger picture, taking into account other factors than the measure used by Moorlach, the district is solvent and paying its bills.

“Are we about to go bankrupt? I don’t think so,” Phillips said with a laugh.

Moorlach’s figures “do not represent a balance due,” said Ian Hanigan, spokesman for Orange County Department of Education. Rather, they reflect a change in reporting requirements for public agencies, which, starting six years ago, must report all unfunded liabilities for pensions.

“They do, however, signal a need to develop long-range plans (regarding pensions), and this work is already taking place,” Hanigan said.

Every district in Orange County, including SAUSD, has a “positive certification” – meaning that each can meet its financial obligations for the current year and the two subsequent years, Hannigan said.

Fountain Valley Elementary benefited from “an extremely fortunate” windfall of $35 million from property sell-offs over the first decade of the 2000s, Johnson said.

“The community of Fountain Valley underwent a population boom in the ’70s and ’80s,” Johnson said. “That’s why so many schools opened in a short period of time. But the population has aged, and many people here are original homeowners without school-aged children. So we found ourselves with nine surplus schools.”

The district held on to one of those properties – “just in case we need it,” Johnson said – and sold the rest. “Then the board made the wise decision to put the proceeds from those sales into a conservative investment portfolio,” he said.

Over the years, proceeds from the investments have gone toward modernization of school sites, he said: “The principle remains invested, and each spring we have a conversation about our priorities and where we need to allocate money.”

Johnson declined to judge the financial prowess of other districts.

“We really do believe that school districts in general do an extraordinary job working for the futures of our children,” he said. “Larger districts manage huge budgets. For them, $35 million wouldn’t go as far as it does for us.”

However, it’s not all luck. The district could have frittered away the initial lump sum “on all sorts of things,” Johnson admitted.

“Instead,” he said, “we are committed to using it as an ongoing revenue stream.”




The Orange County lawmaker — who serves on the Senate Budget & Fiscal Review Committee and its education subcommittee, and is often credited with predicting Orange County’s 1994 bankruptcy — sounded the alarm in a report last month analyzing financial statements from the state’s 944 K-12 school districts.

More than 85 percent of the districts reported deficits on their balance sheets, which he says indicates a coming “tipping point into insolvency and receivership.”

“The Moorlach Report is a flashing caution light to almost every public education budget in California. Unless things can change quickly, taxpayers can expect new levies, and post-secondary students and parents should fear higher tuition,” according to a press release.

Here are some key findings provided by Moorlach’s office:

• About two-thirds of California’s 944 public school districts run negative balance sheets. These statements show the most distressed districts could soon reach a tipping point into insolvency and receivership.

• Of the state’s large school districts, those in severe distress include Los Angeles Unified School District, with a negative $10.9 billion balance sheet; San Diego Unified at negative $1.5 billion; Fresno Unified at negative $849 million; and Santa Ana Unified at negative $485 million, the worst in Orange County.

• Of Orange County’s 27 public school districts, only one, Fountain Valley School District, is in positive financial territory.

• One bright spot is the 58 county boards of education. At least 51 of them have manageable per capita unrestricted net deficits of -$159 or less, with 14 in positive territory.

• Of the state’s 72 community college districts, only one enjoys a positive unrestricted net position (UNP).

• Cal State University’s balance sheet is negative $3.66 billion.

• The University of California’s balance sheet bleeds red ink all over the state, at negative $19.3 billion. Worse, that will double next year, to $38.6 billion, when retiree medical is included.

Read the full report here.


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