School District Financial Management and Measure S

By Michael Rich

On May 8, 2003, I gave a report to the Santa Monica-Malibu School Board on the work of the District’s Financial Oversight Committee, which I chair. The report included our independent assessment of the District’s financial situation; an evaluation of both the District’s ongoing efforts to strengthen its financial management practices and its recent efforts to grapple with the immediate financial crisis; and an appraisal on Measure S, the school funding measure now pending before District voters.

The Committee consists of citizens from Santa Monica and Malibu with a wide array of financial management expertise in the private, public, and nonprofit sectors. Since our establishment three years ago, we have had complete access to the District’s plans, budgets, expenditure reports, projections, and external audits. We have made dozens of recommendations beginning in 2001 and have tracked the District’s response to each and every one.

There should be no mistake: Our public schools face a serious financial crisis. Most of the roots of the crisis are external to our District, which is why every school district in California faces major challenges right now. This is because K-12 education is heavily dependent on state revenues and thus it is exceedingly sensitive to statewide business cycles. With the state facing a deficit of more than $35 billion, the effects on K-12 funding are substantial: $2.4 billion in mid-year cuts this year and $2.5 billion or more looming for next year.

Our District is especially vulnerable because it has developed and maintained an unusually wide array of educational programs and a highly qualified and experienced teaching staff. The state reductions translate into cuts of at least $12 million for the 2003-2004 school year and an additional $3 million more in cuts the following year.

The District will have to eliminate nearly 103 full-time certificated positions and 25 more teachers in specialized positions. These necessary steps will mean curtailment or elimination of the District’s nationally acclaimed elementary music program, pre-school programs for low- and moderate-income children, and the availability of advanced-placement courses, among other things.

Based on our work, I made five major points to the Board:

First, and most important from the standpoint of the Oversight Committee’s charter and mandate, the school district has made and is making significant progress on strengthening its financial planning and management practices, even as it deals with the prospects of enormous additional cuts in State funding.

Second, the District’s initial steps to address the major challenges of the next few years are well thought-out. The District has developed a systematic framework to guide its tough decisions about required programmatic cutbacks and eliminations, together with a detailed plan of prioritized “put-backs” should new sources of revenue become available. These priorities emphasize the quality and breadth of the District’s academic programs, just as they should.

Third, successful passage of Measure S -- the School Funding Measure -- is essential for several reasons: It will reduce the magnitude of required cuts, though, of course, it will not eliminate the need for cuts entirely; it will assist the District in continuing to improve its business practices; and, it will increase the District’s ability to build its reserves when the State economy improves. It is the surest and most direct way of providing the schools with a stable flow of funds within the restrictive legal constraints within which school districts must operate.

But, passage of Measure S will not be sufficient, which led me to my fourth point: The District must continue its progress on both financial management improvements and revenue enhancements. Fortunately, the District has plans to do just that.

Finally, I expressed the unanimous sentiment of the Committee that we are willing to continue to help the District’s management and the Board, especially with carrying out the strict accountability provisions of Measure S.

There are no easy or simple solutions to the problems of school finance in California. It’s tempting to believe that no additional revenue is needed if only the schools would get their financial practices in order, just as it is tempting for others to believe that all the educational programs our children deserve could be sustained if only the schools had more money.

While both are tempting, neither view, in isolation, is correct. That is why the Financial Oversight Committee has consistently emphasized that improved financial management and new, stable streams of revenue go hand in hand. The District has made great strides toward strengthening its financial management. Passage of Measure S is the best option available for strengthening its stable stream of revenue.

(Eds. Note: Michael Rich is Chairman of the SMMUSD Financial Oversight Committee)