Can Oakland Unified Fix Its Finances?
Facing an $80 million budget deficit over the next three years, OUSD’s leaders are looking for structural solutions.
Photo by Lance Yamamoto
Financially, it’s been a bruising year for the Oakland Unified School District, and things are getting worse. After painfully slashing $9.5 million in December — the middle of the 2017-18 school year — the district’s board then cut another $5.4 million from the 2018-19 budget, all to avoid dropping its reserves below state-mandated levels, which could result in another state takeover.
But now, OUSD finds itself staring at a projected deficit that makes previous shortfalls look minuscule. Barring some unexpected increase in revenue, a combined $80 million in cuts will probably be required in the coming 2019-20 and 2020-21 school years.
The causes of the district’s financial woes are many. Declining enrollment has drained away state revenues that are tied to average daily attendance numbers. Students are leaving Oakland partly as a result of the region’s housing affordability crisis, which drives families out of the Bay Area. Charter schools — there are 44 in Oakland — siphon off some of the highest-performing students while imposing additional costs on the district. Special education program costs are rising faster than dedicated revenues, which mainly come from the state through a highly flawed funding formula. Required employee pension funding payments from the district are also outpacing new revenue. And for years, the district was unable or unwilling to control spending on new positions and contracts, which drained hundreds of thousands per year that wasn’t accounted for in the board’s approved budgets.
Last month, the board of education faced up to the reality of this ballooning crisis and voted on a resolution committing to “at least” $27 million in cuts to the 2019-20 budget. But the district’s leaders know it’s not enough to slash spending. They need to fundamentally reform OUSD’s financial practices so that they’re no longer taken by surprise. One goal is to never have to make painful mid-year cuts again.
The district has been criticized in several detailed reports over the past half year, first by the state Fiscal Crisis & Management Assistance Team and most recently by the Alameda County Grand Jury. Both pointed toward the need to instill better financial planning among the district’s staff and to change OUSD’s internal culture.
“On a positive note, we already have better systems in place,” said Aimee Eng, OUSD’s board president. Eng said that many of the issues raised by FCMAT and the grand jury are already being tackled. But she also acknowledged that there’s a long way to go.
One solution, said Eng, is administrators and board members have begun to receive training from the Government Finance Officers Association, an expert group that helps train public agencies on the best methods of budgeting, tracking spending, and avoiding deficits.
OUSD also has a new leadership team in its budget office, including Chief Business Officer Marcus Battle and interim Chief Finance Officer Wayne Hilty. Eng credits them with delivering much better information about the budget this year, and for being more transparent about the challenges the district is facing.
Oakland is also transitioning to a new enterprise software system, which can create efficiencies. District leaders say the new platform, called ESCAPE, which will handle finance, payroll, and human resources, is less error-prone, and it should lend itself to helping clamp down on one of OUSD’s biggest problems: unauthorized spending.
Another way the district has been addressing unauthorized spending is by monitoring the types of contracts brought forward for approval. At several recent meetings, directors have pulled contracts from the crowded “consent” portion of the agenda instead of rubber-stamping them.
One recent contract, a proposed $215,000 expenditure for bus transportation, was rejected by the board because it violated sound fiscal practices. Historically, however, the board has approved dozens of contracts with vendors without any discussion or review. Some agreements are voted on without competitive bidding.
OUSD Director Shanthi Gonzales said it will be difficult for the board to reform its contracting issues. “Each of us has a different base that we’re responsive to, that we’re trying to please, so it’s really complex when there’s wasteful spending,” she said. “We don’t all agree on what’s wasteful.”
Gonzales said that another positive new practice that all of the board members do agree on is multiyear planning. “OUSD had a long practice of only budgeting one year at a time,” she said, “but you need to project many years out.”
Gonzales said that Measure G1 is a good example of a large expenditure the district should have known was coming but didn’t plan for. The 2016 ballot measure helped raise $12.4 million per year for Oakland schools through a parcel tax, but it cost OUSD $700,000 to pay for the election expenses, an expenditure that came as a surprise and had to be worked into the budget after the fact. Similarly, Measure N, another parcel tax that raises millions a year for OUSD, will expire in 2024, and the district needs to be ready.
“There’s a cliff coming that we need to plan for,” said Gonzales.
The district recently adopted a policy of long-term financial planning, which was reflected in the most recent budget that was passed with the inclusion of three-year projections of revenues and expenditures.
“They’re starting to do a better job looking at the trends instead of just a snapshot,” said Angelica Jongco, a senior attorney with Public Advocates who focuses on education equity. “There’s a growing awareness [that] to be able to serve students, the district needs to think in a multiyear way. The problem is too big to fix in one year.”
But Jongco said that for all of OUSD’s flaws, many of its most difficult financial problems are actually structural and rooted in how the state pays for education.
“The fundamental problem here is that our public schools are not adequately funded,” she said.
One area of underfunding — and there are many — is special education. Currently, the state’s formula for determining a school district’s special education allocation is based on the overall student population, not the actual percentage of students within a district who need special education services in order to flourish. For a district like Oakland, which already has a higher proportion of special needs students than many other districts, this means there’s less money than what the students deserve. Combined with the presence of numerous charter schools, which tend to push special education students onto the district, OUSD has seen its revenues for special education rapidly outpaced by the program’s cost.
But with better planning, the district can do something to cut costs while improving special education services, said Eng. Currently, OUSD’s special education programs aren’t as geographically accessible as they should be.
“If we’re more strategic about placing programs closer to families, then we don’t have to be transporting students all the way across the district,” said Eng. And transporting special education students from home to school is a major budget item for the district that could be trimmed while simultaneously improving the experience for students and families.
One of the other major internal problems that OUSD faces is high turnover among the staff. The district has seen an unusually large number of administrators and teachers come and go over the past decade. With them goes experience, which makes the system more efficient.
“Kyla has been really focused on retention and organizational culture,” said Eng, referring to OUSD Superintendent Kyla Johnson-Trammell, who was hired internally last year after a search which, according to district officials, prioritized a leader who shown a willingness to stick around.
“We need stability in staff,” Gonzales said. “Too much information is living in people’s brains and it’s not the ingrained practices of the district or captured in a policy manual.”
But whatever the district does to tighten its internal financial controls and change its culture, there’s broad agreement that it can only go so far in a state that systematically underfunds its public schools. Despite being the richest state in the wealthiest nation in the world, California spends less than the national average per pupil.
“There have been missteps by OUSD leadership,” said Jongco. “But what’s unfortunate about that storyline is that it allows state leaders — the legislature and governor — to absolve themselves. What’s happening in Oakland is not just due to the district’s decision-making.”