Cash flow issues, problems with fiscal oversight and an usually high personnel turnover in the business office – resulting in missed deadlines, administrative mistakes and even the accidental cancellation of employee health benefits – prompted the Santa Clara County Office of Education to step in and force Gilroy Unified School District to get its financial house in order.
Since notifying GUSD in January of its “serious concerns surrounding the district’s fiscal solvency” and “state of turmoil in both managerial and staff-level positions,” the SCCOE on Feb. 1 sent Fiscal Advisor Nimrat Johal down to Gilroy to straighten things out.
A month later, Superintendent Debbie Flores says teaming up with the county ultimately proved to be beneficial.
The collaboration has resulted in cash-flow solutions that will keep the district afloat until the state delivers a significant payment due to Gilroy Unified related to the passage of Proposition 30, a sales and income tax increase, which passed on the November state ballot.
To rectify the cash flow problem, the district will receive a $3.8 million loan from the county for operating expenses and borrow internally against its capital facilities fund.
That’s a better deal, according to Superintendent Debbie Flores, than taking out a costly Tax Revenue Anticipation Note (known as a TRAN) – something the district, like many others in California, has done for the last several years in order to cope with continued state deferrals of school funding. The county loan will save the district about $80,000, Flores said.
Acknowledging that it’s “rare in any county for a county office to take over the district,” Flores said, “We’re not downplaying this. We knew we needed some technical assistance and we had some critical inconsistencies (in the business office) that were, quite frankly, killing us.”
Flores says GUSD’s fiscal house is on its way to being stable again. The County-appointed fiscal advisor, Nimrat Johal, who is working at the district office, says “it’s too early in the game to say that we’ve made significant progress, but I will say the silver lining is that we’re working collaboratively and cooperatively…speaking with (district staff), the general idea that they’re conveying to me is that they’re really glad we’re here.”
Johal says additional assistance from the county has been a “morale booster” that helped bring focus back to the district office.
County involvement with GUSD’s financial problems snowballed in winter after GUSD submitted it’s First Interim Budget Report, which included information about the district’s revenue and expenditures for the current fiscal year, along with projections for two subsequent years.
The SCCOE, which rates these reports, changed the rating for GUSD’s report from “positive” to “qualified.” This type of rating essentially means GUSD has enough money to meet its financial obligations now, but not two years out, Johal explained.
A report status change, such as the one GUSD experienced, “is not common,” she said.
There is no simple explanation, however, for the factors that led to the county’s declaration of “concerns surrounding the district’s fiscal solvency.”
It certainly includes “the idiotic way the state funds school districts,” as School Board Trustee Mark Good puts it.
California has, for several years now, continued to defer a certain amount of school funding by rolling it back to the next fiscal year. For GUSD, this equates to 30 percent of its operating funds.
“Can you imagine running your business if 30 percent of your revenue had been given to you in July?” said Flores, painting an annual deferred payment scenario that GUSD has faced for several years now.
And then there was the furlough finagle.
In anticipation of more state cuts and pending the outcome of Proposition 30, the GUSD Board approved 10 unpaid furlough days for staff this school year that would have saved the district $11 million.
But then in November, voters – rather unexpectedly – passed Proposition 30, and, acting in accordance with a contract agreement that was already in place if Prop 30 passed, GUSD canceled the 10 furlough days. Then, the state informed the district that Prop 30 funds would not flow into the district until June 2013.
The unknown delay “increased the district’s cash flow problems,” Flores explained.
Other issues added to GUSD’s monetary challenges, playing a hand in attracting the county’s concern.
This included deficit spending; some questionable audit findings such as an “overpayment” of $2.3 million for health and welfare benefits (Flores notes: a check for this was issued, but canceled); failure to submit a collective bargaining agreement to the SCCOE in advance before approval; failure to apply for a special hardship waiver that could have exempted GUSD from state deferrals in the first place; and a missed payment to Kaiser Permanente that caused employee’s benefits to be temporarily canceled.
“I’ve been a superintendent for 13 years, and I’ve never had this happen,” said Flores, of the missed Kaiser payment. “At first, I didn’t believe it.”
There were a number of “behind-the-scenes things that (the School Board) didn’t see necessarily that were missed,” Trustee Jaime Rosso explained. “And then, after the fact, we found out what we could have done about it.”
Many of these mistakes stemmed from a chronic high turnover rate in the district’s business office; something unanimously acknowledged by Flores, Rosso, Good and SCCOE Superintendent Xavier De La Torre, who in a Jan. 23 letter reminded GUSD that “these positions are critical to achieving and maintaining fiscal solvency.”
The turnover of fiscal directors as well as accounting supervisors, health benefits clerks and purchasing agents, not to mention the inconsistency in workflow due to temporary employees “has been horrible,” agreed Good. “And as a result, there were some errors made.”
Flores – who called this problem extremely “frustrating” – says that now, for the first time in her six-year tenure, the business department is fully staffed and that an aggressive recruiting endeavor landed GUSD three “top notch” employees for the business office.
“We will have a strong team for the first time in a while,” Flores said.
With a promising trio of new staffers and assistance from the county in addressing their cash flow issues, “the silver lining is that we’re going to get this resolved,” said Rosso.
Johal steers away from finger pointing or re-hashing the particulars of administrative mistakes. She directs attention to where GUSD sits now, and what the district is still working towards.
“Hindsight is 20/20,” she said. “We can all see several things that perhaps should have been done and could have been done, but they weren’t – and that’s just water under the bridge. Flores is very supportive of everything that the county has recommended thus far. We have a lot of faith in Debbie. She has always done the right thing for the right reasons, and the (school) board is so supportive of the district.”
