Issue | Background | Findings | Conclusions | Recommendations | Responses | Attachments Summary of Problems in Fiscal

Conclusions 1

• CL1
  The financial reserves of the SMUHSD are dangerously low and will only improve if many of the dubious assumptions in the Second Interim Report approved by the Board on March 8, 2007, come to fruition. SMUHSD did not maintain adequate reserves for economic uncertainties to deal with unpredictable property tax revenues. The reserves do not approach either the State-wide average for basic aid school districts, or the County average. The District's precariously low reserves and the burden of COP payments have made it the only basic aid district in the County to experience a crisis of such an urgent nature. Adequate cost control measures and analyses were not used for Measure D construction projects. Expenses to the District were $74 million dollars (53.8 percent) over the amount authorized by the voters in November 2000. This shortfall was covered through the sale of COPs for a total of $74 million. In 2006, two COPs for a total of $30 million were sold without consultation with the County Superintendent of Schools as required by the California Education Code for school districts with a qualified certification. Financial reports to the Board of Trustees have been very limited. When the voters approved the $137.5 million Measure D bond in 2000, they were not informed that an additional sale of COPS would be required to finance the construction projects. Whether the sale of COPs was planned in advance or was necessitated by construction cost overruns is contested; varied opinions were expressed by those interviewed. Nonetheless, the borrowed funds (now estimated at $74 million) were not incorporated into the Measure M bond issue approved by the voters in November 2006 and will constitute an additional annual expense to the District through 2044. During construction, the Measure D Bond Citizens Oversight Committee met every two months, yet reported to the Board of Trustees just once a year. This committee's advisor was the previous Associate Superintendent for Business Services. Because they now believe that the financial accounting was inadequate, the committee has written a "Lessons Learned" paper (Appendix B) that describes how financial reporting on projects should be changed. The report also includes numerous significant points and suggestions that would be helpful to the Measure M Citizens Bond Oversight Committee, especially if the two committees meet and share their thoughts on "Lessons Learned." The Measure M Bond Oversight Committee should frequently report to the Board of Trustees and the public both the good and the bad news. The Board of Trustees should ensure that construction projects stay on budget; and if necessary, scale back individual projects to meet that goal. The District's fiscal crisis has shaken community confidence in the Board of Trustees and specific staff members, causing consternation among the parents and the community at large. Many parents are concerned about the quality of their children's education and of the reputation of their school district. Many teachers and classified staff were dismissed or reassigned on very short notice to meet demands by the San Mateo County Superintendent of Schools that the reserve be brought close to the State-mandated three percent level by September 29, 2006, to achieve at least a qualified certification and avoid a negative certification. Ninety-six percent of the SMUHSD Teachers Association who voted expressed "no confidence" in the Superintendent and an Associate Superintendent and called for their dismissal. Operation of a basic aid school district requires the Board of Trustees and staff to be conservative and to pay very close attention to the financial aspects of their district, including County tax collections and reductions in allocations. The District relies on property taxes and very limited State funding. Being a basic aid district has its rewards. For example, the funds available for each student are well above those in the revenue limit districts that make up the vast majority of California school districts. If a basic aid district is to gain the maximum benefit from these additional funds, the staff and Board of Trustees must be active and vigilant. They must ask informed questions and be open to public concerns. Communication with the community and the staff regarding finances has been poor. SMUHSD has not used adequate systems and procedures for monitoring and controlling costs. Employee agreements were negotiated before good financial data were available. SMUHSD used overly optimistic expectations of property tax revenues for budgets, and continued deficit spending for the last few years. Audited financial statements have not listed contingencies for potential loss from reduction in property tax allocations (most arising from successful property tax appeals) as required by financial accounting standards. SMUHSD has not used the services of outside advisors and analysts. It is not clear whether the analysis agreement with FCMAT commissioned by the County Office of Education and the SMUHSD Superintendent will cover all the necessary areas; it may be necessary to amend the agreement in May 2007 to continue external oversight until reserves are at a level acceptable to the State and the County Superintendent of Schools. A Grand Jury report may be released later this year addressing financial aspects of District operations, including construction contract administration and the sale of COPS.

No Responses Found 3

Government entities assigned to respond to this report. No response documents have been linked in our database.