Oakland Unified, like many Bay Area school districts, will not be able to pay its bills at some point in the new few years unless it addresses the fact that it’s spending more money than it gets each year and has relied on unpredictable windfalls to get by.
This year, the East Bay district is fine. Next year, the city’s public schools look fiscally solid as well.
But three or four years out, when the $300 million the district got in federal and state pandemic recovery money runs out, there’s a big question mark over its financial stability, depending on what officials do in the interim.
Oakland Unified’s fate hangs in the balance, with an upcoming election for three school board seats, as well as a county superintendent race, likely to determine what happens next.
In recent months, district leaders have taken dramatic steps to avoid plunging off a fiscal cliff, although the superintendent and school board have acknowledged in official budget projections that they still might not be able to pay future bills.
Oakland schools have been here before, ultimately requiring a $100 million state bailout in 2002, which brought with it full state control of the district for several years.
The fear now, state, county and local officials say, is that the district is on the same path again.
“When they can’t pay their employees, they get taken over by the state,” said Mike Fine, CEO of the Fiscal Crisis & Management Assistance Team, which works with the state’s school districts on financial stability. “Without any corrective action they would get to that place again.”
Addressing the district’s current and long-term budget issues will require significant and painful choices that already include staffing cuts and school closures this year — with more of both likely next year — even as the district hopes to boost teacher and staff salaries.
Complicating that process, however, is a belief among some, including at least one board member, that it’s all a bit of a budget ruse — that the district has plenty of money and doesn’t need to close schools or take dramatic action to stave off a state takeover.
“I know the district can pay its bills for the foreseeable future,” said school board member Mike Hutchinson. “We do not have declining enrollment. Our finances haven’t been this good in a very long time.
It’s a shell game, Hutchinson said, and the district is “not in crisis.”
He believes the district is “in the process of cleaning up the mess” left by previous leadership and it’s a matter of making budget “adjustments” to address any issues.
He is currently outnumbered on the board and among state and county officials in that view, with Alameda County Superintendent L.K. Monroe strongly urging the district to stay the course on $110 million in spending cuts and other budget actions to ensure fiscal solvency.
“They have taken action, which is a first step,” she said. “We’re really going to be monitoring more closely to make sure there is follow-through.”
Overspending and using one-time funding sources to cover costs — combined with the loss of 3,000 students amid the pandemic and ongoing declining enrollment — have put the district in precarious financial footing for the future.
Since 2015, enrollment has dropped by 4,703 students, which translates into an expected funding loss of more than $50 million each year out of nearly an $800 million budget.
Recent budget cuts and other actions allowed county superintendent Monroe to restore the district’s status as a “going concern” a few months after earlier pulling that designation, which means Oakland Unified was no longer at risk of financial collapse.
Board member Hutchinson saw the reversal as evidence of a ploy to force the district to close schools, which the board majority did, voting in February to shutter or merge 11 schools in the next two years.
Monroe said it was a sign of good faith that the district was moving in the right direction, though it’s not out of the woods. It must adhere to 17 conditions to maintain its good status.
Her decision, however, does not take into account $63 million the district would need to spend to honor tentative labor agreements, including raises for teachers and other staff. It remains unclear whether the district can afford those, as well as future raises it hopes to offer.
Monroe’s election challenger in June, Alysse Castro, said she doesn’t see corruption or ill will at work, but also doesn’t believe the district needs to close schools, a tactic she doesn’t believe saves money.
That said, “School finance is legitimately complicated,” she conceded, adding that she believes Monroe made the right decision to designate the district as being at risk before taking strong actions earlier this year.
Oakland Superintendent Kyla Johnson-Trammel and her staff have warned the public that the district faces a rocky road ahead.
The district gets more funding than 46 of the state’s 50 largest districts.
At the same time, it has the most schools per student and the third most teachers per student, as well as the lowest average teacher salary, despite spending more on teacher salaries than 85% of those districts.
It also has fewer central office staff and classified staff than the vast majority of those districts.
Lower student/teacher ratios do not correlate with higher student performance in Oakland, officials said.
“Given its substantial cost, our current investment in maintaining many under-enrolled schools and low student/teacher ratios is overall not the most effective or efficient use of our limited resources,” according to a January district analysis.
Whether the district will continue down a path of school closures and cuts will hinge on what happens in November.
Hutchinson has two years left on his term in District 5, but his residence shifted into District 4 after redistricting. He is running against board President Gary Yee in that district this November. If he wins, he will start a new four-year term in District 4. If he loses, he can serve out the remainder of his current term.
It’s unclear whether incumbents Shanthi Gonzales and Aimee Eng, whose seats are also up for election in November, will run.
Yee said it will be up to voters to decide who they believe this November. He supported the school mergers and closures, as well as other hard budget decisions, saying they were necessary to avoid future calamity.
“There’s a lot of people who wonder whether we need to do it or not and whether the county made a mistake,” he said. “There’s plenty of space for conspiracy in Oakland.”
Jill Tucker is a San Francisco Chronicle staff writer. Email: jtucker@sfchronicle.com Twitter: @jilltucker
