Part 4: OUSD & FCMAT – Mixed Grades, Mixed Feelings

This is the last of our mini blog series on the Fiscal Crisis and Management Assistance Team’s (FCMAT) Fiscal Health Risk Analysis of OUSD, issued in August. So far, we have provided context, summarized seven areas in OUSD “passed” and 8 areas that OUSD “failed.” This blog is about the 4 areas in which FCMAT gave OUSD a “Mixed” grade.

Before we wrap up this series about OUSD’s FCMAT report, we want to acknowledge the pain, frustration, anger and worry that so many people feel in the current situation – and expressed at last night’s board meeting.  All of us who live, work, and raise our families here in Oakland, want our children – all children, no matters their zip code, race, income, immigration status, or country of origin – to have a great public education. And that takes adequate, stable, and wisely-used resources.

Using resources well requires robust and reliable financial systems. Below are four areas in which OUSD has some work to do but that OUSD also has some strengths:

  • Enrollment and Attendance: This area covers how the district forecasts and manages student enrollment, whether it staffs appropriately for the number of students, and how it tracks and boosts student attendance. Average Daily Attendance (ADA) is the basis by which California distributes per pupil revenue, so this is critical. Of the 10 questions, OUSD received a “Yes” (positive) on 6 questions and “No” (negative) on 4 questions, although we saw two important inconsistencies between these answers and the text. The first inconsistency is related to the enrollment trend. FCMAT reports “the district has lost 55 students from 2013-14 to 2016-17” and shows a chart that shows minor enrollment fluctuations around 37,000 students over the past 4 years.[1] But the report also answers “No” to the question “Has the district’s enrollment been increasing or stable?” This fuels the misperception that OUSD enrollment has declined over the past several years, which then could divert attention from the poor decision-making and weak financial systems that produced the current situation. The second inconsistency in the report is related to enrollment tracking. The report describes “cell formula irregularities” in Excel spreadsheets used to project enrollment that “once realized, did not cause management to reduce staffing accordingly.” This seems like a series of serious missteps, but FCMAT didn’t seem to take data quality into account in its answers to questions about enrollment projections and analysis.
  • Cash Monitoring: This section covers how the district manages its cash flow. It’s not enough to have a fund balance on paper; the district also needs cash in the bank to pay bills on time. During the recession, this was hard because the state provided IOUs instead of cash, but the state is now paying districts on time – and yet OUSD “is experiencing cash flow shortages requiring temporary borrowing.” Some of the borrowing is internal, between funds. OUSD has also “borrowed from the county treasurer to meet cash flow needs for general fund operations.” But at least, the district repays inter-fund borrowing as required, and balances its checkbook every month.
  • General Fund: This section looks at whether the district matches the duration of revenue sources with the duration of expenses. Unfortunately, OUSD regularly uses one-time or time-limited funds for ongoing salaries and doesn’t reduce expenses even when revenues might not be available to cover them. The overall rating is mixed because, on the plus side, the percentage of the district’s unrestricted general fund spending on salaries is at or below the statewide average, and no material changes in litigation are anticipated.
  • General Ledger: This section covers some standard accounting practices, like recording financial activity accurately and in a timely manner. Fortunately, FCMAT says the district is heeding these (i.e. “Yes” answers to 4 of 6 questions). OUSD receives a mixed overall rating because the district recorded its beginning balances incorrectly and failed to make some accounting adjustments to reflect actuals inflows and outflows.

Phew. That’s it on the specifics of this important FCMAT report: the good, the bad and the mixed up. To summarize: budget cuts alone will NOT keep us from ending up back here again. To restore fiscal vitality, OUSD must make significant changes to its fiscal management, governance practices, managerial practices, and culture.

So Now What

For those of you who are wondering: “What can I do?” here are a few ideas:

Keep paying attention. Our public school system needs taxpayers and voters to get informed, stay engaged and become active. Don’t blindly concur with simple slogans. The situation is complex and the solutions require real tradeoffs and more critical thinking than a catchy chant can capture. Read more, visit OUSD’s fiscal transparency website, and track OUSD Board discussions and decisions.

Contribute to the Oakland Public Education Fund’s A-Z Fund. Some schools have PTAs that can raise enough money to make up for the cuts; others don’t. This Fund will steer donations towards schools that are serving students with the greatest needs.

Volunteer your time. Many schools still need tutors and classroom assistants. Mid-year budget cuts also mean fewer enrichment programs and fewer field trips. Make up for that gap by finding ways to share your passion – whether its watercolor painting or Afro-Cuban drumming or culinary science – with students. And if you have professional experience working in finance, personnel, or technology, your expertise would be valuable to OUSD’s Board and leaders. (Does OUSD need a Finance Advisory Council?)

A few final thoughts:

We need to get back to focusing on improving educational outcomes for student in our classrooms.  Righting the ship financially is important, but it is the means not the end. Too many Oakland schools are not adequately educating our children, and numerous improvements can still be made on a shoestring budget.

Superintendent Kyla Johnson-Trammell is a leader we all need to support. She inherited this mess, and is taking on the challenge with courage, poise, intelligence, and care – exactly what we would expect from an alumna of Oakland public education.

Oaklanders are tough fighters, creative entrepreneurs, and compassionate citizens. We can use these assets to be part of the solution – and we will all need to work together to support our students through this adversity.

[1] OUSD’s 20 Day Count report showed that enrollment is 302 students higher than the 20 Day Count last school year.

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Part 3: OUSD and the FCMAT Report – The 8 Areas of Concern

Welcome to the third in our mini blog series on the Fiscal Crisis and Management Assistance Team’s (FCMAT) Fiscal Health Risk Analysis of OUSD, issued in August. We provided historical background, and then yesterday looked at the seven areas in which FCMAT gave OUSD a passing grade.

Today, we cover the 8 areas that FCMAT identified as areas of concern. This should shed some light on the underlying causes of yesterday’s payroll blunder as well as why we are facing a budget crisis again:

1. Deficit Spending: Although it should be obvious, this is the core of OUSD’s financial problem: OUSD spends more than it brings in, has done so for years, and does not seem to have a plan to stop deficit spending. It’s time to break this bad habit. The proposed $15 million mid-year cut, while painful, would demonstrate the start of some needed fiscal discipline.

2. Fund Balance: The District’s fund balance is the accumulation of extra funds that don’t get spent each year. The most scrutinized fund balance is in the unrestricted General Fund, which is the main operating fund, is the most flexible, and is the one with a state-required minimum. Well-managed districts have healthy fund balance – when revenues are up, they save for a rainy day. OUSD’s fund balance is now less than the state-required minimum. Also, OUSD doesn’t seem able to accurately forecast whether it can restore that fund balance. The FCMAT report narrates the events during the 2016-2017 school year, during which the projected fund balance steadily dropped as new financial information came in.

3. Reserve for Economic Uncertainty: By the end of 2016-2017, OUSD’s fund balance was less than the legally-required 2% (i.e. $11.3M). And to make matters worse, OUSD lacks a plan to restore the reserve in subsequent years. No wonder the state is concerned.

4. Bargaining Agreements: Over 90% of the District’s employees are represented by one of 7 different bargaining units. The collective bargaining agreements are negotiated every few years between the district and each unit, and dictate employee wages, hours, duties, and working conditions. FCMAT answered Yes to 5 of 7 questions in this section, indicating district compliance with the required bargaining process. However, FCMAT gave the district an overall “No,” indicating this is an area of concern, because all had received wage increases greater than the Cost-of-Living-Adjustment (10-15% over the last two years) and the district didn’t have a financial plan to sustain these compensation increases. Five of seven bargaining agreements have expired.

5. Encroachment: This is the term used when some programs are not able to cover their expenditures with their designated revenue sources and thus “encroach” on the General Fund. (The gentler term is a “contribution.”) OUSD’s programs for students with special needs has required the biggest subsidy, which is typical for most urban districts, although OUSD’s encroachment on special education is 18% higher than other districts. In addition, the Cafeteria and Child Development programs both required roughly $2 million contributions from the General Fund in 2016-2017.

6. Position Control & Human Resources: The vast majority of any school district’s expenditures are employee salaries and benefits. Therefore, good financial management includes “checks and balances” on all staffing decisions. Unfortunately, FCMAT answered “No” to 6 of 7 questions in this section. Based on FCMAT’s analysis, the district does not control unauthorized hiring, is not able to control over-staffing, and lacks the internal controls to prevent fraudulent activity. Given these findings, it’s a relief that we don’t see massive payroll errors more often.

7. Budget Monitoring & Updates: This section covers the activities that a district should do to monitor and stick to its budget. OUSD does 8 of 13 of these things but still receives an overall “No” from FCMAT. This section of the report helpfully describes each breakdown in OUSD’s financial “system” and concludes with the by-now-obvious statement “The district should address issues identified throughout this report that have a major impact on its budget.”

8. Leadership/Stability: This section receives “No” answers to all four questions. OUSD had high superintendent turnover for decades: 24 superintendents in the last 50 years. This report makes clear the financial impact of that leadership instability, scolds district and site administrators for not adhering to policies, regulations, and chides the Board for not following standards established by the California School Board Association (CSBA) for good governance.

In FCMAT’s own words:

“Based on the information in this report, the district has lost control of its spending, allowing school sites and departments to ignore and override board policies by spending beyond their budgets. In many cases, board policies are knowingly ignored and/or circumvented without consequences.”

Tomorrow we will close out this part of our #OUSDBudget series with a look at the four areas that FCMAT characterized as “mixed.”

Part 2: OUSD and the FCMAT Report – The “Good” News

Yesterday, as part of our #OUSDBudget series, we provided some background on the Fiscal Crisis and Management Assistance Team’s Fiscal Health Risk Analysis of OUSD, issued in August. Today, we delve into the seven of twenty areas where FCMAT said OUSD was not doing too bad.

According to FCMAT, OUSD earned a positive rating in three of twenty areas, based on “yes” answers to all the questions in each topic area:

  • Debt: Surprisingly, OUSD scores well on this, despite still owing the state $40 million from the last time the district was bailed out. FCMAT’s rating is based on OUSD not having lots of non-voter-approved debt, having sources of funds identified to pay off the debt it does have, and accounting for pension liabilities correctly.
  • Multiyear Projections: OUSD received a favorable response on all five questions in this category, which are focused on the process for creating multi-year projections. Unfortunately, FCMAT didn’t ask about the historical variances between OUSD’s projections and their actual expenditures.
  • Charter Schools: FCMAT reports that OUSD’s Charter Schools Office is doing its job well, monitoring the financial condition of each charter school authorized by OUSD. (In Oakland, all the charters – and their budgets – are under the oversight of OUSD but independently managed by not-for-profit 501c3 governing boards, which is why charter budgets are not affected by OUSD’s cuts.)

In four areas, OUSD passed overall even though it failed on some specific questions in that category and some of FCMAT’s answers left us scratching our heads.

  • Management Information Systems: Overall, the District passed this category based on “Yes” answers to four of seven questions – although we disagree with the “Yes” answers to the questions “Are the district’s financial data accurate and timely?” and “Are key fiscal reports accessible, timely, and understandable?” If these were actually true, we shouldn’t be in the situation we’re in.
  • Budget Development & Adoption: Similarly, OUSD scored an overall positive in this category based on “Yes” answers to 8 of 10 questions – but some of those answers were contradicted in another part of the report. For example, FCMAT notes that the biggest dollar problem in the 16-17 budget was “the result of over-projecting ADA“ but then answers “Yes” to the question “Are projections for ADA, enrollment, revenue, and unduplicated pupil count accurate and reasonable?” Similarly, the report it points out that the District does not have a functional position control system for hiring, even while answering “Yes” to the question “Does the district use position control data for budget development?”
  • Internal Controls & Annual Independent Audit Report: FCMAT gives OUSD an overall Yes on this section despite concluding that the district does not implement appropriate measures to discourage and detect fraud, has not received an audit without a material finding, and “many employees report a lack of consistency and continuity with district policy and procedures,” such as “spending beyond site/department budgets.”
  • Facilities: Overall FCMAT rates the district positively on this topic, based on 8 of 10 “Yes” answers, despite noting they weren’t provided with the legally required audits of the bond measures and that the district “may be out of compliance in this area.”

So, that’s the “good” news – the seven areas in which FCMAT gave OUSD’s fiscal health a passing grade. Yet even in these areas, however, there is clearly a lot of work still to be done. We’ll be looking for the proposed Action Plan to include strengthening financial information systems and reporting, increasing accuracy in budget development and ensuring employees stick to established policies and procedures. Tomorrow, we will review the eight sections that raised concern.

OUSD and FCMAT: Preparing for the Dec. 13 Report

Next Wednesday, on December 13, OUSD’s Board is expected to vote on extremely painful midyear budget cuts. In the midst of that pain, and in response to a recent report by the state’s Fiscal Crisis and Management Assistance Team (FCMAT), the staff is supposed to present an “action plan'” to strengthen the district’s fiscal management.

If we ever want to end the cycle of budget crises, this FCMAT action plan and, more importantly, its actual implementation, are critical. 

Continuing our #OUSDBudget series, we’ll be posting a few blogs this week on FCMAT’s findings on OUSD’s fiscal management to provide context, share a glimmer of good news, lay out the bad news, and consider implications for the future of Oakland public education. Each one will be a relatively 1-2 page quick read versus the 40-page report.

Our goal with this is for the educational leadership of Oakland across all sectors to share a common understanding of the problems so that we can be the generation that breaks the decades-long cycle of budget crises.

Who or what is FCMAT?

The Fiscal Crisis & Management Assistance Team (FCMAT, pronounced “Fick-Matt”) is a non-profit organization created by state law (AB 1200) in 1991 to help local education agencies manage their finances.

OUSD and FCMAT have had a decades-long, on-again, off-again relationship. FCMAT first looked at OUSD’s finances in 1999. During State Receivership in 2003-2008, they were brought in regularly; this 350 page report from 2007 reveals just how deep some of OUSD’s fiscal problems go. In a subsequent 2008 report, as part of its analysis to justify returning the district fully to local control, FCMAT gave OUSD as score of on 6.23 out of 10 rating on Fiscal Management – a solid D-minus (but it was a huge increase from up from 0.73 in 2003!).

The Most Recent FCMAT Report

The OUSD Board requested FCMAT’s help again earlier this year in April 2017 (coincidentally, the same month back in 1999 – 18 years ago – when the Board first voted to request FCMAT support). At the August 23 OUSD Board meeting, FCMAT presented its “Fiscal Health Risk Analysis.”

The report analyzes 20 factors based on answers to 117 specific questions. A “No” answer to a question basically indicates a weak financial management practice. FCMAT’s rule of thumb is that an overall “No” in more than seven areas is “cause for concern,” requiring “some level of fiscal intervention.”

OUSD failed in eight areas (out of 20). It also passed seven and had mixed reviews on four. (One was not applicable.)

In response, at the Sept. 6 meeting of the newly reinstated Budget & Finance Committee, Directors Eng, Gonzales, and Torres passed a resolution calling for a plan of action in response to the FCMAT report by the second meeting in October. On October 25, staff asked for an extension, which the Board agreed to.

The Action Plan Coming December 13

The Action Plan is now scheduled to be presented at the December 13 Board meeting. Over the next few posts, we will share our thoughts on the FCMAT report and Action Plan. What are yours?

For more reading:

7 Appreciations for 2017

Like many of you, we spent the Thanksgiving break reflecting on what we appreciate. Here are some of the people we must appreciate in Oakland public education – those who give us hope and inspire us.

 

#1: Inspirational Oakland Students

We appreciate the nearly 50,000 Oakland public school students across this amazingly diverse town. Lately we’ve been especially moved by stories like this one from a young woman who calls for a support system she can trust, this powerful poem from a student about the Oakland he knows, and this one about how a young scholar wants to learn not just memorize. These students are part of an initial cohort of a couple dozen Energy Convertor fellows who are using modern communications tools to voice their truth and keep us all focused on students.

 

 

#2: Powerful Oakland Parents

Parents are essential for the success of our students, schools, and the entire system. Groups like Oakland REACH, which is helping make the powerless parent powerful, hold us all accountable for making decisions that put students first. We celebrate all groups helping develop parent leadership, including long-standing groups like Oakland Community Organizations and yes, even ones we sometimes disagree with like OUSD Parents United, because we believe that healthy debate is critical for our democracy and that multiple perspectives can help us get to better solutions.

 

#3: Dedicated Oakland Teachers

Oakland public school teachers across our city bring their best every day. We appreciate them all for doing one of the most important jobs in the world. We offer a special shout out to those who are actively engaged in making our city a great place to teach – through our Teacher Advisory Group and Citywide teacher retention survey. We need to elevate, celebrate, and appreciate all who TeachOakland. (Thanks to the teachers and administration of OUSD’s Roosevelt Middle School, one of our #OakSDL grantees, for participating in this photo shoot, with photos by Oakland-based Tai Power Seeff.)

 

#4: Transformational Oakland School Leaders

Transformational Oakland school leaders like those who are participating in our Oakland School Design Lab are essential to creating a vibrant future for Oakland public education. We have to disrupt a system based on mid-19th century values and mid-20th century economics. To do so, we must transform our portfolio of schools into ones delivering student-centered education for the future.

 

#5: Superintendent Kyla Johnson-Trammel and her team

Kyla has arrived at an incredibly challenging time, inheriting nearly three decades of broken bureaucracy. She and the leaders around her – including the current school board – have the opportunity to fix things, finally. It won’t be easy – tough decisions have been kicked down the road for too long. Everyone will have to give a little to restore fiscal vitality to Oakland’s public education ecosystem. We especially appreciate her transparency through communications efforts like Connecting with Kyla.

 

#6: The Oakland Community

The Oakland community comes together to create and support so many amazing initiatives. Probably one of the best examples today is the Oakland Promise led by Mayor Libby Schaff to triple graduation rates over 10 years. We can’t let the promise be broken by systemic failure, so in the same way Oakland has come together for the Promise, we must unite to make the systemic improvements needed to deliver on the Promise.

 

#7: Everyone improving public school choice for Oakland families

Two years ago, to apply to Oakland district and charter public school options was a challenging paper-chase that disadvantaged low-income flatlands families the most. There were over 25 different applications and timelines, no online process, and few physical locations to get information. Now there is a one-stop-shop for families to explore and start applying to all Oakland public schools – EnrollOak.org. Explore all Oakland public school options using the Oakland School Finder, apply to 95% of charters with one application, and get connected to the District’s new and improved enrollment process for District schools. And the School Finder now includes the new Oakland Public School Report Card, with data on quality for every public school.

 

Every one of these is at the heart of a thriving Oakland public education ecosystem that serves all children well. What are you most thankful for this year in the world of Oakland public education?