Inglewood Unified School District Management Letter

March 1, 2019 Honorable Keely Bosler, Director California Department of Finance 915 L Street Sacramento, CA 95814 Honorable Phil Ting, Chair California State Assembly Committee on Budget 13l5 10th Street Sacramento, CA 95814 Honorable Holly J. Mitchell, Chair California State Senate Committee on Budget and Fiscal Review 1315 10th Street Sacramento, CA 95814 Dear Honorable Director Bosler, Honorable Chairperson Mitchell and Committee Members, and Honorable Chairperson Ting and Committee Members: This letter is submitted for your consideration in accordance with FCMAT’s responsibilities under Assembly Bill 1840 with regard to the Inglewood Unified School District. Background AB1840 Assembly Bill 1840 (Chapter 426/2018) (AB 1840) passed the legislature on August 31, 2018 as a budget trailer bill and became effective on September 17, 2018. Among other provisions, AB 1840 provides for several changes in the oversight of fiscally distressed districts and sets forth specific require- ments for the Inglewood Unified School District (district) in exchange for providing financial resources under certain circumstances. This letter is provided in accordance with Education Code Section 42161(d) as established by AB 1840 and outlined below. AB 1840 changes the former state-centric system to be more consistent with the principles of local control. Several duties formerly assigned to the state Superintendent of Public Instruction (SPI) are now assigned to the county superintendent, with the concurrence of the SPI and the president of the State Board of Education. While AB 1840 does not change the definition of or criteria for fiscal insolvency, it does change the structure of how fiscally insolvent districts are administered once a state emergency appropriation has been made. The duties being fulfilled by the state trustee in the district are those of a state administrator, but the orig- inal enabling legislation for the district’s state emergency appropriation (loan) calls the position a trustee, so that term is used in this letter. Under AB 1840, the state trustee assigned to the district now reports to the Los Angeles County Superintendent of Schools and no longer reports to the SPI. If the current state trustee elects to not continue, or a determination is made by the county superintendent that the state trustee should be replaced, the appointment of the next state trustee would follow the provisions of AB 1840, namely, 1) be selected from a list of candidates identified and vetted by FCMAT, and 2) be appointed jointly by the county superintendent, SPI and president of the State Board of Education. Additionally, AB 1840 established Education Code Section 42161, which states: (a) For the 2018–19 fiscal year, the Inglewood Unified School District shall do both of the following: (1) Meet the requirements for qualified or positive certification for the school district’s second interim report pursuant to Article 3 (commencing with Section 42130) of Chapter 6. (2) Complete comprehensive operational reviews that compare the needs of the school district with similar school districts and provide data and recommendations regarding changes the school district can make to achieve fiscal sustainability. (b) Beginning with the 2019–20 fiscal year, the Budget Act shall include an appropriation for the Inglewood Unified School District, if the school district complies with the terms specified in subdivisions (a) and (c), in the following amounts: (1) For the 2019–20 fiscal year, up to 75 percent of the school district’s projected operating deficit, as determined by the County Office Fiscal Crisis and Management Assistance Team, with concurrence with the Department of Finance. (2) For the 2020–21 fiscal year, up to 50 percent of the school district’s projected operating deficit, as determined by the County Office Fiscal Crisis and Management Assistance Team, with concurrence with the Department of Finance. (3) For the 2021–22 fiscal year, up to 25 percent of the school district’s projected operating deficit, as determined by the County Office Fiscal Crisis and Management Assistance Team, with concurrence with the Department of Finance. (c) Disbursement of funds specified in subdivision (b) shall be contingent on the Inglewood Unified School District’s completion of activities specified in the prior year Budget Act to improve the school district’s fiscal solvency. These activities may include, but are not limited to, all of the following: (1) Completion of comprehensive operational reviews that compare the needs of the school district with similar school districts and provide data and recommendations regarding changes the school district can make to achieve fiscal sustainability. (2) Adoption and implementation of necessary budgetary solutions, including the consolida- tion of school sites. 2 (3) Completion and implementation of multiyear, fiscally solvent budgets and budget plans. (4) Qualification for positive certification pursuant to Article 3 (commencing with Section 42130) of Chapter 6. (5) Sale or lease of surplus property. (6) Growth and maintenance of budgetary reserves. (7) Approval of school district budgets by the Los Angeles County Superintendent of Schools. (d) Funds described in subdivision (b) shall be allocated to Inglewood Unified School District upon the certification of the County Office Fiscal Crisis and Management Assistance Team, with concurrence from the Los Angeles County Superintendent of Schools, to the Assembly Committee on Budget, Senate Committee on Budget and Fiscal Review, and the Department of Finance that the activities described in subdivision (c), as specified in the prior year Budget Act, have been completed. Additionally, by March 1 of each year, through March 1, 2021, the County Office Fiscal Crisis and Management Assistance Team, with concurrence from the Los Angeles County Superintendent of Schools, shall report to the Assembly Committee on Budget, Senate Committee on Budget and Fiscal Review, and the Department of Finance the progress that Inglewood Unified School District has made to complete the activities described in subdivision (c), as specified in the prior year Budget Act. (e) The activities described in subdivision (c) shall be determined in the annual Budget Act based on joint recommendations from the County Office Fiscal Crisis and Management Assistance Team and the Los Angeles County Superintendent of Schools. These recommenda- tions shall be submitted to the Assembly Committee on Budget, Senate Committee on Budget and Fiscal Review, and the Department of Finance by March 1 of each fiscal year, through March 1, 2021, in conjunction with the certification described in subdivision (d). (f) Until June 30, 2019, the Superintendent may waive the reimbursement determination spec- ified in Section 18054 of Title 5 of the California Code of Regulations for Inglewood Unified School District’s 2016–17 fiscal year California state preschool program contract in order to resolve the school district’s outstanding child development reimbursement liability to the state. District Overview The Inglewood Unified School District was established in the early 1950s as the successor to the Inglewood School District, which came into existence in 1888. It encompasses nine square miles in Los Angeles County and is approximately 13 miles southwest of the city of Los Angeles. Inglewood Unified serves approximately 7995 students in 19 schools in the city of Inglewood and an adjacent section of unincorporated Los Angeles County (Ladera Heights). The district’s schools include one preschool child development center, three transitional kindergarten through grade five (TK-5) schools, seven TK-6 schools, one TK-8 school, one grades 6-8 middle school, one grades 7-8 middle school, three high schools, one district-operated charter school (TK-8), and one career technical education/adult education/ alternative education school. The district-operate charter school, LaTijera Academy, has an additional 762 students. Numerous independent charter schools are also located in the district. Approximately 30.4% of the district’s students speak a foreign language at home, and 86% of its students are eligible for free or reduced-price meals. The district’s unduplicated pupil percentage (students who are English learners, foster youth, or eligible for free or reduced-price meals) is 89.8%. Based on the 3 district’s fiscal year 2018-19 first interim report, the district is expected to have combined unrestricted and restricted revenue of $125 million and expenditures of $122 million. The district’s projected June 30, 2019 unrestricted ending fund balance is $1.3 million. Under state receivership (as described below), the SPI has historically assumed all the legal rights, duties and powers of a district’s governing board and appointed a state trustee to act as both the governing board and superintendent. This was the case until September 2018, when the Legislature gave the local county superintendent the role formerly assigned to the SPI for this purpose. The district’s five-member governing board serves in an advisory role until the district shows adequate progress in implementing the comprehensive review recommendations in five operational areas (financial management, personnel management, community relations and governance, facilities management, and pupil achievement), and the county superintendent, with the concurrence of the SPI and the president of the State Board of Education, determines that the district has built sufficient capacity to self-govern. Even when the governing board resumes control, a trustee will have stay-and-rescind authority over governing board actions until the loan is fully repaid to the state. Emergency Appropriation, Loan Status and Payment Terms On September 14, 2012 the governor approved Senate Bill (SB) 533 (Chapter 325/2012), bringing the district under state receivership with a state-approved emergency appropriation of $55 million to avert fiscal insolvency. The district’s previous management made efforts to avoid the takeover with last- minute expenditure reductions totaling approximately $22 million, but after years of deficit spending the district’s structural budget imbalance was too large. The district was projected to have a negative cash balance by March 31, 2013. Stated reasons for fiscal insolvency included overstating average daily attendance (ADA), understating California State Teachers’ Retirement System payments, understating certificated salary expenses, continued deficit spending, and declining enrollment. State emergency appropriations are sized based on many assumptions. Emergency appropriations are not meant to solve the fiscal problem but to allow time for the district to make the reductions needed to correct its structural operating deficit. The funds for the emergency appropriation (loan) to support the district’s cash flow were initially to be issued, as provided for in the legislation, by the California Infrastructure and Economic Development Bank (I-Bank). The I-Bank typically would sell bonds to investors to raise the capital for this purpose. Temporary loans were made from the state’s general fund to provide cash flow before the I-Bank bonds were sold. Before they were sold, Assembly Bill 86 (Chapter 48/2013) was passed. This legislation super- seded the previous legislation mandating I-Bank financing and instead authorized the district, through the California Department of Education (CDE), to request loans directly from the state’s general fund in an amount not to exceed $55 million at a much lower interest rate, saving the district millions of dollars over the life of the loan. Of the $55 million authorized, the district drew $29 million from November 2012 through February 2013 because of negative cash flow projections, leaving a balance of $26 million available. The CDE reports that, as of July 1, 2018, the district owed $24,279,726. The payment schedule is approximately $1.8 million due each November through 2033. The interest rate is 2.307%. Payments are made through a State Controller’s Office (SCO) intercept of the district’s principal apportionment. 4 Other FCMAT Reviews of the District Since 2013, FCMAT has conducted an annual comprehensive review of the district pursuant to the provision of the emergency appropriation and other relevant law. The comprehensive review uses legal and professional standards aligned with industry best practices and with applicable state and federal law, including the California Education Code. The most recent annual review is dated July 2018 and includes recommendations for improvement and recovery related to each identified standard. Recommendations for recovery are designed and intended to affect functions directly at the district, at school sites and in classrooms. Implementing the designated standards and recommendations with this type of depth and focus will result in improvements in pupil achievement, financial practices, personnel procedures, community relations, and facilities management, and will hasten the return to local control and gover- nance, which is the primary objective of the recovery process monitored using comprehensive reviews. Current Financial Status Adopted Budget The state trustee, under the supervision of the SPI, approved and submitted Inglewood Unified School District’s 2018-19 budget on June 28, 2018. The adopted budget as submitted to the Los Angeles County Superintendent of Schools (county office) showed a reserve for economic uncertainty of 2.77% for fiscal year 2018-19, and 3% for each of the two subsequent fiscal years. To meet these reserve requirements, the district’s budget included an ongoing $4.05 million reduction to employee health benefits annually beginning in 2018-19. In addition, the adopted budget included further reductions of $4.5 million for 2019-20 and an additional $3.6 million for fiscal year 2020-21 to enable the district to meet its required 3% reserve. However, the additional reductions were nonspecific and were not part of a substantiated fiscal stabilization plan. The county office completed its review of the district’s adopted budget but was unable to approve the budget as submitted. The county office required the district to submit a revised adopted budget on or before October 8, 2018 that included an updated fiscal stabilization plan with alternative options for any contingent expenditure reductions and that identified and allocated the expenditure reductions for fiscal years 2019-20 and 2020-21 (Exhibit A). On October 4, 2018, the state trustee approved and resubmitted a revised adopted budget and an updated fiscal stabilization plan. The fiscal stabilization plan included detailed reductions for fiscal years 2019-20 and 2020-21 that were not contingent on negotiations or other factors. The major revisions to the budget included additional revenue from a facility use agreement with a local charter school, revisions to Local Control Funding Formula (LCFF) revenues, and, because the district had closed the books for the previous year, a higher-than-estimated beginning fund balance. In the revised budget, expenditures were higher because of the reversal of the estimated $4 million savings to employees’ health benefits, which was partially offset by a one-time loan payment deferment on the district’s state loan for fiscal year 2018-19. The loan payment deferral was granted by the director of the California Department of Finance under pre-existing authority. The district’s revised adopted budget’s multiyear financial projections (MYFPs) for each fiscal year fall short of the district’s minimum reserve requirement of 3.00%. However, the district submitted an updated fiscal stabilization plan that identifies specific ongoing cost reduction measures, negotiable expenditure reductions, and contingent revenue enhancements. 5 The district was projected to have a deficit of $614,978, an ending fund balance of $2,495,350 and a reserve of 2.05% for 2018-19, an ending fund balance of $2,631,420 and a reserve of 2.29% for 2019- 20, and an ending fund balance of $2,623,469 and a reserve of 2.35% for 2020-21. The budget reflects the impacts of continued declining enrollment: 521 fewer students in 2018-19 than in the previous year, a further 464 fewer students in 2019-20, and a further 378 fewer students in 2020-21. The projected average daily attendance (ADA) is estimated to be 8,351 in 2018-19, 7,970 in 2019-20, and 7,501 in 2020-21. In a letter dated October 8, 2018, the county office concluded that the district was making progress in addressing its structural deficit and reminded the district that the fiscal stabilization plan must be imple- mented and monitored to ensure the district meets the required reserves of 3.0% (Exhibit B). First Interim Report The state trustee assigned to the district approved and submitted the district’s 2018-19 first interim financial report on December 5, 2018, and self-certified the district as qualified, meaning the district may not meet its financial obligations for the current fiscal year or the two subsequent fiscal years. The district’s efforts to control costs by staffing efficiently, reducing operating budgets and implementing other planned actions and services resulted in a projected net increase of $1.45 million in its unrestricted general fund in the 2018-19 fiscal year. The impact of those reductions eliminates the district’s previous deficit amount, replacing the deficit with a projected surplus of $835,097, which increases the district’s projected ending fund balance to $4.1 million, creating a 3.20% reserve for economic uncertainties. The MYFP shows a deficit of $4.6 million in 2019-20, resulting in a projected ending fund balance of negative $467,117, for a negative 0.48% reserve. For fiscal year 2020-21 the MYFP shows a deficit of $6.0 million; when this is combined with the negative beginning fund balance from the prior year, the projected ending fund balance is a negative $6.5 million, for a negative 5.61% reserve. The district’s 2018-19 first interim report submitted to the county superintendent included projections that rely on additional state apportionments of $4.59 million in 2019-20 and $6.20 million in 2020-21 to meet the required reserve levels. One of the conditions for the district to be considered for state assistance under AB 1840 is that the district meet the requirements for a qualified or positive budget certification in 2018-19 and for positive certifications in 2019-20 and 2020-21; therefore, the district must continue to identify and implement additional ongoing cost reductions and/or revenue increases. The county office completed a review of the district’s first interim report and the updated fiscal stabi- lization plan and concurred with the district’s qualified certification (Exhibit C). Although the district has identified further expenditure reductions in the amount of $3.79 million in fiscal year 2019-20 and $6.62 million in fiscal year 202021, the district will not meet the required reserve levels without relying on apportionments under AB 1840. Including apportionments under AB 1840 was not appropriate at the time the first interim was prepared, filed with the county office and reviewed by the county superintendent. The district has identified addi- tional cost savings and revenue increases; however, these are contingent on external factors and cannot be guaranteed. They include revenues from the leasing of underused or surplus land, and additional consoli- dation of schools. A copy of the district’s fiscal stabilization plan submitted with its first interim financial report is attached (Exhibit D). 6 Status of Collective Bargaining In 2015-16 the district reached three-year collective bargaining agreements with both its classified and certificated employee associations. Reopeners were included for salaries, benefits, and two additional articles for each party in each year. The parties were unable to come to an agreement on the reopeners, and an impasse was declared. The district and the Inglewood Teachers Association (ITA) entered into mediation but were still unable to come to an agreement. The most significant issue was the district’s proposed hard cap on its contribution to employees’ health benefits. This proposal was a significant cornerstone of the district’s initial fiscal recovery plan: it was projected to result in an annual savings of $4.05 million. Both parties participated in a fact finding hearing on May 15, 2018. As a result of continued negotiations, the district, ITA, and Allied Trades District Council 36 on behalf of California Professional Employees (CalPro) settled on agreements. The county office responded to the district’s AB 1200 collective bargaining disclosure when the county superintendent approved the district’s revised budget in a letter dated October 8, 2018 (Exhibit B). Because there were no changes to the salary schedule and the employer contribution was set to the lowest Kaiser HMO plan for 2018-19 and 2019-20, the county office maintained that the cost of this settle- ment would not materially alter the district’s near-term fiscal outlook. District Actions Since Budget Adoption On January 16, 2019, the state trustee approved a resolution to lay off or reduce the hours of classified personnel. Below are the classifications that have been identified: Number of Current Hours or Job Classification Location Hours Position is Assignment Reduced Assistant Director — Food Services Food Services 8 8 (vacant) Medi-Cal supportive Clerk Student Support Services 8 8 (vacant) Senior Data Technician (4 positions) Information Technology 8 8 (2 positions vacant) Data Processing Clerk/Secretary Information Technology 8 8 Data Processing Clerk/Secretary Kelso 8 8 This layoff, which is part of the fiscal stabilization plan, results in an annual savings of approximately $80,000 to the district’s general fund. As part of the fiscal stabilization plan, the district has also identified reductions to a number of certifi- cated staff positions. The district has stated that the resolution for the reductions in certificated services will be considered for approval on March 6, 2019. On December 5, 2018 the state trustee approved an agreement with School Services of California, Inc. (SSC) to provide an organizational, efficiency and comparative staffing review of the district to meet the requirements of the comprehensive operational reviews under AB 1840. Approval was also given for a contract with Pupil Transportation Information, LLC (PTI) to provide a comprehensive review of the district’s pupil transportation. Data and recommendations from these operational reviews will help inform the district’s final 2019-20 budget development. 7 Deficit Calculation FCMAT Analysis of MYFP Deficit in 2019-20 and 2020-21 To validate the calculations on the first interim MYFP, FCMAT performed the following: • Analyzed budget, payroll and position control • Updated the LCFF calculation based on the governor’s January proposed budget data • Created enrollment and ADA projections using Budget Explorer • Verified revenues from former redevelopment agencies and included these funds • Verified prior year apportionment adjustments and corresponding journal entries • Analyzed budget-to-actuals data for the current year • Balanced restricted resources for 2019-20 and 2020-21 Based on a review of the district’s first interim report, analysis of district documents, and discussions with the district’s chief business official (CBO) and director of fiscal services, FCMAT found the interim report to be reasonable. FCMAT also compared the district’s fiscal year 2017-18 second interim report to its unaudited actuals in the unrestricted general fund to ascertain the level of reliability the district has in estimating the cost of salaries and benefits. This comparison showed that the district overbudgeted sala- ries and benefits; the variance between the second interim and the unaudited actuals was approximately $1.7 million. Upon further review, FCMAT found that the district’s estimated costs of contributions to programs that are not self-supporting was underbudgeted by approximately $1.7 million. The district’s CBO indicated that although vacant positions were included in the budgets, they have difficulty filling the positions and therefore ultimately have to contract out to meet the need. Although district staff may be monitoring these important details, FCMAT’s findings in this area indicate that district staff do not align the budget with actual expenditures as the fiscal year progresses, which makes it difficult to reach conclusions based on budget data. Special education costs are a significant portion of the district’s operating budget and have continued to increase even as total enrollment has declined. In addition, the district was found to be out of compliance in a variety of special education services and therefore has had to contract out for services to ensure that students receive the services outlined in their individualized education programs (IEPs). The current budget in total appears sufficient to cover all current obligations. However, subsequent to FCMAT’s initial review the district experienced last-minute cost increases from partner agencies, and numerous contracts have been approved that will ultimately increase the total special education costs and thus the contribution from the unrestricted general fund. Although FCMAT’s final accounting includes these and other factors known at the time of this letter, a risk remains because of the district’s inability to forecast its special education expenditures. The district’s student enrollment is also declining at a high rate, which directly affects its revenues. FCMAT’s most recent LCFF calculation for the district is based on a decline of 502.37 ADA, or approx- imately 6.19%, for fiscal year 2019-20, and a further decline of 493.78 ADA, or approximately 6.48%, for fiscal year 2020-21. This decline in enrollment and ADA directly affects the district’s budget and its ability to remain fiscally solvent. The two subsequent fiscal years in the MYFP include the majority of the items identified on the fiscal stabilization plan; however, FCMAT’s analysis of the details of the MYFP indicates not all of the assigned values may be realized. The district is planning for reductions in operating budgets for centralized depart- 8 ments as well as reductions to school site budgets for books, supplies and services in both subsequent fiscal years. However, the district’s reductions do not take into consideration the projected increase to these categories resulting from the consumer price index (CPI). Using the governor’s January proposed budget CPI projections of 3.18% in fiscal year 2019-20 and 3.05% in fiscal year 2020-21, FCMAT’s calculations showed a savings of $80,000 rather than the projected reduction of $100,000 in district office and school site budgets for books and supplies, and a savings of approximately $143,000 rather than the projected $250,000 in services for fiscal year 2019-20. For fiscal year 2020-21, the district projected savings totaling $450,000; however, FCMAT’s calculations indicate a more realistic savings of approximately $200,000. Consistent with its fiscal stabilization plan, the district recently entered into a facility use agreement with Green Dot Public Schools California, which operates Animo City of Champions Charter High School. The agreement grants the charter school a combination of exclusive and nonexclusive use of the district’s Old Warren Lane school site. The fiscal benefit to the district is approximately $313,671in fiscal year 2019-20 and $393,671 in fiscal year 2020-21. On July 18, 2018 the district, CalPro and the district’s management entered into a participation agree- ment with California’s Valued Trust (CVT), effective October 1, 2018. This trust provides multiple plans with multiple levels of employee benefits. Benefit plan sections are recommended in a joint labor and management committee and will be approved by the state trustee. The district included $500,000 in ongoing savings from health and welfare plan design changes in 2019-20, and an additional $500,000 in savings from additional design changes in 2020-21, for a total reduction of $1,000,000 in plan costs over the two-year period as part of its fiscal stabilization plan submitted with its 2018-19 first interim financial report. Consistent with AB 1840, the district, in collaboration with the county office, is working to develop a facilities closure and consolidation plan. Part of the plan is to realize potential revenue from the leasing or sale of surplus facilities. The fiscal stabilization plan includes an estimated $1.5 million in projected revenue in fiscal year 2020-21 from the first phase of this plan. The district has also identified a savings of $500,000 per fiscal year for each school closure as part of a school consolidation plan, with one closure included in the current estimate. The estimated savings are from reductions in personnel, utilities and operating costs. These calculations are based on what is known at the time of this report and will require revision as development of the 2019-20 budget proceeds. FCMAT’s calculations of the district’s unrestricted, restricted and combined general fund operating surplus/(deficit) for the current and two subsequent fiscal years are as follows: Operating Surplus (Deficit) Fiscal Year Unrestricted Restricted Combined 2018-19 $ 250,029 $1,679,421 $1,929,450 2019-20 ($4,643,979) $1,463,378 ($3,180,602) 2020-21 ($-6,759,497) $1,106,283 ($5,653,214) A copy of the MYFP is included with this letter as Exhibit E. 9 FCMAT Projected Ending Fund Balance and Reserve Levels Ending Fund Minimum Required Total Available Fiscal Year Balance Reserves Reserves 2018-19 $3,540,358 $3,689,269 2.73% 2019-20 ($1,103,622) $3,644,524 -1.06% 2020-21 ($7,863,119) $3,604,389 -6.69% COE Intervention Costs Included in Deficit Calculation The Los Angeles County Superintendent of Schools is creating support positions for the district to meet identified critical needs. The positions are as follows: 1. Facilities oversight, monitoring the facilities plan, school operations, and school and community safety. 2. Child welfare and attendance support to ensure the development and implementation of district procedures related to attendance recordkeeping, enrollment, and policies that address the unique needs of specialized programs. 3. System support to ensure fluidity and accuracy of data collection and reporting. There is a need to standardize procedures for entering, reconciling and interpreting data, and to build capacity to use data to drive ongoing improvements. An estimate provided by the county office indicates the total cost for this support will be just under $700,000 per year in fiscal years 2019-20 and 2020-21 and approximately $300,000 for the current fiscal year. In addition, the county office estimates a total of 1,527 hours of intervention for the district to comply with AB 1840, at an approximate cost of slightly less than $160,000 each fiscal year. Other Considerations Added to or Subtracted from Deficit Calculation The district continues to benefit from the receipt of former redevelopment agency (RDA) revenues that are in addition to the LCFF revenue apportionment. The district has a beginning balance of $2.5 million, with $1.173 million estimated to be received this fiscal year and a projected amount of $1.7 million in fiscal year 2019-20. Although the use of these funds for unrestricted purposes may be debated by some, Education Code Section 42268(h)(6) allows the inclusion of “maintenance” (e.g., routine restricted maintenance account). Therefore the entire RDA amount received and any accumulated balances may be used to help cover the district’s contribution to the routine restricted maintenance account (RRMA), reducing or eliminating the burden on the unrestricted general fund. Opportunities and Challenges to Calculation As mentioned previously in this letter, the district continues to be severely affected by increasing costs in its special education program. The district is a member of the Southwest Special Education Local Plan Area (SELPA), which is responsible for coordinating regionalized services for all its member school districts and charters. On February 22, 2019, the district received an updated excess cost bill from the SELPA, which increased the district’s costs by $700,000 more than the previous estimate for the current year. This was unexpected and demonstrates the continued instability in the district’s special education costs. The district is a partner with the SELPA and should actively participate in the SELPA’s governance 10 structure, vigorously challenge such late-year changes in expenditure forecasts, and demand account- ability from its partner agency. The district currently has its own school police department, which includes a chief of police, three police officers and 14 safety assistants. As part of its fiscal stabilization plan, the district is exploring the option to phase out the police department in fiscal year 2020-21 and replace it with a delivery model more common in comparably-sized school districts. The district is not filling any vacancies in its police depart- ment and has met with the city to discuss options for school resource officers. Projected Deficits for 2018-19 and 2019-20 Fiscal Year 2018-19 2019-20 Projected Deficit $ 250,029 ($4,643,979) COE Additional Support /Intervention ($ 469,309) ($ 841,660) Projected RDA Dollars* $1,173,295 $1,700,422 Available RDA BFB $2,533,627 Projected Revised Deficit $ 954,015 ($1,251,590) *Estimated Values per Public Economics, Inc. AB1840 Benchmarks Required Benchmarks Education Code 42161(c) provides a list of benchmarks to be measured as a condition of apportionment of one-time funds to assist the district. The Los Angeles Superintendent of Schools has taken an active role in helping the district and has created a targeted plan of action that is intended to guide the district toward the goal of achieving long-term fiscal stability and recovery. While the county superintendent did not ask for the added responsibility under AB 1840, she has fully embraced the responsibility and dedi- cated significant resources of time, talent, and leadership to facilitate measurable and valuable progress toward the district’s recovery. Together, the county superintendent and the district are working to identify focused, key areas for improvement based on the benchmarks below, district-established benchmarks, and recommendations from FCMAT’s comprehensive reviews. A crosswalk demonstrating the intercon- nection of each of these elements informed the targeted plan of action that the county superintendent is collaboratively directing with the district to implement and closely monitor. Under AB 1840, the county superintendent supervises the state trustee assigned to the district. This relationship has been positive, coordinated, and focused on priorities. The benchmarks are provided below with brief detail of the district’s status with regard to each benchmark. 1. Completion of comprehensive operational reviews that compare the needs of the school district with similar school districts and provide data and recommendations regarding changes the school district can make to achieve fiscal sustainability. Status The district and the county office identified the following operational areas to be reviewed: maintenance and operations, fiscal services, transportation, human resources, education services, and the school police department. 11 On December 5, 2018 the district entered into an agreement with SSC to conduct an organizational, efficiency and comparative staffing review that included educational services (excluding special education), fiscal services, human resources, technology, and maintenance and operations departments. The cost of this agreement is not to exceed $62,700 plus expenses. The district is anticipating a draft of the SSC report by March 1, 2019. On January 16, 2019 the district entered into an agreement with PTI to conduct a comprehensive review of the district’s pupil transportation. The cost for this agree- ment is $24,585. The review will begin the last week of March 2019. The review will include fieldwork not to exceed three business days to conduct staff interviews, review pertinent operational documents and best practices, and observe the facilities. The district will be provided a draft report within sixty business days of the on-site fieldwork. A final report will be provided to the district within 15 business days after receipt of draft report. The district has not yet selected a vendor or entered into an agreement for an operational review of its police department. Current conversations with the city may obviate the need for this operational review. These reports will be used to make further revisions to the district’s fiscal stabilization plan in the spring of 2019 as part of final budget planning for 2019-20. 2. Adoption and implementation of necessary budgetary solutions, including the consol- idation of school sites. Status The district has an approved fiscal stabilization plan that was submitted with its first interim report. Many of the identified reductions are to personnel and thus will require formal action. As these items are approved, the district will update this plan with the most current projected savings. Consolidation of school sites is addressed under the district-established benchmarks below. 3. Completion and implementation of multiyear, fiscally solvent budgets and budget plans. Status The district is incorporating potential revenue increases and budget reductions as outlined in its fiscal stabilization plan. Although the district has identified further expenditure reductions in the amount of $3.79 million in fiscal year 2019-20 and $6.62 million in fiscal year 202021, it does not have a plan that eliminates the deficit and establishes the minimum required reserve levels. The district has stated that a resolution for reduction in the certificated staffing will be considered for approval on March 6, 2019, and there is concern about the short timeline because the affected employees must be served with the required notice of intent to lay off prior to March 15. 12 4. Qualification for positive certification pursuant to Article 3 (commencing with Section 42130) of Chapter 6. Status The district self-certified its first interim 2018-19 report as qualified; the county office concurred with this certification. 5. Sale or lease of surplus property. Status The district and the county office have worked to establish a draft analysis of potential school consolidations and closures, which will result in facilities that can be sold, leased, or used by the district for other purposes. The draft plan is built on several years of conversations and analysis; it consists of a thoughtful, informed and compre- hensive approach to school facilities that best meets the community’s needs. It also considers operational and capital expenditures that maximizes the district’s resources. The next steps include refinement and preparation for California Environmental Quality Act (CEQA) review. Conducting a CEQA review on the entire plan at once ensures that the district and the county superintendent have all available information before considering approval of the plan and the phased implementation. The CEQA review process is estimated to take at least a year. 6. Growth and maintenance of budgetary reserves. Status The proposed budget increases and reductions in the district’s MYFP and fiscal stabili- zation plan have not been sufficient to restore the district’s ending fund balance to the required minimum reserve levels. The county office has put together an accountability progress report that summarizes its work with the district and identifies next steps, timelines, and the staff responsible for achieving the established goal. The district and the county office will analyze the comprehensive operational reviews and develop a plan to implement any recommendations to move the district toward fiscal stability. 7. Approval of school district budgets by the Los Angeles Superintendent of Schools. Status The district’s adopted budget, as first submitted to the county superintendent in June, was disapproved by the county office. The district’s revised adopted budget had an updated fiscal stabilization plan that identified specific ongoing cost reductions, negotiable expenditure reductions, and contingent revenue increases. The district submitted its first interim financial report and self-certified as qualified, and the county office concurred with that certification. 13 District-Established Benchmarks 1. Facility Planning Status As noted above, district staff, in collaboration with county office staff, meet regularly to continue to develop and refine a school consolidation and closure plan. The team of county office and district staff has also identified facilities in need of modern- ization, repairs and new construction. The district recently lost an experienced key employee who was the point person on facilities. Although this is a setback, the district and the county office are committed to the process under way and are effec- tively depending on and using consultants to help. 2. Special Education Status The district continues its work with the California Collaborative for Educational Excellence (CCEE) on building capacity in various special education program elements including IEP timelines, data monitoring, and coordinating support to targeted schools. The district is also working with Pivot Learning to finalize and implement a policies and support tool to prevent noncompliant IEPs. This tool will be available in digital form for easy access and will be used for training and monitoring to prevent costly errors due to noncompliance. This district has made tremendous progress, with the help of the county office, the CCEE, the CDE and other partners, in resolving a backlog of noncompliant IEPs. Challenges in providing a continuum of services and least restrictive environments for special education students continue. Cost structures for delivery options present risks to the district’s fiscal stability. 3. Fiscal Stabilization Plan Status The district has a fiscal stabilization plan that has been updated with each submission of budget and financial reports. As discussed earlier in this letter, the district is projecting reductions in operating costs and other budgetary measures to reduce the operating deficit for 201920 and 2020-21. Although the district recognizes the need for budget reductions, its leaders and staff also know that it needs to improve the condition of its facilities and instructional programs to stabilize enrollment. The district recognizes that special education costs associated with an inefficient and inef- fective program continue to present a significant budgetary risk (Exhibit D). 4. Instructional Improvement Status The district staff, in collaboration with the county office and the CCEE, meet regu- larly to review action steps and strategies that will result in a more focused approach to improved student achievement. The team of county office, district and CCEE staff has identified the need to focus on fully implementing a strategic instructional 14 improvement plan that includes the use of Common Core instructional materials, aligned periodic assessments, and a process for using common periodic assessments to inform instruction, intervention and professional development. Stability among the instructional services staff has contributed to continuity of instructional guidance to school staff. The CCEE is completing a comprehensive review of instructional programing, including needs identified by FCMAT in the area of pupil achievement, to determine immediate priorities and support for implementation. 5. Attendance Processes and Procedures Status In collaboration with the county office, district staff have implemented significant changes to procedures for enrolling students and to attendance accounting practices. To comply with existing legal requirements and ensure timely enrollment of students, the district has transitioned from a centralized (district office) process to a site-based process. Students are now enrolled at the school sites, and personnel have been reallocated from the district office to schools. Newly implemented procedures ensure streamlined attendance accounting, and a new accountability structure is in place to monitor compliance and support teachers and substitutes to promote accurate daily reporting of student attendance. An attendance and enrollment policy manual is being developed to systematize practices across sites and provide clear guidance to staff. 6. System Support — Data Driven Status The county office is creating support positions for the district to address critical needs. Support positions are essential in the following areas: a. Operations: Facilities oversight, monitoring the facilities plan, school operations, and school and community safety. b. Attendance/Enrollment: Child welfare and attendance support to ensure the development and implementation of district procedures related to attendance recordkeeping, enrollment, and policies that address the unique needs of special- ized populations. c. Data and Evaluation: System support to ensure fluidity and accuracy of data collection and reporting. There is a need to standardize procedures for entering, reconciling and interpreting data, and to build capacity to use data to drive ongoing improvements. Future FCMAT Updates in Support of DOF and Legislative Action Future periodic letters will include updates on the various operational reviews, recommendations and plans to incorporate the recommendations in the fiscal stabilization plan, and other applicable planning. The district is working on its second interim report. Additional periodic reports will be made once the 2019-20 budget is finalized (June 2019), when 2018-19 unaudited actuals are available (September 2019), and when other major milestones are reached. 15 FCMAT will also follow up and report on the status of the district’s facilities consolidation and closure plan to ensure progress continues to be made. Sincerely, Jennifer Noga Fiscal Intervention Specialist cc: Dr. Debra Duardo, Los Angeles County Superintendent of Schools Karen Stapf-Walters, Executive Director, California State Board of Education Nick Schweizer, Deputy Superintendent, California Department of Education Jeff Bell, Program Budget Manager, California Department of Finance Jessica Holmes, Assistant Program Budget Manager, California Department of Finance Dr. Thelma Meléndez de Santa Ana, State Trustee, Inglewood Unified School District Dr. Erika Torres, Deputy Superintendent, Los Angeles County Superintendent of Schools 16 Exhibit A LACOE Response Letter — 2018-19 Budget Disapproval Exhibit B LACOE Response Letter — 2018-19 LCAP and Budget Approval Exhibit C LACOE Response Letter — 2018-19 First Interim Approval Exhibit D Inglewood USD 2018-19 Fiscal Stabilization Plan (cid:3) 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2 t 0 I 1 n 8 t - e 1 r 9 im 1s 2 t 0 I 1 n 8 t - e 1 r 9 im C 2 o 0 m 18 b - i 1 n 9 ed P 2 r 0 o 1 je 9 c -2 te 0 d P 2 r 0 o 1 je 9 c -2 te 0 d C 2 o 0 m 19 b - i 2 n 0 ed P 2 r 0 o 2 je 0 c -2 te 1 d P 2 r 0 o 2 je 0 c -2 te 1 d C 2 o 0 m 20 b - i 2 n 1 ed UNRESTRICTED RESTRICTED UNRESTRICTED RESTRICTED UNRESTRICTED RESTRICTED Funded ADA - IUSD's 8,116.57 7,614.20 7,120.42 Funded ADA - La Tijera Charter 730.97 730.97 730.97 Percentage change in ADA from Prior Year -6.19% -6.48% Statutory COLA % 1.0271 1.0271 1.0346 1.0346 1.0286 1.0286 CPI 1.0358 1.0358 1.0318 1.0318 1.0305 1.0305 A. REVENUE OBJECT 1. LCFF Sources 8010-8099 97,253,224 0 97,253,224 95,284,746 0 95,284,746 92,733,938 0 92,733,938 Prior Year Adjustments 8019/8091 356,657 0 356,657 0 0 0 0 0 0 2. Federal Revenues 8100-8299 4,821 14,911,349 14,916,170 4,821 11,992,297 11,997,118 4,821 11,023,406 11,028,227 3. Other State Revenues 8300-8599 3,259,321 6,882,080 10,141,401 1,532,833 6,660,380 8,193,213 1,450,976 6,635,073 8,086,049 4. Other Local Revenues 8600-8799 904,000 1,333,644 2,237,644 967,671 1,860,771 2,828,442 1,047,671 1,597,208 2,644,879 TOTAL REVENUE 101,778,023 23,127,073 124,905,096 97,790,071 20,513,448 118,303,519 95,237,406 19,255,687 114,493,093 B. EXPENDITURES Base Salaries 1000 - 1999 31,512,725 10,941,166 42,453,891 31,653,192 11,004,587 42,657,779 30,674,687 11,065,272 41,739,959 19-20 FSP Staff reductions 0.00% 0 0 0 (1,200,000) 0 (1,200,000) 0 0 0 20-21 FSP Staff reductions 0.00% 0 0 0 0 0 0 (705,000) 0 (705,000) 0 0 0 0 Total Certificated Salaries 31,512,725 10,941,166 42,453,891 30,453,192 11,004,587 41,457,779 29,969,687 11,065,272 41,034,959 0 0 0 Base Salaries 2000 - 2999 9,828,352 6,307,715 16,136,067 9,833,421 6,310,465 16,143,886 9,523,492 6,313,217 15,836,709 19-20 FSP Staff reductions 0.00% 0 0 0 (315,000) 0 (315,000) 0 0 0 20-21 FSP Staff reductions 0.00% 0 0 0 0 0 0 (415,000) 0 (415,000) 0 0 0 Total Classified Salaries 9,828,352 6,307,715 16,136,067 9,518,421 6,310,465 15,828,886 9,108,492 6,313,217 15,421,709 TOTAL SALARIES: 41,341,077 17,248,881 58,589,958 39,971,613 17,315,052 57,286,665 39,078,179 17,378,489 56,456,669 3. Employee Benefits 3000-3999 18,875,284 7,751,754 26,627,038 18,875,284 7,850,591 26,725,875 17,892,099 7,952,879 25,844,978 19-20 FSP Staff reductions 0 (983,185) (983,185) 0 20-21 FSP Staff reductions (500,000) (500,000) Total Employee Benefits 18,875,284 7,751,754 26,627,038 17,892,099 7,850,591 25,742,690 17,392,099 7,952,879 25,344,978 4. Books and Supplies 4000-4999 882,174 4,101,011 4,983,185 806,959 3,117,628 3,924,587 705,264 3,149,105 3,854,369 5. Services, Other Op. 5000-5999 8,528,528 20,348,283 28,876,811 8,421,639 19,817,903 28,239,541 8,218,635 19,281,019 27,499,654 6. Capital Outlay 6000-6999 40,000 75,000 115,000 0 75,000 75,000 0 75,000 75,000 7. Other Outgo 7100-7299 502,820 3,690,502 4,193,322 402,820 4,390,502 4,793,322 402,820 5,090,502 5,493,322 8. Direct/Indirect Costs 7300-7399 (1,703,036) 1,293,368 (409,668) (1,583,988) 1,174,320 (409,668) (1,509,393) 1,099,725 (409,668) 9. Debt Service 7400-7499 0 0 0 1,831,984 0 1,831,984 1,831,984 0 1,831,984 TOTAL EXPENDITURES 68,466,847 54,508,799 122,975,646 67,743,125 53,740,996 121,484,121 66,119,588 54,026,719 120,146,307 C. EXCESS/DEFICIENCY 33,311,176 -31,381,726 1,929,450 30,046,946 -33,227,548 -3,180,602 29,117,818 -34,771,032 -5,653,214 D. OTHER SOURCES 1. Interfund Transfers In 8910-8929 0 0 0 0 0 0 0 0 0 2. Interfund Transfers Out 7610-7629 0 0 0 0 0 0 0 0 0 3. Other Sources In 8930-8979 0 0 0 0 0 0 0 0 0 4. Other Uses Out 7630-7699 0 0 0 0 0 0 0 0 0 5. Contrib./Restricted Programs 8980-8999 (33,061,147) 33,061,147 0 (34,690,925) 34,690,925 (0) (35,877,315) 35,877,315 0 0 TOTAL SOURCES/USES (33,061,147) 33,061,147 0 (34,690,925) 34,690,925 (0) (35,877,315) 35,877,315 0 CHANGE TO FUND BALANCE 250,029 1,679,421 1,929,450 (4,643,979) 1,463,377 (3,180,602) (6,759,497) 1,106,283 (5,653,214) F. FUND BALANCE, RESERVES NET BEGINNING BALANCE: 3,290,329 3,395,626 6,685,954 3,540,358 5,075,047 8,615,405 (1,103,622) 6,538,424 5,434,802 AUDIT ADJUSTMENT 0 0 0 0 0 RESTATEMENTS 0 0 0 0 0 ENDING BALANCE: 3,540,358 5,075,047 8,615,405 (1,103,622) 6,538,424 5,434,802 (7,863,119) 7,644,707 (218,412) COMPONENTS OF ENDING BALANCE: REVOLVING CASH 100,000 0 100,000 100,000 0 100,000 100,000 0 100,000 PREPAID 0 0 0 0 0 0 0 0 0 STORES 80,000 0 80,000 80,000 0 80,000 80,000 0 80,000 REQUIRED RESERVE 3.00% 3,689,269 0 3,689,269 3,644,524 0 3,644,524 3,604,389 0 3,604,389 Legally Restricted 0 5,075,047 5,075,047 6,538,424 6,538,424 7,644,707 7,644,707 Other Commitments 0 0 0 0 0 0 0 0 0 UNAPPROPRIATED (328,912) 0 (328,912) (4,928,146) 0 (4,928,146) (11,647,508) 0 (11,647,508)