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Val Verde Unified School District seeks extension on payment to state of $12.5 million fine

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Val Verde Unified School District seeks extension on payment to state of $12.5 million fine

Picture of Dan Lee
The Press-Enterprise
Saturday, April 11, 2009

The Val Verde Unified School District needs an extension on payment of a $12.5 million state fine if it's going to be able to weather a fiscal crisis, officials said.

The fine was the result of a school construction dispute with state officials. That, coupled with the loss of revenue from the downturn in the housing market and state budget cuts, led the Val Verde district to officially declare last month that it would not be able to pay its bills through the 2010-11 school year.

The district has five years to pay the fine, but it is expected to ask the state for an extension. The State Allocation Board could hear the matter next month.

"It is extremely important for the district to obtain some relief on the payment schedule for the ... penalty in order for the district to remain solvent," Val Verde Deputy Superintendent Mike Boyd wrote in an e-mail. "The district is pursuing several avenues for assistance with the payment schedule and to assist with any short-term cash challenges."

Rob Cook, executive officer for the state Office of Public School Construction, which serves as the allocation board's staff, said it was too early to speculate on what the board might do. Officials have had only preliminary discussions with Val Verde representatives so far, he said.

In addition, Assemblyman Paul Cook is drafting legislation that would give school districts up to 10 years to repay such penalties if they are faced with "extreme financial hardship."

The State Allocation Board, which distributes state funding for school construction, fined Val Verde in 2007 for borrowing money to build schools at the same time it was receiving millions of dollars in state funding intended to pay the full cost of the projects.

Val Verde is already planning for a $10.5 million decline in revenue for the 2009-10 because of state cutbacks. The district has sent notices to 126 teachers that they may not have a job next year, Boyd said.

ROOT OF THE PROBLEM

The district's fiscal problems stem from its school construction efforts and the downturn in the housing market.

Val Verde sought to build schools to meet the rapid growth in the area. The district was entitled to receive state funding to cover 100 percent of the construction cost.

But the money the district received wasn't enough to cover the costs because contractor bids were so high, said Marla Kirkland, the longest-serving Val Verde board member.

"We needed more dollars. ... We didn't want incomplete schools," she said by phone. "You want all children to be able to have what other children have. You want parity."

School board President Wraymond Sawyerr echoed those sentiments.

"(Take) what the kids have in Beverly Hills and give them to the kids in Moreno Valley," he said by phone. "Give them the same opportunities."

Unexpected developments also drove up construction costs, including the need to rebuild a road at one school and $1 million in work to remove granite boulders at another, Boyd said.

That led the district to borrow money, which it hoped to repay with fees collected from developers. Val Verde officials notified the state of its plans, Kirkland said.

The allocation board claimed Val Verde violated state rules by borrowing the money, leading to the $12.5 million fine against the district.

In the meantime, the housing market had collapsed, which brought growth to a halt and reduced developers fees to a mere trickle.

"I don't think anyone could foresee the economic downturn that we've had," Kirkland said.

FINANCIAL PLANNING

With the assistance of the Riverside County Office of Education, officials are working to develop a multiyear plan to stabilize district finances.

The plan could include a short-term loan from the county to help Val Verde with cash-flow issues through the end of June.

The district has cash-flow problems because the state had delayed allocating money to school districts throughout California, Sawyerr said.

Riverside County Deputy Superintendent of Schools Paul Jessup said the state normally distributes funding for public schools every month, but it has delayed some of those allocations because of its own budgetary problems.

"That creates cash flow issues," he said by phone. "It's difficult for districts that don't have reserves."

Lisa Page, a spokeswoman for Gov. Arnold Schwarzenegger, said delayed payments were a compromise to help close a $42 billion state budget deficit, while avoiding further education cuts.

"We understand how difficult it is, which is why California was one of the first in the nation to file an application for (federal) stimulus funds," she said by phone.

The district could face further fiscal problems and cuts if Californians vote down measures intended to help close that $42 billion deficit in a May 19 special statewide election, Boyd said. The May 19 ballot includes Prop. 1B, which would provide supplemental state payments to local school districts starting in 2011-12.

Some California school districts that have experienced severe fiscal difficulties have been taken over by the state or declared bankruptcy; Val Verde Elementary School District was under state control during the 1980s.

Both Sawyerr and Kirkland expressed hope that the state would not have to take over Val Verde again.

"If there's no money," Sawyerr said, "what miracle can the state perform that we can't perform?"

VAL VERDE Q & A

Q: Why is Val Verde Unified School District in financial trouble?

A: The district must pay off a $12.5 million state fine and make a $5 million annual payment on school construction debt. This comes at a time when state funding for public education has been cut and the economic downturn has dramatically reduced revenues from developers, who pay fees to offset the cost of population growth.

Q: Will the district be able to continue paying teachers and other expenses?

A: District officials believe they can continue to pay their expenses. But they also have sent out notices to 126 employees warning them they might not have a job next year, because of the decreased state funding.

Q: How will this affect students in the classroom?

A: Layoffs could eliminate extra classes for students with difficulties learning English and math. The AVID (Advancement Via Individual Determination) program, which supports students pursuing a college education, also is at risk.

Q: How is the district planning to get out of this crisis?

A: The district is working with the Riverside County of Education to develop a multiyear plan to restore fiscal stability. It make include a short-term loan from the county to help tide the district over until it receives a regular allocation of state funds later this year.

Q: Could the state take over running the school district, or could the district declare bankruptcy?

A: District officials are hoping to avoid both possibilities. But it depends on whether the state will give Val Verde more time to pay off the fine and whether California voters approve a ballot measure in the May 19 special election that would provide supplement funding for schools.

Source: Val Verde Unified School District