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Things have gotten to the point at the San Diego Unified School District that its top two officials are tossing around a big word: insolvency.

Here’s Superintendent Bill Kowba, according to the Union-Tribune:

“Barely one month after school has opened we are at the edge of the cliff, looking over and down at insolvency,” Kowba told the school board Tuesday night. “We are facing the reality of midyear budget cuts that could be the starting point on the road to insolvency and state takeover.”

School Board President Richard Barrera also told the paper insolvency was a potential reality. So how’d we end up here? Here’s quick guide to understanding the district’s money mess in three easy steps.

1) First, watch our video explainer with NBC 7 San Diego on “the ticking time bomb” in San Diego Unified’s finances:

2) Read our recent investigation showing how the district’s own decision-making has compounded the state’s shortchanging of schools. 

Or, if you’re into brevity, just read the key lines:

The district has been grappling with deficits for several years. Steadily increasing salary and benefit costs, combined with deep cuts from the beleaguered state, have forced San Diego Unified to significantly reduce services like school busing and lay off more than 1,000 people.

But while the state’s problems continue to burden districts across California, San Diego Unified has potentially exacerbated their effect with a series of decisions that threaten to further erode class sizes, beloved programs and its overall financial footing.

3) Understand the gamble the district and state just made, and how it could already backfire.

Again, from our investigation:

This spring, as state legislators faced the threat of losing their own paychecks if they didn’t come up with a compromise on the budget, they chose to make their own gamble with the state’s finances.

Legislators passed a budget that projected California’s tax revenue would increase by $4 billion over the next year, the result of a rejuvenated economy.

They also gave districts a confusing mandate on what to do with the unexpected money: rehire teachers and don’t worry about what happens if those optimistic projections don’t pan out.

San Diego Unified had previously planned to lay off about 10 percent of its workforce — 1,400 jobs, including 800 teachers.

The school board, which has made keeping class sizes small one of its top priorities, immediately decided to reduce the number of teacher layoffs by more than 300 when it got word from the state.

More cautious voices within the district suggested saving, rather than spending that money.

If the state doesn’t get the extra $4 billion it’s hoping for, San Diego Unified will end up getting less money this year, not more. That would further complicate the district’s financial problems.

Because San Diego Unified has already committed to spending that money, it will have to add $30 million to the deficit it’s facing, the district estimates. That will bring the total deficit at the start of the 2012-2013 fiscal year to around $87 million.

And this is what brings back to this week’s talk of a state takeover.

From the U-T’s story:

The state budget signed in June includes automatic cuts to schools of $1.5 billion if revenues fall short of projections by more than $2 billion. State revenues are about $705 million below projections for the first three months of the fiscal year.

The decision about whether to pull the triggers will be made in December. …

San Diego Unified would offset midyear cuts with about $24 million in reserves, selling property and laying off some nonteaching employees. Under that scenario, San Diego Unified would face a deficit of up to $118 million for the 2012-13. The current operating budget is $1.057 billion operating budget.

“If $30 million midyear cuts happen, we cannot solve that problem — we cannot cut another ($118 million) out of our budget,” said board President Richard Barrera. “Is insolvency real? Yeah, with midyear cuts.”

I’m the editor of VOSD. You can reach me at andrew.donohue@voiceofsandiego.org or 619.325.0526.

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