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The public proclamations that the San Diego Unified School District faces a state takeover dropped like bombshells this month, but district leaders have had serious discussions about insolvency both publicly and privately for years.

At one point more than two years ago, former Superintendent Terry Grier was so concerned that school board members didn’t grasp insolvency’s consequences that he scheduled a private briefing from perhaps the state’s foremost expert on it, San Diego County Office of Education Superintendent Randy Ward.

“We’d just had numerous discussions with them about the possibility of insolvency. They just didn’t believe the state elected officials could or would allow it to happen,” Grier said. “There was even early discussion about how becoming insolvent might be the right thing to do.”

Ward knows state takeovers well. The state appointed him to take over Oakland Unified School District after it went broke in 2003. He unilaterally ran the district, cleaning up its finances after the superintendent was fired and the elected school board became an advisory council.

When he met with them, Ward didn’t tell the board members they were headed for insolvency. Rather, he explained what would happen and how the district would need to take drastic measures to avoid it. “He also rang that warning bell loud and hard,” Grier said.

At least twice since that meeting, while the state continually cut funding to local schools, the school board has made high-stakes gambles that state finances would improve or that school spending would significantly increase. In light of California’s continued economic problems and those serious ongoing discussions about insolvency, those gambles have begun to look misguided at best and reckless at worst.

District officials have cast the financial crisis as one wholly of the state’s making, but talk of insolvency has always hung over the financial gambles the district’s taken in order to keep class sizes small and teachers employed in the short-term. The long-term consequences of those decisions only compound the trouble handed down by the state.

Just a year after Ward’s talk, the school board entered into a labor contract that, while providing short-term relief, saddled it with burdens it may well not be able to handle. The contract was, by the board president’s own admission, a “gamble.” Then, this summer, the board voted to rehire hundreds of teachers based on rosy state projections, despite advice to the contrary from their staff and consultant.

Now, with the state’s projections looking unlikely to materialize, school board President Richard Barrera is calling for the state to levy taxes on the wealthy, oil extraction or alcoholic beverages to save school districts from insolvency.

Grier, who left the district in 2009 for Houston, said the district’s dynamics changed when the teachers union’s slate of school board members, John Lee Evans and Richard Barrera, were elected in 2008 and joined with Shelia Jackson to form a pro-labor voting block.

When Barrera and Evans joined the board, Jackson put together a plan to cancel teacher layoffs that had been issued before their election, a move the new board approved unanimously.

Grier said the move went against staff’s advice and had little justification as the district’s enrollment had been shrinking for the better part of a decade and the teachers simply weren’t necessary.

At the time, then-board member Katherine Nakamura said schools were fully staffed and it would be hard to even find places to put the teachers. She warned of the bad timing, too, considering the state’s plight. “You don’t eat a jelly donut in the middle of a heart attack, no matter how sweet it might be.”

Nakamura ended up voting for the plan, though, saying she wanted to move the board forward.

Barrera said his decisions have nothing to do with his relationship with, and support of, labor unions. He said his relationship with the teachers union has soured thanks largely to his vote in favor of layoffs earlier this year.

Make no doubt about it: The state Legislature has made severe changes to the way it funds K-12 education, offering districts 15 percent less money than it did just a few years ago. And it’s not even giving the districts the smaller checks it promised, forcing them to borrow money every year and bank on IOUs. That’s put districts around the state in serious trouble.

In response, San Diego Unified has made its own harsh changes. It’s cut staffing by 15 percent since 2009 and this year it ultimately laid off more than 1,000 workers, including 500 teachers. The threat of insolvency, for example, popped up during the school board’s public deliberations about whether to issue layoff warnings to teachers this March.

Today, district leaders say they’ve cut to the bone and are now evaluating closing some schools. Teachers agreed to shorten the school year by five days the last two years, taking five unpaid days off and saving the district about $20 million.

But, despite those major changes, the school board has been banking on the state Legislature upping education funding or a roaring economy to come to the rescue before the consequences of some of its long-term decisions come due. Every cut that wasn’t made a year ago compounds now, and only deepens the budget pain when it eventually has to be made.

Barrera said every budget decision he’s had to make has involved risk. “We either risk the education of kids or we risk the financial health of the district, that’s the situation we’ve been in, over and over and over again,” he said.

The issue to Barrera is one of drawing a line in the sand.

The board has already made cuts that have raised class sizes to an unacceptable level and impacted the welfare of children, he said, but there’s a point the board simply can’t cross. If refusing to make cuts entails gambling against the financial health of the district, then that’s what he’s got to do, he said.

Choose against the financial health of the district too often, though, and you eventually run out of money to even keep a school district functioning.

That’s the situation the district faces today.

It’s already staring at a $60 million deficit for next year after managing a roughly $80 million deficit this year. It has a rather vague list of solutions to fund that deficit, from closing schools, to selling off land, to asking the union to make concessions on teacher salaries and benefits. All that will have to be decided soon.

If the state’s optimistic revenue forecast fails to materialize, next year’s deficit could nearly double for and the district will have to find more ways to cut without laying off teachers. So far, the only solution that’s been floated for that problem is shortening the school year by seven days, a proposal that, again, the district would have to negotiate with its unions.

If the state goes ahead with the threatened midyear cuts, Barrera and Superintendent Bill Kowba say the district will be on its way to insolvency. If the district goes insolvent, it will get taken over by the state and local control would be eviscerated.

Budget decisions would be made unilaterally by a state-appointed trustee. The superintendent would be fired. The school board would be advisory. The state would have some power over school finances for decades as the district paid back its bailout loan.

Kowba, a former rear admiral in the Navy, served as Grier’s chief financial officer. Grier said Kowba had continually raised red flags for the school board.

However, he said, often staff’s warnings to the board went unheeded.

“We knew the cuts were going to be painful. We also knew from everyone we talked to that this was not going to get better. We kept sharing that with the board. They were in a hard position, I don’t envy them,” Grier said. “But they kept going in the opposite direction that staff recommended.”

You can reach us at andrew.donohue@voiceofsandiego.org or will.carless@voiceofsandiego.org. Follow us on Twitter:

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