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Seven months ago, school board trustee Scott Barnett came up with a plan to fix the San Diego Unified School District’s financial problems. He wanted employees to take an across-the-board pay cut that would avoid city schools having to endure hundreds of layoffs.

That plan didn’t get much traction.

Now, Barnett’s got another plan: He wants the district to declare itself insolvent, roll back the 1,600 layoffs it has announced, and pass a budget that’s nowhere near balanced.

It’s a financial kamikaze that would place the district in the direct control of a state-appointed trustee. The superintendent would be fired and the school board would be relegated to an advisory board, with the trustee making all of San Diego Unified’s budgetary decisions instead of politicians.

But Barnett thinks there are distinct benefits to declaring insolvency now. He says the district could keep schools fully staffed until next spring, and he says it’s time for a new system of running city schools, since the school board has effectively run local education into the ground.

Like last October, Barnett doesn’t really seem to believe he has much of a chance of gleaning any votes for his plan from his four colleagues on the school board.

Then again, he doesn’t really care how popular his ideas are. The mess at the district he’s in charge of has Barnett awake at night, and he says he’s looking for a solution the only way he knows how after 30 years in local government: By charting a course that will ultimately lead to local children getting a better education, he says.

Let’s take a look at some of the core parts of Barnett’s plan. In each case, I’ll let him explain his ideas in his own words. Then I’ll add some analysis and let other players in the district and experts weigh in too.

Barnett Says: ‘The District’s Already Insolvent’

I feel like I’m in a 3-D movie with my board colleagues, but I’m the only one who’s been given the glasses.

I believe we are essentially insolvent today. If you have a household that, in order to pay their mortgage, has to dip into their savings and, in order to buy groceries, needs to sell their furniture, they’re basically insolvent.

We are in that situation.

Even after laying off some 2,000 employees, we’re going to have to sell some $20 million of prime real estate in the worst real estate recession since the Depression, in a fire sale. And we’re going to reduce all our cash balances down to zero. And that’s just next year. The year after that, we’re facing another $100 million shortfall.

Analysis:

Technically, the district becomes insolvent when it can no longer pay its bills with the revenue it has coming in. But what if the district just keeps cutting and cutting — making its bills smaller and smaller each year?

Barnett considers that “being insolvent.” But, at least in strict legal terms, the district is certainly still afloat.

Former district CFO Ron Little, who arguably knows more about San Diego Unified’s budget than anyone, didn’t agree with Barnett. He said as long as the school board goes ahead with the layoffs currently in place, or employee unions come to the table with concessions, and the district sells off its land, it can survive the next fiscal year.

But that’s only if there are no further budget shocks from the state, Little said.

However, there is only, legally, so much the district can cut. School districts are required by state and federal law to meet certain standards. For example, the student-to-teacher ratio can only be so high, and districts are mandated to transport some children to and from school.

Barnett doesn’t think the district can legally cut enough out of its budget to get it through the 2013 – 2014 school year.

Little said the district does have some plans to deal with that looming deficit, but said it’s too soon to tell yet whether the district can make enough cuts to make it through.

Which brings us to Barnett’s next point.

What Barnett says: With Insolvency Surely Pending, the District Should Take Control of Its Fate

What we need to do is, instead of waiting for [insolvency] to happen to us in 2013 – 2014, after we’ve devastated schools and sold our land, we have to proactively, this next year, trigger it ourself.

The way we trigger it is, we rescind the layoffs.

By rescinding the layoffs and keeping class sizes the same as they are this year, and other services at the same level, we have a budget we can’t fund. We are starting the process of insolvency.

We declare a financial state of emergency. We hire a firm that helps reorganize insolvent school districts. Then we form a high-level insolvency advisory board of elected officials. …

We need help. We need help from everywhere we can get it.

Analysis:

Barnett’s plan gets a bit dry from here on in (anyone interested will be able to read the full written plan when we put it up on the site tomorrow), but the basic gist of it is simple: The district corrals local leaders, from school board members, to the mayor, to state legislators, into a series of committees.

Sprinkle those guys in with representatives from the community and local labor unions, and then everybody meets in committees and debates a way forward for the district.

Whether San Diego Unified can actually do that, however, is unclear.

The state already has a set process for school districts in insolvency. It revolves around the district getting a big fat loan from the state, which it then has to pay off for decades to come.

Ron Bennett, an expert on school district insolvency, said each process is different. Every loan from the state to a school district comes in the form of a piece of legislation, he said.

That legislation can be written to suit the needs of each particular case, Bennett said, and it’s theoretically possible that a state loan could come with the proviso that committees like the ones Barnett is suggesting would have some say in reshaping the district going forwards.

But Bennett said what Barnett is suggesting would also be “highly irresponsible.” Any benefit that might come from having San Diego Unified’s insolvency somehow guided by committees would be far outweighed by the costs that come with the process, Bennett said.

And that brings us to Barnett’s third point:

What Barnett Says: Declaring Insolvency Now Stops Classrooms Being Hurt

This is a step I’m willing to take in order to avoid the devastating impacts to schools next year.

We’re at a point now where, even if the unions were to give concessions, it’s not going to be enough.

Even the plan I proposed last October falls way too short now. We’re too far gone. If we’re going to be insolvent, let’s get another year of the full complement of appropriate class sizes and other services, and not sell our assets in a fire sale.

Analysis:

In the short-term, that would be good for local kids, who wouldn’t see class sizes rise or services like nurses or counselors drop.

But Bennett cautioned that insolvency is an awful, last-ditch course for a school district to take. Insolvency saddles a district with expensive debt that severely encumbers it going forward, he said.

“I would never, ever recommend it. If they did that, I would say the school board had not discharged their duties,” Bennett said.

The bottom line is this: Whoever is in charge at the district, whether it’s the school board, a series of committees made up of local politicians, or a state-appointed official, the options available to keep the district afloat aren’t going to change.

What Barnett’s plan is really about, then, is putting the difficult decisions in the hands of someone (like a state trustee) who he thinks is more likely to make the tough decisions Barnett thinks the board should be making.

And, on this, he might be right.

The current school board has balked several times at making cuts that are politically sensitive. And, the board put in place the series of salary increases that is largely to blame for the current mess the district is in.

Bennett, who has served as a state-appointed trustee before, said he would never have agreed to those raises.

And he said they would be the first thing he would get rid of if he was put in charge of San Diego Unified.

Will Carless is an investigative reporter at voiceofsandiego.org currently focused on local education. You can reach him at will.carless@voiceofsandiego.org or 619.550.5670.

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Will Carless

Will Carless was formerly the head of investigations at Voice of San Diego.

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