Talk of insolvency at the San Diego Unified School District lay dormant for months after being a hot topic last fall and winter.

That all changed last week, when schools trustee Scott Barnett said the district is already insolvent. Barnett called on the district to cancel layoffs and declare itself broke, triggering a state takeover.

We’ve been following this story closely. Here’s a quick five-step guide to help you catch up and understand just what’s meant when we talk about the district going insolvent.

Step 1: Watch This Three-Minute Video Explainer

There’s a whole legal process that governs school district insolvency in California.

The basics are this: If a district gets to the point where it simply can’t pay its bills, the state sends in an appointed administrator to take over. The district superintendent is fired and the school board is relegated to an advisory role.

To get the district out of its immediate bind, the state would also give San Diego Unified a significant loan that the district would then be saddled with paying off for decades to come.

A key takeaway: Insolvency has never happened at a district as big as San Diego Unified. Plus, the state is in a lot of financial trouble itself, and considering the district would need a loan of potentially as much as $100 million, this would be an unprecedented test of this process.

This video, which we produced with our media partners NBC 7 San Diego, lays out the whole process.

Step 2: Read Our Background Explainer:

My colleague Keegan Kyle pointed out what is probably the most important aspect of insolvency in an explainer he wrote about the process last October:

No longer beholden to an electorate, the administrator could make politically unpopular decisions in the community that can be difficult for a board to make under pressure from parents and teachers. The school board, employees and residents could still offer their input on major decisions, but the administrator could ignore them.

Step 3: Understand How City Schools Ended up in this Mess:

San Diego Unified didn’t just wake up one day in the fiscal mess it’s in today. Rather, most of the district’s looming budget deficits over the next two years is due to a deal the district made with labor unions in 2010.

The district promised employees future pay raises in exchange for workers taking five unpaid furlough days for two years. It was a short-term fixed that staved off teacher layoffs in the first year. But the savings from those furloughs are dwarfed by the cost the district now finds itself facing for the pay raises it promised.

The pay increases are set to begin ramping up as the new fiscal year starts on July 1.

It was an epic gamble that has proven disastrous.

Step 4: Watch ‘Schools on the Brink’

Last winter, we teamed up with NBC to film a series of video explainers on the crisis at city schools. That series culminated with a live forum, at which we asked five panelists to analyze the crisis and pose possible solutions to it.

Part 1 of Schools on the Brink examined what’s at stake from the fiscal crisis. We took a look at the impact the mess is having and could have on local schools and the local economy.

Part 2 looked at how the district ended up in such a mess and how it might get out of it.

Part 3 examined the gambles the school board made with the future of the district: Promising pay raises without any guaranteed way of paying for them.

Part 4 focused on how the district could solve its problems, including taking a look at whether declaring itself insolvent is a viable solution.

Step 5: Check Out Last Week’s Action (and Read the Comments)

Last week, Barnett called for the district to essentially declare itself insolvent by rescinding the more than 1,600 layoff notices it issued this year.

His argument: The district’s plans to sell off more than $20 million worth of land, combined with the deep cuts it is making to classrooms, mean it is basically insolvent already. He thinks there’s no point in waiting for the “inevitable” day when the district can no longer legally make cuts. Instead, he said, the district should get out in front of the problem.

Here’s what Barnett said:

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.

And here’s my analysis:

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.

In response to his colleague’s rather sudden announcement, School Board President John Lee Evans held a press conference to try and tamp down concerns of looming insolvency.

Evans said the district can balance its budget, and called on Barnett to “stop panicking.”

Judging by the comments on the story, our readers weren’t impressed by that reasoning. Here’s what commenter Stephen Rosen had to say:

So, with 2,000 staff layoffs, 20% of the teachers laid off, massive historical budget shortfalls with associated cost cutting, albeit shortsighted and minimal, will someone tell me when it’s time to panic??

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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