SAN FRANCISCO - California Gov. Gray Davis Monday authorized a $100 million bailout tokeep the financially sinking Oakland Unified School District afloat.
The largest-ever bailout of a California public school occurred on the same day theCompton Unified School District was returned to local control after being under statecontrol for a decade.
The 20-year emergency aid package for the OUSD is needed to cover operationalexpenditures and will be paid back with interest. Bond payments are not affected as theyare supported by property taxes, according to John Hartenstein, chairman of the schoolfinance division and a partner at Orrick, Herrington & Sutcliffe, OUSD's bond counsel.
The district has about $320 million in outstanding general obligation debt.
"Children should not have to pay the price when a school district goes bankrupt," Davissaid in a press statement released after he signed the legislation - SB 39. "This loanwill allow Oakland Unified to continue to serve its students while working toward fullfinancial recovery."
SB 39, authored by Sen. Don Perata, D-Alameda, also calls for a new administrator toguide OUSD to economic recovery while the state's Fiscal Crisis and ManagementAssistance Team monitors the plans.
Jack O'Connell, the state superintendent of public instruction, on Monday appointedRandolph E. Ward to oversee the financial recovery as district superintendent. Hesucceeds Dennis Chaconas, who resigned at the request of Connell.
Ward assumes the office on June 16. He had served as the state administrator from 1996through 2001 for the Compton district, which the state took over in 1993. After its $20million loan was fully repaid in 2001, Ward then served as the southern Californiadistrict's trustee.
The OUSD's fiscal problems revealed themselves late last year when a new accountingsystem detected faults in the outmoded financial system it replaced. By the time theproblems were discovered, the district had overspent its budget for two years, accordingto Ruth Alahydoian, vice president at Kelling, Northcross & Nobriga, OUSD's financialadvisers.
"I am anxious to meet with the new administrator, discuss his plans for repaying theloan, as well as facility programs going forward, and then to allow him to meet with therating agencies and get the investment community comfortable with what is happening atthe district," Alahydoian said.
The OUSD has faced scrutiny from the State Allocation Board for transferring more than$33 million of reimbursement construction funds into its general fund account foroperating purposes. The district finished more that 30 school modernization projectsusing its own general funds and is hoping to be reimbursed for those costs by the state.
"Nothing has been resolved - the process continues," said Ken Hunt, a spokesman for thestate Department of General Services, which oversees the Office of Public SchoolConstruction that staffs the SAB. "Just this week General Services has contracted withan independent tax counsel. Nothing is scheduled for the allocation board to take up."
Moody's Investors Service assigns a Baa2 rating to the district, lowered from A3 inJanuary. The outlook is negative. Standard & Poor's lowered the school's GOs to BBB fromA in February and still has the debt on CreditWatch negative. Fitch Ratings does notrate the district.
Approximately 48,000 students are enrolled in the Oakland school district.
District officials did not return phone calls yesterday but according to publishedreports the system plans to lay off 330 teachers, counselors, psychologists, and otheremployees.
