California State Auditor Report Number: 2015-101

Inglewood Unified School District
The State Superintendent of Public Instruction Needs to Better Communicate His Approach for Reforming the District

Introduction

Background

The Inglewood Unified School District (district), founded in 1953, serves approximately 11,000 students in the city of Inglewood and the Ladera Heights community in Los Angeles County. As shown in Figure 1 below, the district operates 10 elementary schools, two middle schools, two transitional K‑8 schools, three high schools, and a continuation high school. Before September 2012 the district was governed by a five‑member school board (governing board), with members elected by the community to a four‑year term. In the past, the governing board directly appointed a superintendent, who was responsible for the general administration of all of the district’s instructional and business operations. However, after years of declining revenues and deficit spending, state law required the State Superintendent of Public Instruction (state superintendent) to take control of the district in September 2012 as a condition of providing emergency funding.

Figure 1
Locations of Inglewood Unified School District Schools

Source: California State Auditor’s analysis of the website www.locator.decisioninsite.com/?StudyID=187502.
Note: Inglewood Unified School District boundaries consist of the city of Inglewood and the unincorporated community of Ladera Heights.

* City Honors College Preparatory Academy is located at the site of Crozier Middle School.

The District’s Finances Were Deteriorating Before State Intervention

The district’s finances suffered during the recent fiscal crisis from the State’s decision to delay educational funding to local education agencies and school districts statewide. Between fiscal years 2009–10 and 2013–14, the State delayed millions in funding to the district, making it more difficult for the district to have the cash necessary to pay its bills. Aside from the district’s cash‑flow challenges, the total revenue to its general fund had been declining, from $121.6 million in fiscal year 2010–11 down to $108.2 million the following year. The district also saw its financial reserves decline, dropping from about $7.9 million (or 6.1 percent of district spending) in fiscal year 2008–09 to just about $600,000 (or 0.5 percent of district spending) in fiscal year 2009–10. State regulations recommend that school districts similar in size to the district reserve an amount equal to 3 percent or more of total spending. Figure 2 below shows the extent to which the district financial reserves have declined through fiscal year 2011–12, the last fiscal year before the State took over.

Figure 2
Actual and Recommended Reserves in the District’s General Fund as a Percentage of Total Expenditures
Fiscal Years 2005–06 Through 2011–12

Source: Supplementary information contained within Inglewood Unified School District’s audited financial statements for fiscal years 2007–08 through 2011–12.

Declining enrollment has also played a role in the district’s financial strain. State funding for local education depends largely on the average daily attendance of students, and attendance in the district has been decreasing since before the State’s fiscal crisis. Between fiscal years 2005–06 and 2015–16, the district’s average daily attendance is projected to have decreased by approximately 27 percent—from about 15,000 students to about 11,000 for the current fiscal year. According to the district’s former chief business official (business official), fewer school‑age children are now residing in the district than in previous years—due to declining birth rates—and an increasing number of students are enrolled in charter schools operating within the district’s boundaries.

The district’s worsening financial condition prompted the Los Angeles County Office of Education (county office of education) to intervene in December 2010. The county office of education is a state‑funded public agency, led by the Los Angeles County Superintendent of Schools (county superintendent), that promotes the academic and financial stability of the 80 public school districts in Los Angeles County. The county office of education provides fiscal oversight to the district by reviewing and commenting on the district’s budgets and interim financial reports as the California Education Code (education code) requires. The county office of education is also responsible for advising the state superintendent if any districts are in financial distress and if they need state assistance.

Following the county office of education’s decision in August 2010 not to approve the district’s budget for fiscal year 2010–11, and following a determination from the Fiscal Crisis Management Assistance Team (FCMAT) in November 2010 that the district was in need of intervention and was facing fiscal insolvency, the county office of education assigned a fiscal advisor to the district beginning in December 2010.² The fiscal advisor’s role was to monitor, assist, and intervene in the financial operation of the district. The fiscal advisor was also to provide guidance and advice to foster long‑term financial stability, take a leading role in the development and administration of the district’s budget, and assist the district in creating a fiscal recovery plan. The fiscal advisor had the authority to overrule the governing board’s actions if those actions threatened the district’s finances.

Despite the county office of education’s involvement, the district’s financial condition did not improve, and in May 2011 the county office of education authorized the district to temporarily borrow from its other funding sources in order to meet its financial requirements for May and June 2011. Additionally, in March 2012 the district secured a $17.4 million short‑term loan to maintain its operations. In June 2012 the district attempted to obtain a second loan for $13 million, which the county office of education denied because it believed that the district would be unable to repay the loan. Against the backdrop of the district’s deficit spending, reduced state funding, and inability to meet its financial obligations, both FCMAT and the county office of education recommended that the district apply for a state loan. Finally, in July 2012 the district’s governing board approved a resolution requesting an emergency loan from the State, citing that the district would run out of cash by January 2013.

The State Took Control of the District as a Condition of Providing an Emergency Loan

In September 2012 the governor signed Senate Bill 533 (SB 533)(Chapter 325, Statutes of 2012), which appropriated funds for an emergency loan of up to $55 million from the State’s General Fund for the district. Once the governor signed the bill, state law required the state superintendent to assume all legal rights, duties, and powers of the district’s governing board.³ State law also required the state superintendent to appoint, in consultation with the county superintendent, a state administrator to act on his behalf in carrying out certain requirements. Additionally, the Legislature expressed its intent that the state administrator work with district staff and the advisory board (the former governing board) to improve student achievement and to manage fiscal expenditures in a manner consistent with projected revenues.

State law establishes the criteria for the district’s return to local governance and defines the responsibilities of the state superintendent and the state administrator in achieving that return. As detailed in the Appendix, state law requires the state administrator to submit specific plans and reports pertaining to the district’s financial condition and recovery efforts to the state superintendent for approval before a return to local control. For example, state law requires that both the state administrator and state superintendent conclude that the district’s future compliance with the recovery plans is probable before the state superintendent can return the district to local control by restoring the powers of the governing board. When this occurs, the state superintendent appoints a trustee with powers to overrule any action by the governing board that threatens the district’s financial condition. After the state superintendent ends the trustee’s period of service, until the state loan is repaid the county superintendent has the power to stop any action of the district’s school board that may affect the financial condition of the school district. The district’s repayment plan for the $29.1 million state loan spans 20 years, with annual payments of $1.8 million due November 1, 2014, through November 2033.⁴

State and Local Organizations Oversee the District’s Improvement Efforts

The California Department of Education’s (Education) director of the School Fiscal Services Division (fiscal director) serves as the state superintendent’s day‑to‑day representative and assists with providing direction and supervision to the state administrator. As part of his duties, the fiscal director monitors the district’s financial reports and at times participates in meetings with the state administrator to monitor the district’s fiscal solvency and the status of its reform efforts. According to the fiscal director, he and his staff maintain frequent communication with the state administrator and district staff through email, telephone, and in‑person meetings.

State legislation authorized the establishment of FCMAT to provide local education entities with fiscal and managerial oversight and assistance. Before the state superintendent assumed control of the district, FCMAT provided the district with financial management assistance at the county office of education’s request. For example, in April 2011 FCMAT reviewed the district’s cash balances to determine the district’s fiscal solvency. Previously, in November 2010, FCMAT assisted the district with developing multiyear financial projections. FCMAT reported that it played a significant role in determining the size of the state loan. Then, once the state superintendent took control, state law required FCMAT to conduct a comprehensive assessment of the district in five major operational areas: community relations and governance, personnel management, pupil achievement, financial management, and facilities management. Each operational area is governed by standards that, according to FCMAT, are updated to ensure continued alignment with industry best practices and with applicable state and federal law. Subsequent to the comprehensive assessment, FCMAT’s role is to consult with the state superintendent as he determines the amount of improvement the district needs to make; then FCMAT completes improvement plans that focus on the agreed‑upon improvements. Further, state law requires FCMAT to file written status reports annually with the Legislature, the state superintendent, and others indicating the progress the district is making. When evaluating the district, FCMAT provides scores for each standard it evaluates using a scale of 0 to 10, as described in the text box.

Before the state superintendent returns the district to local control, Education’s fiscal director stated that the district is expected to attain an average minimum score of 6 out of 10 in each operational area, which is a score that means only portions of the standards in that area have been implemented and full, sustainable implementation is not yet complete. The state superintendent further requires that no individual standard’s score be less than 4.⁵

Scope and Methodology

The Joint Legislative Audit Committee (audit committee) directed the California State Auditor to conduct an audit of the state superintendent’s implementation of SB 533 as it relates to the State’s control of the district. We list the objectives that the audit committee approved and the methods we used to address them in Table 1.

Table 1
Audit Objectives and the Methods Used to Address Them

Audit Objective		Method
1	Review and evaluate the laws, rules, and regulations significant to the audit objectives.	Reviewed the relevant laws, regulations, and other background materials applicable to Inglewood Unified School District (district).
2	Assess the State Superintendent of Public Instruction’s (state superintendent) role in appointing and overseeing the district’s state administrators and trustee, including the following:
	a. Identify how the superintendent selected all the state administrators/trustee appointed to date.	Interviewed staff at the California Department of Education (Education) to determine the selection process for state administrators/trustee. Obtained and reviewed available documentation regarding the selection process for all three state administrators. There was no formal selection process of the district’s interim state administrator who served roughly six months.
	b. Identify the degree of direction and supervision the state superintendent has provided to the state administrators/trustee. For the longest serving state administrator (second state administrator; July 2013 – September 2015), we performed the following:	Interviewed the state superintendent’s director of the School Fiscal Services Division and the second state administrator to understand the guidance provided and how such guidance was delivered. Reviewed the appointment contract between the state superintendent and the second state administrator to identify performance expectations, and what district-specific performance goals, if any, existed for its fiscal and academic recovery. Reviewed the district’s management and recovery plan and multiyear financial recovery plan, evaluating whether the state superintendent or his staff approved these plans.
3	Assess the extent to which the district’s state administrators/trustee implemented applicable state law related to Senate Bill 533 (SB 533) (Chapter 325, Statutes of 2012), including the intent of Section 41325 and the requirements of Section 41326 of the California Education Code (education code) regarding administrator and trustee responsibilities, including the following:	Identified the duties of the state administrator as outlined in SB 533 and in applicable sections of the education code.
	a. Determine the extent to which the district’s state administrators/trustee implemented substantial changes to the district’s fiscal policies.	Interviewed key district staff to understand their perspectives on the district’s finances and the actions they have taken. Reviewed various financial reports to understand the revenues and expenses from the district’s general fund. Evaluated the extent to which the district has spent more than it has earned between fiscal years 2008–09 and 2014–15.
	b. Assess whether the district’s state administrators/trustee revised the educational program to reflect realistic income projections to improve educational quality and student success.	Reviewed the district’s 2014 and 2015 local control accountability plans (LCAPs) to determine what the district’s planned action steps are for increasing academic performance and the budgeted funding associated with those actions. Interviewed key district personnel to obtain their perspectives on changes made to this district’s academic programs.
	c. Determine whether the state superintendent, his administrators, or the trustee engaged with teachers, school employees, and parents; describe the nature of the engagement; and identify the subsequent outcomes that occurred.	Reviewed the district’s draft communications plan. Interviewed district staff to determine steps taken to engage with school employees and parents. Looked for examples where the public had opportunities to comment on the district’s decisions or planning documents, and identified the outcomes of those discussions, when possible.
4	Determine whether the state superintendent properly prepared, obtained, and submitted to the Legislature and other appropriate parties all applicable documents required by applicable state laws regarding the Los Angeles County Office of Education’s (county office of education) fiscal oversight of the district that include options for resolving the district’s fiscal problems.	Interviewed key Education staff to determine why the state superintendent did not conduct a review of the county office of education. Reviewed the county office of education’s oversight of the district’s finances prior to state control.
5	To the extent possible, perform the following:
	a. Determine the time frame in which the state superintendent plans to restore the fiscal solvency of the district and assess whether the steps the state superintendent is taking to return the district to fiscal solvency are reasonable.	Reviewed the district’s multiyear financial recovery plan, financial reports, and budget for fiscal year 2015–16. Determined the extent to which the district has spent more than it earned, both before and after the state superintendent assumed control of the district. When possible, attempted to identify specific actions taken by the second state administrator to reduce the district’s costs.
	b. Identify the steps being taken to ensure student achievement.	Reviewed LCAPs to identify goals, plans, and actions designed to improve student achievement.
	c. Assess whether the state administrators’/trustee’s actions—past, current, and planned for the future—are sufficient to provide the district’s students a quality education.	Reviewed LCAPs to identify actions designed to improve student achievement. Reviewed the three Fiscal Crisis and Management Assistance Team’s reviews of the district to identify improvement areas for the district, including pupil achievement.
6	To the extent possible, identify any relevant additional steps the State, district, or county office of education need to take to ensure compliance with SB 533.	Identified actions as expressed in SB 533 and relevant state law necessary to exit state receivership, and analyzed the district’s compliance with and progress toward meeting the requirements. Determined the district’s progress toward implementing the advisory board training required by SB 533. Interviewed key Education staff and the state administrator to determine what conditions are being used to determine that the district is ready to exit control.
7	Review and assess any other issues that are significant to the implementation of SB 533.	Evaluated the extent of the consultative role of the Los Angeles County Superintendent of Schools during the appointment process for a state administrator.

Sources: California State Auditor’s analysis of the Joint Legislative Audit Committee’s audit request 2015-101 and information and documentation identified in the table column titled Method.

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Footnotes

² State law created FCMAT to help local education entities with fiscal and managerial oversight and assistance. Go back to text

³ When the state superintendent assumes control of a school district for financial reasons per Section 41326 of the education code, the district’s superintendent is terminated, and the school board becomes an advisory board reporting to the state administrator. Members of the advisory board have no rights, duties, or powers, and they are not entitled to any compensation from the district. Go back to text

⁴ The district has used only $29.1 million of the $55 million a state loan authorized by SB 533. Go back to text

⁵ According to Education’s fiscal director, the scoring minimums were originally a requirement for Compton Unified School District, and these minimums have been used as the standard since that time. Go back to text

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