In a sternly worded letter expressing “concern” and “alarm” about the way the Pasadena Unified School District has been managing its dwindling budget, county officials warn the PUSD to get its financial house in order — or else.

In the Jan. 19 letter addressed to PUSD Board of Education President Roy Boulghourjian, Candi Clark, chief financial officer for the Los Angeles County Office of Education, LACOE, spells out just how broke the district really is — unable to meet its basic financial obligations, let alone save anything to feed into a state-mandated reserve fund.

Over the past three years, Clark writes, “Not only were planned expenditure reductions not implemented, the district has also committed itself to additional ongoing expenditures, placing the district in immediate risk of becoming insolvent.”

Boulghourjian did not return a phone call seeking comments for this story.

To rectify the problem, the county is requiring the district to have the Board of Education approve a “Fiscal Stabilization Plan” no later than Feb. 26. 

In a written statement, Superintendent Brian McDonald said district officials are taking steps to change the budgetary process. 

“PUSD began the school year with a $5.7 million shortfall and anticipated reductions of $12 million in the subsequent two years,” said McDonald. “Instead of making across-the-board cuts, our district embarked on a deliberate and thoughtful process to change the way we plan and budget. In order to address declining or flat revenue, rising costs, and unsustainable cost structures that call for automatic increases every year, we are right-sizing the district so that we simultaneously become more efficient and effective and continue to offer the vibrant educational programs that prepare our students for success in college and careers.”

Last summer, the school board began that process by reviewing data and setting priorities for the year, which included revising the budget planning process.

After the budget was approved in July, PUSD Chief Business Officer Bernadette Griggs called it “very, very thin.”

According to Griggs, that budget has no usual built-in contingency to provide funding for mandatory reserves.

“This is all we have,” Griggs said at the July 22 board meeting.

At that time, McDonald called the district’s budget a “dire situation” and issued a warning that the district faced the danger of “going insolvent in the next few years.”

One month later, the school board adopted a resolution directing staff to identify $15 million in reductions.

In December, the board adopted its First Interim Budget Report with a negative certification that called for mid-year reductions and the adoption of a fiscal stabilization plan that included more than $12 million in reductions. 

Since then, $6.9 million in suggested cuts and new revenue have been identified for fiscal mid-year cuts in January and another $11.7 million in cuts have been identified in suggested reductions to next fiscal year’s budget, which begins July 1, to satisfy requirements laid out in the fiscal stabilization plan. 

The board is scheduled to take action on the plan in February, before the district’s revised report is submitted to LACOE.

When asked if there was still a risk of the district becoming insolvent, “We’ve taken the steps to avoid that happening,” said PUSD spokesperson Hilda Ramirez.

To help in this process, LACOE will be providing a “fiscal expert” at the district … “to assist in the development and implementation of the plan.”

LACOE is prepared to elevate the “fiscal expert” to “an advisor,” one “with stay and rescind authority if the district does not make satisfactory progress.”

It was not immediately clear what that actually means. But another county school district under similar financial straits, Montebello received a similar letter and in it officials explained that if the adviser’s authority is increased, that person could override the school board and any board action or retroactively veto former board decisions “that the advisor deems inconsistent with the school’s district’s ability to meet its financial obligations.”

Clark was clear regarding her alarm at what was happening in Pasadena.

“We are very concerned by this level of deficit spending and its negative affect on the district’s fiscal solvency,” Clark wrote in the letter to PUSD. “The district must take immediate steps to reduce the current year deficit spending, and ensure its fiscal stabilization plan addresses deficit spending in the current and two out years.”

Currently, the district is projecting deficits of $21.2 million next fiscal year and $23.9 million for the 2019-20 fiscal year.

LACOE is calling for cuts to special education, an increase in the district’s insurance fund workers’ compensation program, and close monitoring of enrollment trends. School funding by the state is predicated on student daily average attendance, with funding cuts corresponding to steep and ongoing reductions in the district’s student population.

Furthermore, negotiations between district officials and certified and classified employees remain unsettled and potential changes caused by raises and benefits have not been calculated into projected salary and benefit expenditures.

“Because labor costs make up the majority of the district’s budget, we are concerned that any salary and/or benefit increases will continue to negatively affect the fiscal condition of the district,” Board member Scott Phelps wrote in a recent opinion piece appearing in the Pasadena Weekly.

If the school district is ruled insolvent, the school board would be forced to cede control over the district to LACOE. Schools would remain open, however.

In his column published on Jan. 4, Phelps said that the district may be forced to close some schools to save money. 

“It is a newer reality. No longer can increases in state funding, combined with attrition of staff via retirements, keep up with increased costs and declining enrollment without making significant reductions to staffing annually,” Phelps wrote. “Some of these staff reductions may have to be made through the closure of schools, since some of PUSD’s very high number of schools is now very small. The board closed four schools for the 2006 school year and two for the 2011 school year. While this is difficult for the school communities, it may be required again soon.”

In his annual State of the City Speech on Jan. 16, Mayor Terry Tornek called for a three-quarter cent sales tax increase to generate more than $21 million annually. One third of that money would go toward funding the school district.

“If they are to continue their efforts to improve educational outcomes for our children, they need our support,” said Tornek. “We cannot have a great city without a great public school system.”

At the council’s Jan. 29 meeting, there was some pushback on the mayor’s proposal.

Councilman Victor Gordo said he would only support providing money to the PUSD if an accountability mechanism was added to the tax increase.

“We have a responsibility to the voters,” Gordo said. “There should be a clear reporting mechanism of PUSD’s spending.”