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A Way to Get School Finances Back Under Control

Faced with teacher strikes, many districts are making commitments they can't afford. It may be time to establish state-level GAOs to rein them in.

Bag of money on chalkboard.
Amid demands on school districts for increased spending, a troubling trend is emerging: School district leaders are approving budgets and signing labor deals they can't afford. Facing strikes and school closures, and with public opinion backing calls for more spending, district leaders feel they have no choice but to cede to the demands.

It's a dangerous and disruptive cycle that throws these districts into financial turmoil, produces layoffs that hurt students as well as teachers, and can leave states and taxpayers on the hook for cleaning up the mess. Perhaps it is time for states to establish agencies modeled on the federal Government Accountability Office (GAO) to certify school district obligations before they take effect and push districts into financial crisis.

Leaders in Los Angeles, Oakland, Calif., and Denver are in such crisis. Earlier this year, organized labor asked for commitments that the districts couldn't afford. Teachers went on strike; students stayed home. Where district revenues were tied to attendance, revenue fell even further. Eventually each of the systems signed off on labor demands that outstripped revenues. This month, Los Angeles voters rejected a parcel tax that the school district was relying on to cover the contract promises it had already made. The Oakland school district followed its strike with 100 job cuts, drawing ire from employees and the community. And Denver gutted its central leadership team to pay for its raises.

This financial overcommitment appears to be growing more prevalent, and not just with mega-districts mired in big-city politics. Last fall, for example, dozens of school districts in Washington state signed multi-year labor contracts with obligations they openly acknowledged they could not meet beyond the current year's surplus. Leaders in Tacoma granted a 14 percent raise even as the district was projecting a $38 million deficit for the 2019-20 school year. The Edmonds district granted some teachers 20 percent raises amid an $18 million budget shortfall. With the problem so widespread, state lawmakers stepped in with a funding patch in the final hours of the legislative session to mitigate layoffs. The resulting funding changes eroded hard-fought gains, a decade in the making, to foster equity among wealthier and poorer communities.

While the financial issue seems to be exploding, it isn't entirely new. For years, districts have been promising benefits to retirees that they couldn't afford. As a result, these systems are already effectively operating beyond their means, using some of the money intended for today's students to pay retirement costs for teachers who have long since left the district. What's different is that this new wave of promises threatens district solvency not for the faraway future but for today.

The crux of the challenge is this: School districts manage the roughly $650 billion spent annually on public education, and those local leaders are under growing pressures to say yes when demands are made, with community groups, public officials and even celebrities piling on. When teacher strikes close schools, district leaders feel backed into a corner with no leverage and no support for producing a balanced budget. That's when they cave.

Take Puyallup, Wash. Last September, its teachers went on strike and won raises of more than 10 percent. Six months later, the district announced staff layoffs forced by the large raises. That reckoning sparked a teachers' "no confidence" vote in the superintendent, who has since announced his departure.

In many states, the standard playbook for an insolvent school district is for a state-appointed operator to impose harsh financial restructuring, sometimes with temporary bailout funding. But by then the damage has already been done. "Right-sizing" the district causes enormous pain, with widespread layoffs and school closures that destabilize communities and services for students.

A better scenario would be to prevent districts from getting into the over-promising mess in the first place. States could restrict districts from obligating funds when the revenue to pay for those obligations isn't there. An independent, nonpartisan state GAO may offer a needed check and re-balance of power when districts face demands to spend money they don't have.

States could require the GAO's signature to ensure that district obligations, including budgets and labor contracts, are fiscally sound. If the GAO doesn't certify the obligations, the prior-year spending arrangement would stay in place while the district and relevant partners brainstorm financially viable alternatives.

Some states have county oversight or fiscal governing boards to oversee school district spending. Often, however, such boards have no power to disallow or revoke obligations once the district has approved them. But that check seems to be just what's needed when a district is no longer able to responsibly steward public funds. If prevention is the best medicine, a state GAO might be able to deliver a much-needed dose.

A research professor at Georgetown University and director of the Edunomics Lab
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