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Sitting with Oakland School Board of Education President Noel Gallo, left, State Superintendent of Public Instruction Jack O'Connell signs a document returning local control to the Oakland Unified School District during a press conference in Oakland, Calif. Monday, June 29, 2009. The district had been under state control since 2003. (Kristopher Skinner/Staff File)

OAKLAND -- Eight years after the Oakland school district's financial meltdown and state takeover, the local school board can't seem to shake past mistakes -- including some made by the state agency tasked with restoring its fiscal health.

In addition to its debt of $74 million, the school district until recently faced a $22 million fine for accounting errors made on the state's watch, according to figures from the state controller's office.

An appeals board recently reduced the audit penalties, but other findings could yet emerge from the six-year period when the district was run by appointees of Jack O'Connell, the former state superintendent of public instruction. The Oakland school board regained its governing powers in 2009; the controller's office is just now completing its 2007-08 audit.

Among the problems highlighted by auditors was a failure to reconcile the district's account balances with the bottom line reported by the county.

"This has been a huge burden on the district," said David Kakishiba, a school board member. "We'd like to get out of this situation, close the books and get a clean audit."

Oakland Unified has become a cautionary tale in state financial takeover policy. But how state government responds to the financial collapse of school districts has statewide import, as well -- especially now, after years of cutbacks are driving more and more districts to the brink of insolvency.


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In the past two decades, only eight districts have experienced a financial state takeover, including Oakland, Emery, Vallejo and West Contra Costa. That might change. More than 100 school districts statewide stand on shaky fiscal ground, according to the state Department of Education. Hayward, Oakland and John Swett are among them.

"This is new territory for us," said Jim Aschwanden, a member of the California State Board of Education. "We're heading into an era where an increasing number of school districts find themselves in a financial bind, and not simply because of mismanagement."

Aschwanden said he is seeing an unprecedented number of struggling districts "with experienced, good teams."

California school districts receive the bulk of their general-purpose money from the state's general fund, an amount that dropped by 12 percent between 2007 and 2010 and which is expected to drop further, according to figures from the Legislative Analyst's Office. School officials must make tough budget decisions long before they know how much money they will receive or when it would arrive.

This spring, the Department of Education reported that nearly one in three public schoolchildren attends school in a district that's in financial peril.

A more robust and reliable funding stream would help districts avoid a state takeover in the first place, said Paul Hefner, press secretary for Tom Torlakson, the new state superintendent of public instruction. But as the number of districts in trouble grows, he said, the education department is also looking for ways to improve its response to fiscal crisis. He said Torlakson's chief deputy, Richard Zeiger, has been meeting with people who have experienced state takeovers, including a group of parents in Oakland.

"Each one of these has been problematic in one way or another," Hefner said. "It's a hugely disruptive thing that happens when local control is taken away from the community."

Assemblymember Sandre Swanson (D-Alameda), chairman of the Select Committee on State School Financial Takeovers, is pushing for legislative reform. He is holding hearings this summer and fall on state takeovers in California. In the meantime, he has introduced a bill, AB 609, that would protect the Oakland school district from being fined for missteps taken during state receivership, including $3.4 million it still owes after the appeals board reductions and $2 million it has already paid.

Don Perata, former state Senate president pro tem, wrote Oakland's 2003 takeover bill based on existing law. Although it called for annual audits by the controller's office, he said, he never imagined the school district would be burdened with fines and legal fees, years later.

"The whole system, really, is awful," he said. "It's like we made it up as we went along, and it looked that way."

To regain local governance after a financial takeover, districts need to prove more than just fiscal stability. They have to make the grade in four other areas, including student academic performance. The Bakersfield-based Fiscal Crisis & Management Assistance Team rates the districts and makes recommendations. The final decision, however, rests with the state superintendent.

Perata said he believes the state should forgive Oakland Unified's debt, a position shared by Oakland Mayor Jean Quan. If it doesn't, he said, "Given the way we fund K-12 education today, Oakland will never see the water line. Ever."

West Contra Costa school district officials know the feeling. The district has been repaying state emergency loans totaling $28.5 million since it declared bankruptcy in 1991. Its last payment is scheduled for January 2018.

"These loans are killers because of the interest," said Charles Ramsey, who has been on the West Contra Costa school board since 1993. "If we had no interest on our loan, we'd be done paying it."

But finding the fix for the state's financial takeover system is as complex as the problems that drove each school district into state control, Aschwanden said.

For some districts, it was malfeasance combined with a weak board. In others, it was accounting errors and overspending. Some school boards, he said, couldn't bring themselves to make the necessary budget cuts, so they "threw up their hands and said, 'We're going to let the state come in and be the bad guy.' They couldn't stand the political heat."

And if education funding trends continue, he said, well-run districts could be turning to the state for help, as well.

"I've been in the game long enough to know it's always going to depend on people," Aschwanden said. "What works in one district might not work in another. That's kind of a complicated way of saying, 'Gee, I don't know.' "

Read Katy Murphy's Oakland schools blog at IBAbuzz.com/education. Follow her at Twitter.com/KatyMurphy.