“Receivership” is a status California school districts can move into when they request, and are granted, an emergency loan from the state to stay solvent. It is not bankruptcy and it doesn’t happen often. But, right now, it’s being discussed in the Sacramento Unified School District and a handful of others in the state.
There are a lot of questions about what receivership could mean. How many districts are currently in receivership, or have been at risk of being in receivership? What are the mechanisms that move a district into receivership? And how do districts get out of receivership?
Insight host Beth Ruyak will delve into these questions and others with Caryn Moore, Director of the School Fiscal Services Division for the California Department of Education. Here are highlights from their conversation.
On what a ‘negative certification’ means for a school district
Well a school district can be certified as positive, qualified or negative. So positive means they're fine. They are going to be able to meet their obligations for the current and two subsequent years. Qualified is they may not meet their obligations for the current or two subsequent years. Negative is they won't without some action to meet their obligations for the current or the immediate subsequent fiscal year. So districts are negative, sometimes. It's not a common thing necessarily, but it doesn't necessarily foretell bankruptcy.
Right now as of the last reporting period, we have five districts that were certified as negative. There are some every year. We don't have bankruptcies every year. I think we've had nine in the last 18 years. So the bankruptcy itself is not all that common. The negative status, there are usually several a year. I think the high was 13 one year back in the tough economic times. I think we had almost 200 districts that were in a qualified status. So it's a early warning system and it usually works and usually things are able to resolve themselves without needing a stay loan.
On where Sacramento City Unified currently stands
They do have a negative certification as of the first interim reporting period. I can't speak to the second. That should be coming up fairly soon. I'm guessing it's still going to be a negative and as of the first interim period, there were five. And so I don't expect that they will all be bankrupt. I hope none of them will.
On why schools districts try to avoid going into receivership
I think two primary reasons. One is it loses control of the district. The board members become advisory only. They don't have a specific role. They don't get paid. The district superintendent is no longer there. It is the administrator that comes in and takes over. So while the administrator is working with the locals, Ultimately it's this person's decisions that kind of control the district. And the goal is to get them out of receivership.
And the other reason is, it's expensive. It's a state loan that that can take up to 20 years to repay. There's interest. They're paying for the trustee or the administrator. They're paying for additional studies that might have to be done. They're paying for an audit. That's probably more expensive. So it's not necessarily a cheap proposition.
This interview has been edited for brevity and clarity. Click the “play” button to listen to the entire interview.