Fiscal Sustainability Case InvestigationEl Rancho Unified SchoolDistrict BY GLORIA RUBIO-CORT ES

In May 2012, the California State Superintendent ofPublic Instruction added El Rancho Unified SchoolDistrict (ERUSD) to the list of state school districtsin “financial jeopardy.” ERUSD has plenty of com-pany. That year a record number of school districtsin California made the list: 188. ERUSD received aqualified certification signaling that it may not beable to meet its financial obligations in 2012 or inthe next two years. Most of the 188 listed school dis-tricts received a qualified certification; however, 12received negative certifications (1 in Los Angeles—Inglewood Unified), meaning they were deemed un-able to meet financial obligations this year or inthe next two years. ERUSD became one of 26 LosAngeles County school districts with the qualifieddesignation. Whittier Union High School District,profiled as part of this research project in 2011, wasnot on the financial jeopardy list.

ERUSD ($89.9 million budget for fiscal year 2011–2012) is one of two school districts serving the cityof Pico Rivera in Los Angeles County. The other isMontebello Unified School District ($267.2 millionbudget for FY2011–2012), which also received aqualified certification in 2012.

Community Demographics

ERUSD serves a suburban population. The districthas fifteen schools, including an early learning ed-ucation center and an alternative education cen-ter. Its student population is 98.4 percent minor-ity (FY2011) and 97.3 percent Latino (FY2011).The number of students in ERUSD has declinedfrom 2007 to 2011 (11,495 in FY2007 to 10,377in FY2011, according to the New America Founda-tion Federal Education Budget Project). The ERUSDstudent census shows an increase in poverty (17.3percent in 2007 to 20.1 percent in 2010). In oneyear, FY2009 to FY2010, there was more than a10-percentage-point increase in English LanguageLearners in ERUSD (29.3 percent to 41 percent). InFY2010, the percentage of English Language Learn-ers in ERUSD was 10 percentage points higher than

the state average (41 percent ERUSD compared to28.7 percent state average).

Pico Rivera is a short eleven miles from downtownLos Angeles with easy access to several Los An-geles freeways. This close-knit Latino communityis called by some residents the Latino Mayberrybecause of its middle-class values and aspirations.In 2009, CNN’s Latino in America series featuredPico Rivera’s picturesque homes flying America flagsand Latino boys playing Little League baseball. Thetelevision program also recounted Pico Rivera’s re-cent transformation from a community with signifi-cant gang-related violence to one that is addressingthese issues after the 2007 killing of a mother oftwo sparked community-wide action to curb gangviolence.

The housing bubble and bust changed the city’s de-mographics, according to a longtime resident. In thepast, the school district has had generation after gen-eration of families growing up and staying put. Thehousing bubble significantly inflated home prices,which made this city and school district less acces-sible to young families. The housing bust resultedin additional residential departures when residentscould no longer pay their mortgages and moved inwith relatives or out of the city to other states.

Financial Challenges

ERUSD has faced many challenges that moved it intofinancial jeopardy. A couple of challenges appear tobe quite common for many districts today: decliningstudent enrollment coupled with fewer state dollarsper pupil. ERUSD, however, also has the misfor-tune of a senior leadership gap. Interim appoint-ments hold the top three administrative positions—superintendent, assistant superintendent for educa-tional services, and budget director—and there is ahistory of financial stress over the past decade, asnoted in reports by bond rating companies.

For many years, ERUSD’s finances were pre-carious. A 2003 Fitch Ratings report for a

12

c© 2013 Wiley Per iodicals , Inc .Publ ished onl ine in Wi ley Onl ine Library (wi leyonl inel ibrary .com)Nat ional Civ ic Review • DOI : 10.1002/ncr .21111 • Spr ing 2013 A Publ icat ion of the Nat ional Civ ic League

$30 million general obligation bond sale rated theERUSD bonds at A− according to the BusinessWire. “Despite the stable and growing tax base, thedistrict’s financial operations have been under pres-sure, including operating deficits, slim cash balances,and state compliance issues. The district has main-tained unrestricted reserve levels below the 3.0%of spending legal requirements since fiscal 2000,dropping to an unrestricted reserve deficit in 2001.Management has recently taken prudent measuresto address negative operating margins and unsat-isfactory reserve levels. . . Nevertheless, the district’shistorical inability to achieve the state-required fundbalance coupled with ongoing operating pressuresdamages credit quality.” By June 2010, Moody’sassigned ERUSD bonds an “A1” rating. In 2012,the school district’s bond ratings remained in posi-tive territory. Fitch and Standard & Poor’s Insuredcited stable outlooks and gave ERUSD bonds A+ orAA− ratings.

An elected official recalled that residents blamed theschool district leadership for poor financial man-agement during the recession. Only when residentsexperienced the effects themselves did they gain abetter understanding of the breadth of the finan-cial crisis. By 2010, the mood had changed. In themidst of the recession, residents taxed themselvesto support critical educational upgrades. By a sig-nificant majority (74 percent), a general obligationbond of $52 million passed. Called Measure EE,the bond is intended for capital improvements in-cluding increased “student access to computers andclassroom technology, building vocational techni-cal classrooms . . . and providing renewal energy im-provement to reduce operating cost,” as reported inBallotpedia. Measure EE promised annual reportsto the community and the establishment of a Cit-izen’s Oversight Committee. In 2012, ERUSD ex-tended by twenty years the Measure EE bond totake advantage of the low interest rates available,saving $1.7 million, according to a press release is-sued by the previous ERUSD superintendent, Dr.Myrna Rivera Cote, who retired in 2012 after serv-ing for two years.

State Relations

California school districts are required to submitthree-year budget projections to the California State

Superintendent of Public Instruction. ERUSD’s an-nual revenue is made up of 75 percent of statefunds, with the balance from federal, local, andother sources. ERUSD’s budget projections are ap-proved by the five-member elected school board andprepared by the school district staff. Twice a year,school districts must file their budget projections asan interim status report with the state. The Cali-fornia State Superintendent of Public Instruction re-views the projections and, based on the informationprovided, makes a determination of positive, quali-fied, or negative. As noted earlier, ERUSD receiveda qualified determination in May 2012, which sug-gested that it may not be able to meet its financialobligations in 2012 or in the next two years. In 2012,ERUSD took action to reduce its projected expensesfor FY2013 through 2015 to reflect the anticipatedsmaller state fund allocation.

Employee Negotiations

In addition to facing declining student enrollmentsand therefore less revenue, employee health benefitsplan increases have added more expense and stress.Both full-time staff and part-time instructional aidesreceive health benefits. There have been yearly healthbenefits cost increases of between 8.5 percent and 14percent in the past few years, a district official said.

ERUSD reduced its FY2013 budget by $8.8 millionthrough negotiations with its three unions and hasmoved to a position of being fiscally solvent, saidone manager. The budget was reduced to $75 mil-lion in revenue and $76.5 million in expenses. (Thedifference is expected to be covered by anticipatedFY2012 savings.) The school district administrationnegotiated separately with each of the three unions,one of which represents the classified administrativestaff (office staff, janitors and others), one of whichrepresents teachers, and one of which represents se-nior managers (not common in school districts). Adistrict manager familiar with the budget processsaid each union was given a targeted amount for ex-pense reductions (calculated as a percentage of thetotal reduction and based on the ratio of salariesof its members to the salaries of the entire schooldistrict). Each union was given the flexibility to de-termine on its own how the cuts would be achieved.The options included furloughs, employee contri-butions toward benefits, layoffs, a combination, or

National Civ ic Review Spr ing 2013 13DOI : 10.1002/ncr

others. In the end, the budget was reduced through“the elimination of adult education programs, in-crease in class size from 24–1 to 30–1, laying off of57 teachers and requiring employees to help pay forhealth insurance,” according to the Whittier DailyNews in July 2012. The 2012 budget reductionsadd to those made in 2008: four elementary schoolswere closed and eighty teachers were laid off. Anelected official said the action had to be taken be-cause these schools were half empty. In a city inwhich the school district is the largest employer, ac-cording to the City’s website, reductions in staff areparticularly difficult to make.

Suggestions were solicited from teachers, parents,and administrators in a recent stakeholder processdesigned to develop ideas to increase services andreduce expenses.

ERUSD’s union negotiations were different from theapproach taken by Whittier Union High School Dis-trict in 2011. WUHSD brought all of the unionsto the table at the same time to make expenditurereductions. This was possible after many years ofbuilding trust with the unions by ensuring they un-derstood current and future financial projections. AnERUSD manager said each of the unions has its ownpriorities and point of view, adding that holding thenegotiations with all of the unions at the table atthe same time would not have worked out well be-cause of the perceived hierarchies. The union agree-ments ERUSD reached in 2012 are for two years,giving the district more certainty than if they wereonly for a single year. A district manager believedthe ERUSD agreements were reached in no smallpart because of the many years of trust developedbetween the school board and administration staffand the unions. Also in 2012, expenses were cut byinstituting smarter delivery of services across the dis-trict in the special needs program. Suggestions weresolicited from teachers, parents, and administratorsin a recent stakeholder process designed to developideas to increase services and reduce expenses. Anadditional revenue generation plan is to offer full-time preschool to increase enrollment. It is an ideathat is under consideration by the state.

Leadership and Educational Quality

Four objectives emphasizing quality education drovethe district restructuring begun under the previoussuperintendent, Dr. Rivera Cote. She outlined themin her 2012 Superintendent’s Message posted on theWeb site at that time: “Create a sustainable schooldistrict that produces results for all children; in-crease student achievement through evidence-basedinstructional practices; deploy resources efficientlyand targeted to support all students; and encouragemore families to attend our quality schools.” Themessage also said that over the past two years, thedistrict “spent a significant amount of time work-ing to involve our parents in the educational processand giving them a voice in school decisions . . . amore focused strategy of reaching out to parents andto the community as a whole with open and honestcommunication between parents, teachers, students,and community members. I believe that this is thebest way to exchange ideas, overcome challenges,and foster a learning environment.” Dr. Rivera Cotespent much of her professional life in Southern Cal-ifornia school districts outside of ERUSD, amongthem Long Beach. Her message pointed to the ideathat to be successful in a tight-knit community, andprobably in any community, it is important to con-duct regular outreach to, education of, and engage-ment of parents and the community on financialmatters, particularly during a recession. It is a senti-ment held by leaders in the WUHSD as well. Uponher departure from ERUSD, Dr. Rivera Cote wasquoted by Inland Valley Daily Bulletin reporter San-dra Molina (2012) as saying that the only thing shewould not miss upon her retirement is cutting bud-gets. This comment raises the question of whetherfinancial management difficulties may drive good su-perintendents out of school districts.

ERUSD’s leadership vacuum in 2012 will continueto be a long-term challenge. However, experiencedinterim managers, one of whom knows the districtwell, have stabilized the district. When Dr. RiveraCote retired in 2012, the school board brought backthe previous superintendent, Norbert Genis, to bethe interim superintendent “creating instant stabil-ity,” an elected official said. Mr. Genis had retiredafter working for ERUSD for thirty-one years. Hisretirement was prompted by anticipated changes insuperintendents’ pension benefits, the official added.

14 Nat ional Civ ic Review Spr ing 2013DOI : 10.1002/ncr

It is important to put ERUSD’s financial strugglesinto perspective by considering state and nationalschool district funding statistics and their conse-quences. In a 2012 Center on Budget and Policy Pri-orities analysis of school spending in the fifty statesfrom FY2008 to FY2013, Phil Oliff, Chris Mai, andMichal Leachman found that “[s]tates have madesteep cuts to education funding since the start of therecession, and, in many states, those cuts deepenedover the last year.” The report says that the cutscame “after the deepest recession in 70 years hit be-ginning in late 2007, precipitating a historic collapsein state revenues.” It continued: “Because states re-lied heavily on spending reduction in response tothe recession, rather than on a more balanced mixof spending cuts and revenue increases, funding forschools and other public services fell sharply. Whileemergency aid followed the onset of the recession,Congress allowed that aid largely to expire at theend of 2011 fiscal year, before state revenues hadrecovered from the recession” (p. 1). In California,the report noted, per student spending had been re-duced by 17.3 percent over the past five years, thesixth greatest reduction among all the states. (OnlyArizona, Alabama, Oklahoma, Idaho, and SouthCarolina had greater reductions.) When adjustedfor inflation, California’s per student spending re-duction was $1,105. The state’s average per pupilexpenditure in FY2009 was $9,503. ERUSD’s perstudent expenditure for FY2009 was $8,702. Withthe passage of California’s November 2012 Propo-sition 30 tax increase initative, education will notexperience planned cuts and the state will begin toincrease the per student funding by $308, the reportconcluded.

When we look at a snapshot of ERUSD’s stu-dent competencies, we see that competencies at thehigh school level are above the state average butthat fourth-grade competencies are below the statelevel. In FY2010, ERUSD’s fourth-grade readingand math scores were 53 percent and 58 percent re-spectively compared to the state averages of 60 per-cent and 65 percent. At the same time, ERUSD’s highschool student competencies were above the stateaverage for FY2010. ERUSD’s high school readingcompetency scores were 79 percent and math scoreswere 81 percent, well above the state average of 52percent for reading and 54 percent for math.

Like many other school districts across the country,ERUSD is governed by an elected school board thatmeets monthly. School board members tend to servefor many years. Meeting agendas are posted on thedistrict Web site in advance of meetings, as are min-utes of previous meetings. A decade of agendas andminutes is available on ERUSD’s Web site, but nodetailed financial information is posted there. Thebudgets are available upon request at the school dis-trict offices, a school manager said. The district hasused a variety of means to communicate with par-ents and the community, including mailed newslet-ters (now a thing of the past because of cost), con-tributions to the city’s newsletters, and informationposted on its Web site. For example, past superinten-dent messages have discussed the scope and detailsof the financial challenges facing the district.

Fortunately for the district, California voters inNovember 2012 voted in favor of Proposition 30, totax themselves to restore much-needed revenue forcritical services, including schools. Before the elec-tion, there was much uncertainty about its passage,so when preparing ERUSD’s budget for FY 2013,district officials did not rely on the proposition. If ithad not passed, the district would have been pres-sured to increase the number of school district fur-lough days, in effect decreasing the number of daysof instruction.

There is a history of successful collaboration be-tween the school district and the City of Pico Rivera.They are working closely together to share facilities(recreation areas) and to seek foundation and federalgrants to promote health and safe schools programs.

Conclusion

ERUSD has made good interim leadership choicesthat have righted the ship temporarily. It has en-gaged the unions in a productive and flexible processof budget cuts that can restore the district’s financialcredibility and take it off the state’s financial jeop-ardy list. The City of Pico Rivera and ERUSD havea good collaborative relationship that works well,as one person said, because they serve the same con-stituency. The passage of the State of California’sProposition 30 may restore sorely needed funds toeducation, helping to reverse the dangerous trend of

National Civ ic Review Spr ing 2013 15DOI : 10.1002/ncr

cutting education resources while needs grow. Luckand hope may be on ERUSD’s side these days, al-though many challenges lie ahead. One of the mostimportant and difficult may be finding and retainingthe right superintendent and senior managers. To re-tain fiscal stability and community trust, the districtwill likely need to continue and increase its commu-nications about financial successes and challenges tokeep informed constituents inside and outside of theschool. It may be effective to employ a broad col-laborative community budget team again. An electedofficial recently reminisced about it. As affirmed bya district insider, ERUSD is an example of the manyfiscally challenged school districts in the region. Yetby sharing its story, its challenges, and the actions itis taking, it can also be helpful to others.

ReferencesBallotopedia. 2010. “El Rancho Unified School DistrictBond Proposition, Measure EE (November 2010).” http://ballotpedia.org/wiki/index.php/El Rancho Unified SchoolDistrict bond proposition, Measure EE (November 2010).

“Fitch Rates El Rancho USD, CA GO Bonds ‘A−’.”2003. Business Wire, December 3. http://www.businesswire

.com/news/home/20031203005711/en/Fitch-Rts-30MM-El-Rancho-USD-CA.

Molina, S. T. 2012. “El Rancho Unified School District Su-perintendent Says Goodbye After Brief Tenure.” Inland Val-ley Daily Bulletin, June 30. http://www.dailybulletin.com/california/ci 20979736/el-rancho-unified-school-district-superintendent-says-goodbye.

New America Foundation Federal Education BudgetProject. n.d. “El Rancho Unified.” http://febp.newamerica.net/k12/CA/612180.

Oliff, P., C. Mai, and M. Leachman. 2012. “New School YearBrings More Cuts in State Funding for Schools.” Washington,DC: Center on Budget and Policy Priorities, September 4.http://www.cbpp.org/cms/index.cfm?fa=view&id=3825.

Rivera Cote, M. 2012. “Superintendent’s Message,2012.” http://www.ERUSD.org/apps/pages/?uREC ID=153730&type=d

Sprague, M. 2012. “Uncertain Times Face Whittier-AreaSchool Districts in Their Budgets.” Whittier Daily News,July 4. http : / /www.whittierdailynews .com/ci 21005290/uncertain-times-face-whittier-area-school-districts-their.

Gloria Rubio-Cortes is president of the National CivicLeague.

16 Nat ional Civ ic Review Spr ing 2013DOI : 10.1002/ncr