Call it remarkable management or, more likely, the lull before the crash. The number of school districts in financial distress actually decreased from a year ago, according to report issued last week by FCMAT, the state’s Fiscal Crisis and Management Assistance Team. That’s the agency that intervenes when districts are struggling financially.

For the reporting period ending Oct. 31, only a dozen districts – out of about 1,000  – reported a negative status, compared with 19 in the last reporting period of 2009 and 16 in the comparable period a year ago. The latest total  is preliminary, since county offices of education have yet to certify that the districts’ self-reporting is accurate. (View FCMAT’s latest report for a 15-year comparison of the number of districts in financial trouble.)

School districts, unlike most forms of government, are legally required to produce a three-year balanced budget, which is hard to do considering the state’s volatile revenue and unpredictable conditions.

A negative certification means that a district probably won’t be able to meet its financial obligations this year or the next. A qualified rating means that the district projects it will have financial problems in year two or three. In the latest period, about 10 percent of districts – 105 – reported a qualified rating. That ‘s 31 more than the same period a year ago and 14 more than the last reporting in 2009, but still below the record 108 districts in 2007-08. And it’s fewer than some experts had predicted.

An infusion of federal stimulus dollars for K-12 schools – about $6 billion over three years – probably has staved off trouble, for the moment. But many districts apparently are using most of  the money this year, so next year could be rough. Add to that the minimum $200 to $400 per student cut in revenue under Gov. Schwarzenegger’s proposed budget for next year, and the number of distressed districts in the next reporting period, which ended Jan. 31, is expected to rise. In 2011, temporary state sales and income taxes are due to expire, further worsening districts’ financial outlook.

State law prescribes a serious of interventions for districts in negative  status, including a state-appointed administrator, as happened with districts in Oakland and Compton. For districts with qualified budgets, the county superintendent can recommend actions on union contracts and other financial issues.

The state hasn’t released the names of this year’s fiscal dirty dozen. In the last 2009 report, Pajara Valley Unified, with a budget of $192 million, and Vallejo City Unified ($154 million budget), were the largest districts with a negative certification.

By John Fensterwald on February 1st, 2010