The Lehman Brothers Collapse: A Year (or so) Later…

The Hangover Continues for San Mateo County.

It’s hard to believe that it was nearly a year and half ago when Lehman Brothers stunned the world by announcing they were filing for bankruptcy, an event that essentially began the downward spiral of the financial markets in September of 2008.   Hundreds of millions of dollars of investments and pension funds vaporized overnight, leaving an indelible black mark on many communities — especially those in California.   It also exposed the critically flawed investment strategies of many our “experts” that foolishly decided to place a huge percentage of their portfolio with one firm.

While many communities suffered significant losses when Lehman bellied up, they couldn’t hold a candle to the damage done to San Mateo County.  And while many of these other communities have been able to patch up the damage and move on, San Mateo County is still suffering the effects of this catastrophe.

San Mateo County Bore the Brunt.

There’s an absolutely outstanding article from the Wall Street Journal that I have included at the bottom of this post that summarizes the effect of the Lehman Brothers collapse on San Mateo County  — I highly recommend reading this.  No other municipality in the nation lost anywhere near the $155M of County of San Mateo funds that evaporated; consequently the impact was felt much deeper here, particularly in the education sector.  Consider the following:

• San Mateo County’s loss of $155M was nearly 4 times greater than any other municipality.
• Education accounted for $63M, or 41% of the total loss.
• The public school system was the single biggest loser, at 25% of the total loss.
• San Carlos School District lost an estimated $630,000.

As we read about how San Carlos  and surrounding communities (such as Burlingame) and their respective school districts that are struggling to stay afloat, it’s important to remember how the hole got so big in the first place.   Here’s the article from the Wall Street Journal:  Lehman’s Ghost Haunts California.

(special thanks to blog reader Kelly for the tip on this article.)

San Carlos School Board Shifts Focus Back to Budget Woes.

It’s All About the Budget.

Now that the exhaustive process of realigning the San Carlos Elementary School boundaries has been completed, the San Carlos School Board must once again return its focus to the challenges of closing its budget deficit — one that seems to keep growing with every passing week.  With continued cuts to education funding at the state level, small towns like San Carlos that rely heavily on state funding are almost resigned to additional cuts in the future.

The District’s budget deficit for next year stands somewhere between $1.6M-$2.2M, depending on how you count it.   That’s a lot of #2 pencils…  There are a number of ideas the District is considering to close this gap, including taking a “fee-for-services” approach to some of the extra-curricular services like after-school and pre-school.  There are other ideas such as re-allocating teacher responsibilities to try to avoid eliminating programs altogether.  Seth Rosenblatt has an excellent summary of these ideas on his blog, so I won’t delve into them here.   I highly recommend reading his most recent post: “Now the Tough Work Begins”.

It’s Not Enough.

At the end of the day, these near-term fixes are only going to get the District so far — it’s pretty clear that programs and teachers will be cut next year in order to get the immediate budget balanced, and that’s going to be a huge blow to San Carlos.   On top of that, IF the District is indeed successful in bridging the current budget gap, this will only get the District back to operating at the mandated 3% reserve level.   So it’s really a just a band-aid fix.

Or,  to use an automobile analogy, we’re running our education on fumes…

Keep Going to the Well?

Historically, the San Carlos School District has been able to deliver an excellent standard of education while still maintaining a healthy reserve level through the tireless support of the San Carlos Educational Foundation (SCEF).   Time and again, the Foundation has stepped in and delivered where the State has fallen short.  But a significant portion of the funds that are raised by the Foundation come from the generous donations from the citizens of San Carlos.  And each year, the Foundation increases the “recommended donation amount” for every family with school-age kids.

But the lingering effects of the prolonged recession is taking its toll on many of the citizens of San Carlos — it’s evident from the unemployment numbers, the recent vote on Measure U, and the increased number of distressed home sales in San Carlos.    Many people are simply hunkering down and hoping for a brighter economy, so contributing money to the schools is no longer an option.    The District can’t simply can’t continue to put the fiscal burden on the backs of the citizens.

Time to Think Outside the Box.

I was encouraged to read that Superintendent Dr. Craig Baker is starting to investigate creative means of raising money for the School District, such as securing grants…because that’s really the future of educational funding.  Some of the most successful (and financially stable) school districts in the area spend considerable time and effort working with local corporations to secure grants, especially in areas like science and math.   After all, we live in the heart of Silicon Valley.   But competition amongst schools is fierce for these grant funds, and it’s even more difficult now as these corporations are forced to deal with their own recession-related problems.

Also, other ideas such as corporate sponsorship (naming rights) and advertising need to be investigated.  It used to be taboo to have a corporate name attached to a school building — now it’s almost a necessity to survive.   And what about advertising?   There are numerous ways (website, yearbooks, district phone directories) where advertising revenue can be gleaned.  Granted, it’s not a huge amount — but every bit helps.

In the end, I agree with Seth’s assertion that the educational process in San Carlos will indeed persevere;  or as he put it, we’ll find a way to “make lemonade from lemons.”  But getting that pitcher of lemonade is going to take some pretty big changes this time around.

————————————————————

Breaking News: San Carlos School District to cut $1.4M from next year’s budget.

Hey, while we’re on the unpleasant topic of money and budgets, this little nugget of information came to light today:   The San Carlos School District announced on its website this morning that it will be forced to cut $1.4M from the 2010-11 school year budget, with the likelihood that these cuts will extend into the following school year as well.  That’s a BIG ouch.  While it’s no secret that budget cuts were coming (even with the passage of Measure B) the amount of $1.4M is far greater than the board anticipated…and may likely come with some unpleasant downsides.

What Happened?

According to the SCSD website, there are four contributing factors to the latest budget crisis:

• Additional cuts from the State of California.
• Lower enrollment than was projected when the budget was approved in June.
• Slightly higher staffing costs.
• Accounting error during the budget process.

The “accounting error” is discussed in much greater detail on the District website, so I won’t do it any injustice by trying to explain it here.  But it’s worth noting that this “error” accounts for $900K of the projected $1.4M shortfall.   That’s no small error.

What’s Next?

The District is taking immediate steps to cut costs, both in the current school year and for next year’s projections.   This includes possible “targeted staff reductions” which is something they desperately hoped to avoid with the passage of Measure B.    But it’s hard to see how that’s not going to happen now.

For those of you who are vehemently opposed to increased taxes of any kind, be forewarned that there will be a renewed interest in extending Measure D, the initial School Parcel Tax that was the predecessor to Measure B.    There will likely be more information to come out of the district in the coming months, but one thing is clear — this is a BIG deal, and we haven’t seen the other shoe drop yet.

For more information, check out the full story on the District website:  San Carlos School District website.

11/5 Update:  Additional news coverage.

Here’s an article in the Daily Journal that picks up a bit more detail on the situation:

Accounting Error Leads to School Budget Loss

(Thanks to blog reader Tom Jones for the tip on this story)

————————————————

San Carlos school programs escape the budget axe…

Programs Preserved for 2009/10

The San Carlos School Board of Trustees voted last night to fully fund the following list of school programs for the 2009/10 school year.   This is great news for San Carlos Schools, and it can largely be attributed to the recent passage of Measure B — without the additional funding provided through Measure B, these programs (and their teachers) would have likely been casualties of this fiscal crisis:

Word of Caution

Note the word of caution at the end of the Superintendent’s update — The City of San Carlos, like every other city,  is at the mercy of the Governator and how much he will “borrow” from our reserves.  This could have an impact on the plan above.  Stay tuned….

————————————————————–

State Proposition failures spell (more) financial woes for San Carlos…

Sweeping Defeat Means More Cuts

Communities throughout California are bracing themselves for the fallout from the resounding defeat of the statewide propositions 1A through 1E on Tuesday.  San Carlos city officials are working up numbers on the impact to both the City budget and to the School District, and the preliminary results are not pretty.

San Carlos City Budget

The defeat of  these propositions leaves the door open for the State of California to borrow from local municipalities to close its own budget deficit.  According to Assistant City Manager Brian Moura, San Carlos could possibly lose $800k – $1M as part of the $22M that San Mateo County will likely be stripped of if the state moves ahead as planned.  For more information on this, click Michelle Durand’s analysis in today’s Daily Journal.

City Council Member Omar Ahmad met with the Governor recently, and penned an open letter to him outlining the impact to San Carlos if they indeed lose this additional $1M — for the context of this letter click here:  Omar Ahmad’s Blog

San Carlos School District

A recent concern that has surfaced for school administrators throughout the state is  Governor’s recent revision to the state budget, which is referred to as the “May Revise.”    This budget revision implements additional cuts in funding to many critical services, including education.  According to School District Trustee Mark Olbert, the outcome of Tuesday’s election will push the San Carlos School District into a deficit of approximately $1,255,500 for the 2009/2010 school year.  Even if they dip into the School Board reserves, they’ll end up with a deficit of $788,000 since they are mandated to keep a minimum of 3% cash reserve.

This issue is scheduled to be discussed in tonight’s board meeting, which is currently scheduled for 4:00 PM today  in the District Conference Room, behind Central on Cedar Street, but it could be relocated to the Central Middle School library if attendance warrants.

For more info about the potential school budget cuts,  click here and reviewing the downloadable documents.

Many Questions, Few Answers

Obviously, this is a very high-level view of a very dynamic and complicated problem, and there are many questions that need to be answered by our elected officials.  But they are united in their warning to the citizens of San Carlos brace themselves for painful cuts that are almost a certainty this year in both our city services, as well as our school district.  Stay tuned for more…

More Budget Woes for San Carlos Schools.

I just received this email a few minutes ago from Steve Mitrovich, Superintendent of the San Carlos School District.  Clearly, it’s more important than ever that Measure S succeeds in the upcoming election.  I’ll have more to say on Measure S next week….