.Y2K’s Silver Lining

When one surveys the accomplishments of the Berkeley Unified School District in the late ’90s, it may not be immediately apparent that this was a district headed for massive financial meltdown. To many observers, it seemed as if Berkeley school district would enter the new millennium in its best shape in a generation.

In the latter half of the decade, the Berkeley school district was flush with cash from a $158 million construction bond passed in 1992. The school board signed contract after contract to rebuild and remodel schools that suffered critical damage in the 1989 Loma Prieta earthquake. Voters approved another construction bond in November of 2000 — this one for $116.5 million — in a second impressive show of community support. The widely beloved Jack McLaughlin, school superintendent since 1994, rode a wave of euphoria all the way to Nevada, where he was appointed superintendent of schools for the state. He timed his last day in the district to coincide with the January 2001 ground breaking of a high school building project and the grand opening of the beautifully renovated Thousand Oaks elementary school.

But, beneath the din of earth movers and concrete mixers, the district’s central office was approaching total collapse. When it became all too clear that Berkeley’s budget numbers weren’t adding up late last summer, Alameda County Office of Education Superintendent Sheila Jordan called in a state Fiscal Crisis and Management Assistance Team. Since the team is typically asked to provide such intervention for only one or two districts a year, it was clear that Berkeley’s situation was serious. Even so, few were ready for the team’s January 14 preliminary findings.

After poring over the district’s books for nearly four months, the crisis team discovered that expenditures were outgrowing revenues so quickly that, unless deep cuts are made immediately, the district will face budget shortfalls of $1.7 million in the current year, $7.8 million next year, and as much as $16 million the following year. This in a budget of about $90 million.

Berkeley school administrators are frantically racing to trim the budget. If they fail to cut enough and require a state emergency loan to make up the difference, they could temporarily lose control of all financial decisions relating to their schools. Michele Lawrence, superintendent of schools since August, said there will be layoffs at all levels of the organization, including teachers, management, and non-academic employees.

How did Berkeley — with its bond measures and parcel taxes and apparently high-performing schools — arrive at such a crisis?

The reversal in the state economy bears some of the blame. School districts all around the state are grappling with budget shortfalls after the state legislature cut education funding by more than $800 million. Enrollment also is expected to decline in the next few years, which will reduce state subsidies to Berkeley accordingly.

But both problems could have been anticipated and planned for if years of neglect had not left the district’s central office so dysfunctional that it could no longer manage its budget. Plagued by low staffing and a failure to invest in new data-processing technology, the Berkeley school district has lived with unreadable and unreliable budget information for more than ten years.

“I remember going to school board meetings and thinking, ‘These people must be geniuses, because I can’t make any sense of the budget,’ ” said Irene Hegarty, a member of the Berkeley school board from 1988 to 1996 who is now director of community relations at UC Berkeley. “Every year we would find some inconsistencies, corrections.”

Nonetheless, when an economic slowdown forced deep cuts in 1994, the school board chose to slash its struggling central office staff even further, to keep cuts “away from the classroom.” Morale took a dive, and bureaucratic systems that had been inefficient in the best of times began breaking down altogether.

But despite obvious managerial weaknesses, it was the district’s administrative staff that bore the brunt of the cuts when a bad economy forced deep cost-cutting in 1994. Morale took a dive, and systems that had been inefficient in the best of times began breaking down completely.

A 1995 management review by the Alameda County Office of Education found, among other glaring failings, that the bureaucratic documents used to track day-to-day business within the district were not filed on a timely basis, if at all. Employees were not informed of changes in procedures or policies. Payroll checks often were erroneous, expenditures were routinely allocated to the wrong accounts, and internal phone calls were not answered or returned. “Employees have developed an attitude that ‘it is not my problem, or nothing will happen even if I suggest a solution,'” the report concluded. The district was faulted for its “perceived lack of leadership.”

New hires were being made without ever having been budgeted or even approved by the central office. Such lax practices meant the district was increasingly unable to account for how large sums of money were being spent, since payroll accounts for more than 80 percent of its general fund expenditures. The report said the district’s very survival depended upon urgent administrative reforms.

Nobody was particularly surprised by these findings. It was understood, Hegarty recalls, that people in the district’s business and personnel offices were working “without the right conditions and the right support to do their job properly.”

In response to the report, the school board hired a new personnel manager and a new budget officer in 1996. But when things failed to improve, few took notice. And with state funding on the rise again, the school board focused on new academic programs, not new administrative controls. A new Early Literacy Program was put into place. Bilingual education was transformed into the popular “dual immersion” program, where English-speaking students are taught Spanish alongside native Spanish-speakers learning English.

In short, neither McLaughlin nor the board dealt with almost any of the problems identified by the 1995 report. The superintendent and his elected superiors were apparently content to pay little attention to the district’s widespread system failures. “Jack at least knew about construction, but I don’t think he knew about education,” said Pedro Noguera, a Berkeley school board member from 1990 to 1994 who said McLaughlin was hired for his construction expertise.

Instead, things got worse. It took months for the district’s central office to respond to requests for the most basic educational materials. Principals had difficulty making management decisions because they couldn’t get timely, reliable budget information from the district’s business office. The personnel office was so slow making offers to new teachers that the district was losing its best prospects to neighboring districts. School bathrooms weren’t being cleaned because of understaffing and low morale in the maintenance department. Complaints mounted from internal staff and citizen advisory committees alike.

In 1998, by which time all but one of the current board members had joined the board, a report by the district’s independent auditor found that the personnel department’s problems, far from having been corrected, were perhaps even worse than before. Status sheets detailing each employee’s wages, position, and responsibilities had not been filed since 1995. “They picked up a lot of problems in personnel, which the board was really troubled by,” said Shirley Issel, who joined the school board in November 1998 and now is its president. “This was discussed repeatedly in board meetings.”

But things settled into a demoralizing routine where the school board expressed its concerns, the staff said it was doing what it could, and nothing changed. Administrative issues simply weren’t a high priority for the staff, said school board member Ted Schultz, who added that the system’s problems did not seem all that severe to him.

Although the board was handicapped by the broken systems, it nonetheless chose to act in ways that might have serious consequences. For instance, in spring 2000, it negotiated a four-year contract with teachers retroactive to September 1999, including a 9.5-percent raise in the first year and other raises thereafter. The board did this even though it was flying blind. “We didn’t have the capacity to generate estimates of what it would cost,” Issel concedes. “We knew that this year — in the 2002-2003 budget — it was going to hit us and be really difficult, but we didn’t have the ability to prepare for it.”

To many observers, the board’s management of the budget had degenerated into theater of the absurd. “Year after year we’ve seen what I would consider fictitious budget cuts,” said Carol Wilkins, a member of a district committee that oversees how money from Berkeley’s property tax is spent. “There has been no real plan to accomplish the savings that are promised.”

Not until it faced a series of disasters would the board take decisive actions to correct its internal systems. At the stroke of midnight on January 1, 2001, the district’s ancient data processing system shut down — a rare victim of Y2K. In subsequent months, the school board finally voted to invest in a new data-processing system, but by then the damage was done. Huge quantities of financial data had become unreadable and would have to be reentered by hand if the district was to make reliable budget calculations.

More than two years later, the transition to a new data system has yet to be completed. Meanwhile, the district’s budget woes have continued to worsen.

Interim Superintendent Stephen Goldstone called for $6 million in cuts shortly after his February 2001 start. Beyond the cuts, Goldstone wanted the board to vote to “qualify” its budget, in effect, admitting that the numbers it was submitting to the county and state were unreliable. “I was looking at the budget and being told by people in the district, ‘These numbers are meaningless. They’re just place holders,’ said John Selawsky, who joined the school board in 2000. “And as a board member, that made me nervous. I can’t make policy based on an imaginary budget.”

Community members and the district staff who had been criticizing the administration’s ability to produce intelligible, accurate budget information for years, praised Goldstone for having the courage to sound the alarm. But the board majority was unwilling to accept that things were as bad as they seemed, and voted 3-2 not to qualify the budget — possibly out of concern that this might lead to a state takeover of the district. Selawsky and Issel were in the minority.

The majority succeeded only in delaying the inevitable. The county office of education quickly pointed out budgetary irregularities that would have to be corrected if the document was to be approved by the state. When the corrections failed to occur, the county gave the board official notification that its budget had not been approved in September of 2001. Shortly thereafter, the state’s fiscal crisis team arrived on the scene.

Next fall, when the fiscal crisis team is expected to finish its cleanup operation on the Berkeley budget, the Berkeley school board may finally have the ability to properly evaluate its finances. At the very least, crisis team Deputy Executive Director Joel Montero said the district’s budget documents “are going to become planning documents instead of just reams of paper that really don’t mean anything.”

Most observers don’t believe the current Berkeley school board is guilty of negligence in allowing the district’s finances to reach such a crisis. “I think they were asking the right questions,” County Superintendent Jordan said. “Boards are a staff of lay people. When you have a professional staff tell you, ‘we’re putting this together, we’re moving on it,’ I’m not sure you can blame them.”

But board member John Selawsky points to the willingness of past district leaders to sweep its financial problems under the rug. “A lot of this stuff I think you can predict if the board and the superintendent are all committed to having that information regularly assessed and analyzed,” Selawsky said. “You can’t let it slide, which is what happened in the past.”

Nancy Riddle, a member of the district Budget Advisory Committee and a long-time critic of the district’s budget process, said the current board did as much as it probably could do to fix the problem when it hired Michele Lawrence as superintendent last summer. Lawrence has a reputation as an expert manager of the very systems that have been failing in Berkeley.

But Riddle added this important caveat: “They need to go on record and say, ‘This is what happened’ — so it doesn’t happen again.”

Board member Joaquin Rivera, who joined the Berkeley school board in 1996 and is its vice president, agreed with that assessment. “We rarely go back and evaluate things properly,” Rivera said. “We need to identify the problems and understand how we got here — right now.”

Lawrence, for her part, isn’t as interested in identifying who failed to act when. She has argued almost from the day of her arrival that the problems that plague Berkeley schools are so pervasive that they can only be repaired through a change in culture.

“This is a long, long history, and it isn’t just related to finances,” Lawrence said. “It’s related to internal decisions — operational, curricular. … There are so many factors.”