Record Number of California School Districts Face Bankruptcy

A record number of California school districts face bankruptcy, state schools’ chief Tom Torlakson announced Monday. The Los Angeles Times reported this week that 12 school districts, mostly in northern California, are currently on the verge of financial failure, while an additional 176 school districts are at risk. And the problem could worsen if Gov. Brown’s tax initiative fails in November. Only 53 of the state’s school districts are in sound financial health.

California Poised to Take Over Dozens of Insolvent School Districts

Huck/Konopacki Labor Cartoons

110 California school districts are at risk of insolvency, compared with 37 five years ago, according to the Bay Citizen. Ironically, the distressed districts, which face expensive state takeovers, are distressed precisely because the state has slashed $21 billion from public education funding over the last three years (combined with declining revenue from property taxes and increasing costs).

As federal stimulus funding dries up at the end of this school year, the number of districts going belly up is likely to grow. According to the Bay Citizen, many districts are draining their strategic reserve funds to survive another school year, which puts them at risk of going belly up the following year.

Almost 50% of California's most desperate school districts are in the San Francisco Bay Area, which has some of the highest property values in the state. The Bay Citizen looked at financial reports from the 2010-11 school year and found that 13 CA school districts received negative certifications from the state and were not expected to meet all of their financial obligations. Six of these districts were in the Bay Area. 97 other school districts were identified as at risk of failing to meet their financial obligations.

Under California law, school districts cannot file for bankruptcy. Rather, the state must take them over and appoint administrators to bolster their finances. Since the state has already made it clear that it has no desire to fund schools sufficiently, the only way to shore up struggling school districts is by cutting costs. This will likely cause massive layoffs, exacerbating the state’s already high unemployment rate of nearly 12%, or lead to furloughs and shortened school years, which will dramatically reduce teachers’ already low incomes. It could also lead to increased class sizes, reduced course offerings, school closures and other cuts that will negatively impact student safety and wellbeing.

Much of this nightmare scenario has been playing out for the last few years in school districts that were already on the state’s watch list prior to the financial meltdown. Hayward Unified School District, for example, slashed around $26 million from its operating costs by firing staff, increasing class sizes and cutting music programs for fifth graders. Teachers who weren’t fired will be forced to take three to seven furlough days this year. Despite these “sacrifices,” the district is still considered at-risk and is being watched by the state.

2010: Rich Got Much Richer and Poor Got Much Poorer

There are more than 4 million more Americans in living in poverty than previously reported and they make up 15.7% of the population, not 14.3%, as earlier estimated. The new figure takes into account actual costs of living that include medical expenses, transportation and childcare, putting the U.S. total at 47.8 million living in poverty. Keep in mind that even these estimates are artificially low, as they use the ridiculous figure of $22,050 annual income for a family of four as the threshold, when in cities like New York and San Francisco, a person would be lucky to pay $12,000 per year just for their rent.

Over 16% of seniors and 18% of children are now living in poverty and over 6% are now living in “deep” poverty, with family incomes of less than $11,000. Meanwhile, according the Economic Policy Institute, the wealth of the richest 1% of Americans was 225 times more than the median family net worth in 2009. According to the report, the bottom 20% of families saw their income grow only $200 for the entire period from 1979 to 2005, whereas families in the top 0.1% saw their income grow by nearly $6 million. 

From the Economic Policy Institute

As a result of unemployment, wage cuts, furloughs, increased health costs (insurance premiums have increased 131% in the last 10 years), and overall growing immiseration, 1.53 million Americans filed for bankruptcy last year, an increase of 9%. It should be pointed out that in 2005, bankruptcy laws were changed, making it much more difficult and costly for families to file for bankruptcy, making the increase even more appalling.

From the Economic Policy Institute