Fiscal Status of College District Is Downgraded

The Los Angeles Community College District’s precarious financial condition has prompted the state chancellor’s office to downgrade the district’s fiscal status and question its ability to function on its own.

In a strongly worded letter, the state office cites recent across-the-board pay raises, chronic management turnover and “overly optimistic� growth projections as causes for concern about the nine-campus district.

“Taken all together,� the letter states, “these factors are leading us toward an increasing sense of urgency about the district facing the management problem of living within the funds available to it.�

The state’s letter and a similarly strong warning from the private group that accredits community colleges, both obtained by The Times this week, were written even before district officials disclosed that a projected $1.3-million budget shortfall could skyrocket as high as $10 million.

No immediate course cutbacks or other impacts on students are expected, as district administrators and the board of trustees have yet to decide on a plan of action.

But the effects may be keenly felt by June in the form of decreased summer school offerings, officials predicted. Already this academic year, eight of the district’s schools, including Pierce College in Woodland Hills, Mission College in Sylmar and Los Angeles City College, were forced to make deep class cuts in response to campus deficits.

Ultimately, financial woes could cause accreditation problems for the 100,000-student community college district, the nation’s largest. That, in turn, could jeopardize students’ abilities to transfer to four-year colleges--or even lead to a state takeover of the district.

Failure to improve “could lead to a probationary or more serious status for one or more of the district’s colleges,� the Western Assn. of Schools and Colleges wrote on Jan. 13.

But the Los Angeles district can avoid such sanctions by providing both groups with an approved plan for improvement. Such a course of action will be discussed at the Feb. 11 meeting of the district’s board of trustees, when the latest quarterly financial report will reveal the extent of the shortfall in the $306-million operating budget.

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The district’s latest fiscal problems underscore its long-standing inability to manage its finances.

“This is inexorable,� Western Assn. Executive Director David B. Wolf said.

“There’s no way out� for the district, he said, other than confronting its fiscal problems.

Only if district officials fail to devise and implement a plan would the state chancellor’s office send in a monitor to do it for them. If that failed, a complete state takeover would be possible--but only if approved by the Legislature.

The Los Angeles district’s financial woes are so chronic that it has been on the state chancellor’s “watch list� since 1987. The current crisis, however, was considered grave enough to downgrade the district this month from the least serious category of red-flagged institutions, a ranking of 3, to a ranking of 2. The lowest ranking, indicating the most serious financial status, is a 1.

District officials are well aware of its financial instability. The chief financial officer, Bonnie James, said he privately gave a grim prognosis to trustees this week, a warning reflected by dour faces and agitated talk about money at Wednesday’s board meeting.

“We will have to hunker down like we’ve never done,� interim Chancellor James Heinselman said in his first words to the board after being named to succeed Bill Segura. Segura resigned in December to take a job in Texas after serving just 16 months of a four-year contact.

His departure followed months of contentious contract negotiations that left the district with significant multiyear pay raises for its nearly 6,000 employees--22.5% for faculty and 12% for administrators and support staff members. The raises were singled out for criticism in the state chancellor’s office letter to the district, dated Jan. 16., informing it of its downgraded status.

The raises, the letter said, exceeded the statewide cost-of-living adjustment.

Wolf, of the Western Assn., also cited the raises as a key component of the district’s financial problems. He predicted the district will be hard-pressed to avoid a budget shortfall without seeking union concessions.

Because salaries and benefits represent about 85% of the district’s budget, “it’s hard to understand how they can address matters without going into serious discussions with their bargaining agents,� Wolf said.

Board members, however, defended the raises, saying they were needed to stay competitive with neighboring districts that, even after the increases, offer higher salaries.

“I don’t think it’s because of the raises,� trustee Beth Garfield said. “We have so many more full-time faculty than other districts. That’s why it costs more to run our district.�

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Another problem contributing to the projected shortfall, district spokesman Blair Sillers said, is the $6 million to $8 million in additional funding given this year to the district’s campuses in hopes of increasing enrollment, which in turn would generate more revenue.

That growth has not yet materialized and the district cannot expect to get its millions back by the end of the fiscal year, Sillers said.

Possible remedies range from hiring and purchasing freezes to going back to the unions to seek some type of temporary relief.

“We may not be able to offer much of a summer program,� Sillers said.

Garfield said she takes the deficit seriously, but is not worried the district will be forced into receivership.

The problem, she said, is that for years the district has operated on an expensive crisis-to-crisis basis. It needs to step back and formulate a long-range plan, including reorganization, to bring financial stability, she said.

With the appointment of Heinselman as interim chancellor, Garfield said the board last week launched just such an effort.