• Watch Weekly journalists discuss this issue on an episode of "Behind the Headlines."

On Dec. 23, 2016, the former chief business official of the Ravenswood City School District sounded the alarm.

A decline in enrollment — a potential death knell for a district like Ravenswood, which receives the lion's share of its funding from the state based on student attendance rates — represented a "serious cause for concern," Prima Singh told the Board of Education, according to minutes from the meeting. The loss of 192 students from the 2015-16 to 2016-17 school years translated into a loss of $1.3 million in state funding. Singh proposed a two-year plan that would freeze spending and cut staffing, among other commitments, to avoid a shortfall in the district's $47.6 million budget.

Despite staff members' repeated warnings over the course of the next year about the continued threat of declining enrollment and other economic pressures, it does not appear that plan was ever implemented.

Now, the district is facing fiscal insolvency. Last week, the school board heard from a consultant and its chief budget official that the district must immediately make $3.3 million in budget cuts.

"A lot of times, boards want to know exactly when they'll run out of money, and we're going to tell you: about November of next year," Debbie Fry, director of management consulting services for School Services of California, told the board members last week.

What's more, the San Mateo County Office of Education and California Department of Education have stepped in to closely monitor the district, and the county superintendent has warned Ravenswood leaders that a failure to make necessary cuts this spring could result in more aggressive county or state oversight.

Despite the bleak financial picture, a school district press release issued on Tuesday, Jan. 16, makes no mention of this crisis but rather rosily announces a "fiscal reform package" that is "part of a continued push to cement the new Ravenswood culture."

"With a combination of spending freezes, controlling hours, and where necessary, reductions, the district has developed a fiscal reform package that saves the district $3.3 million," the release states.

A steady decline in enrollment — down almost 30 percent (or about 2,300 students) since the 1999-2000 school year, with projections it will continue in that direction — is the primary culprit for the district's loss of revenue, Fry said. The district has lost 775 students over the last four years alone, with about 2,700 enrolled this year.

Ravenswood, a K-8 district that serves East Palo Alto and eastern Menlo Park residents, relies heavily on state revenue through the Local Control Funding Formula (LCFF). Through the relatively young funding model, enacted in 2013, revenue is distributed based on average daily attendance: the average number of days a student attends school divided by total days of instruction. The formula aims to help school districts that need the most aid by providing supplemental funding for "disadvantaged" student subgroups, such as English-language learners, low-income students and foster youth — the first two making up the majority of Ravenswood's population.

Ravenswood received about $31.5 million through the Local Control Funding Formula last year; the amount is down to $30.4 million this year and targeted to drop to $27.6 million next year, according to a report prepared by School Services of California.

District staff have attributed the decline in students to the opening of charter and private schools in East Palo Alto, including KIPP Bay Area Schools this fall and Priscilla Chan's The Primary School in 2016; the longtime Voluntary Transfer Program, which allows some Ravenswood students to attend neighboring districts; and the area's high cost of living. Enrollment dropped this fall by nearly 400 students, compared to about 150 to 200 students in past years. The district expects to lose another 300 students over the next two years, according to projections.

If cuts aren't made, Ravenswood will see negative ending balances of $3.3 million next year and $10 million the following year in its general fund, according to the county Office of Education.

Anne Campbell, the San Mateo County Superintendent of Schools, said in an interview that her office has been watching with concern the district's deficit spending over the past two years but became "extremely concerned" when they saw it increase in Ravenswood's first interim budget for the 2017-18 school year, submitted to the county in December.

The district has been running a deficit for the last four years, with a shortfall of $544,000 in 2014-15 increasing to $2 million this year, according to a budget report. A letter the county office sent Monday to board President Ana Maria Pulido notes that Ravenswood "has no other savings, reserves, or other funding sources elsewhere to mitigate the significantly declining fund balance because of deficit spending in the general fund."

To address the crisis, the county office has asked the school board to take a series of steps, including approving layoff notices in the next two months, to chart a path toward fiscal solvency.

"Due to the seriousness of the district's fiscal condition," Ravenswood is now required to provide a written progress report to the county Office of Education on the first and 15th of every month and to meet with county staff weekly, the Jan. 22 letter states.

If Ravenswood does not take required steps by county-imposed deadlines, the county superintendent can determine that a "lack of going concern" exists, which means the district is unable to meet its financial obligations and must seek the county's approval for any expenditures.

Pulido told the Weekly that the district has every intention of avoiding this. The board refrained from taking action before now, she said, to "do our homework" by carefully analyzing the district's financial health and avoid harming services for students.

"We don't want to make any rash decisions," she said Wednesday.

"We would rather take our time ... making sure we did our homework and we knew how best to proceed," she added. "That's why we're where we are at now."

The district declined to make Superintendent Gloria Hernandez-Goff available for an interview on the budget.

A crisis left unaddressed

Though the school board has been discussing the the intensifying budget problem for more than a year, its actions show that the district has struggled to address the fiscal situation head on.

In a presentation to the board last April, Chief Business Official Steven Eichman, hired when Singh retired mid-year, warned that district expenditures were set to outpace revenue over the next two years, with pressure from declining enrollment, increasing pension and special-education costs and other sources, according to district minutes. He warned that if Ravenswood "continues to build a deficit," it would not be able to meet the state requirement of having at least 3 percent of its total expenditures in reserves.

Board member Marcelino Lopez recognized the severity of the budget outlook, according to the minutes. He "indicated that at this time, everyone must work together and sacrifice because the district is losing a lot of students, and it would probably lose more with the high rents in the area," the minutes state.

At that meeting, the board took a step toward mitigating the budget gap. In a 3-1 vote, with member Marielena Gaona-Mendoza dissenting and member Charlie Knight absent, the board approved a resolution to notify more than 40 classified employees that they could lose their jobs. Later that month, the board approved another series of layoff notices for nine custodians.

By May, however, the district announced that it would rescind 30 of those notices. A press release lauded the action as an indication of "the ambitions of a district working aggressively to move itself to a point where they are the top performing feeder district into the Sequoia Union High School District."

Pulido said that the board had given direction to staff to retain positions if possible. (Layoff notices, which are subject to board approval, are sent to employees who might be impacted, but they do not commit the district to terminations.)

In November, the board contracted with School Services of California to get an independent review of the district's financial health. The services cost $29,500, according to Eichman.

Minutes from that November meeting indicate that district leadership also hoped the consultant's report would help the district prepare for negotiations with its employee unions, which are ongoing.

But if the district believed that the consultant's report might give valuable direction, Eichman said School Services' findings instead just confirmed what the district already knew was on the horizon.

Deficit spending over the last several years had been addressed in a piecemeal way, he said, such as by evaluating the need for positions as people left the district or retired. The combination of a higher-than-anticipated enrollment drop this fall, increasing pension costs and other pressures were making it impossible for the district to continue this approach.

The district now finds itself where it was 13 months ago, only with a greater sense of urgency to make the cuts necessary to balance the district's budget. So far, the district has implemented a hiring freeze and is reviewing all staff positions, including teachers, for cuts.

Also contributing to the deficit is overstaffing. The district has not reduced its staff in parallel with the drop in enrollment, Eichman said. The district will now consider if each position is legally required, necessary for compliance, essential or preferred, according to a report from Eichman.

According to the county, Ravenswood is eyeing $1.6 million in staffing reductions — 15 certificated positions and eight "difficult to fill" positions that are currently filled through contracts with outside agencies. The reductions also include the "elimination of programs that require high contributions from the general fund" starting next year.

The county also is requiring Ravenswood to conduct a study of its actual student count and project "appropriate" class sizes for all grades in the coming years, taking into account enrollment trends.

Eichman has proposed the district look for savings in programs that are high cost or underutilized, including special education, the Child Development Center, the After School Education & Safety Program (which funds after-school activities) and food services.

"Areas for possible savings" within special education include psychologists, speech services and paraeducators. Special education accounts for a significant portion of the district budget — just under $5 million this year.

Additional employees and resources that have been allocated over the last 17 years to support the district's compliance with a federal special-educational mandate should be reduced this school year, Eichman said. The district officially exited the federal Ravenswood Self-Improvement Plan, or RSIP, in August, but given the timing, it started the year "fully staffed as if we were still under the federal mandate," Hernandez-Goff said at the board meeting. This staffing costs the district about $1.4 million.

District staff said the Child Development Center, the district's state-funded preschool program, has low enrollment but high staffing costs. The district should look at "getting out of the business of providing preschool services," Eichman told the board last week.

The number of students who pay to eat lunch at school has also gone down, but staffing has not been adjusted accordingly, Eichman said.

Eichman emphasized that legal compliance and student support remain the district's top priority, particularly in an area like special education.

He is also proposing a spending freeze and tighter management of overtime hours.

The district is also preparing to seek a new parcel tax to prevent an additional in $1.1 million in cuts. The current parcel tax, which voters approved at $196 per parcel in 2011, is set to expire in June. The parcel tax pays for approximately 13 teachers, six classified staff and portions of several support staff positions, according to the district.

In November, the board hired a consultant to conduct polling for the proposed parcel tax at a cost of between $21,000 and $28,000, according to a contract.

At last week's board meeting, members gave brief feedback to staff. Gaona-Mendoza, who was elected to the board in 2016, said she hopes the district will protect essential programs like special education and cut instead from the district office.

"We're not going to survive if this keeps going and if we keep getting more people in the administration," she said at last week's board meeting.

Gaona-Mendoza told the Weekly that while the board was well aware of the enrollment trends, she did not feel staff were transparent about the severity of the shortfall until last week's meeting.

"The budget picture was never painted as it was painted this time," she said.

Vice President Sharifa Wilson asked that staff create a detailed spreadsheet that lays out all of the district's expenses and funding sources to provide clarity for the public. She also said "programs that are encroaching on our general fund is the first thing to tackle," before looking at the relationship between enrollment and staffing.

Wilson, who was board president in 2017, did not return several interview requests.

Ronda White, president of the Ravenswood teachers' union, said that the district has been open about the impending financial crisis in negotiations but had not identified the exact amount of the deficit. Questions from union leadership about specific line items in the budget, such as the high cost to operate the school cafeteria despite the fact that most Ravenswood students are on the state's separate free-and-reduced lunch program, have gone unanswered, White said. (Eichman said that the cafeteria is overstaffed compared to the number of students who use it, which is on the decline. Minimum wage for those workers also went up in 2015-16.)

The county Office of Education's letter notes that the district has not budgeted for compensation increases nor set aside money for future negotiation settlements, which could "necessitate additional budget cuts to maintain fiscal solvency." Like most districts, the bulk of Ravenswood's budget — 79 percent — is spent on salaries and benefits.

White hopes the district will first trim what she described as a top-heavy district office rather than teachers or classified staff, such as aides, who work directly with students.

She also attributed the decline in enrollment to gentrification and the emergence of new schools in East Palo Alto, particularly this year.

District leadership said they anticipated losing students to The Primary School and KIPP, whose charter the board approved in 2016 in a 4-1 vote, with Pulido dissenting. The Primary School enrolls about 250 students ages 0 to 5 years old, 52 of whom are school-age children, according to the school. KIPP currently enrolls 225 students in transitional kindergarten, kindergarten, first and sixth grade, with plans to expand grade levels.

"How do you still give students the services that they need and deserve with this declining enrollment?" White asked. "It becomes a big question that I don't think any of us have an answer to."

Last spring, the teachers' union took a "vote of no confidence" in Hernandez-Goff, calling for her immediate resignation. (The superintendent called it a "publicity stunt" at the time.) White said that concerns about the superintendent's leadership persist and teachers are "very concerned" about how the district will weather this financial crisis.

Union leadership met with district staff on Wednesday for three hours in a special negotiations session on the budget. White said she continues to question specific line items in the budget, with no concrete responses from the district.

"The teachers are here to support the district in any way we can," White said, "but we can't help the district if we don't have accurate numbers."

Creating a 'new Ravenswood'

Ravenswood's budget woes come at a time when the district has been working to reverse its reputation as a struggling district with low academic-performance rates.

The district opened a stand-alone middle school this fall in the hopes of better preparing students for high school and beyond, with administrators describing it as a "new beginning" for the district. (The district plans to hire more staff for the school as the school expands grade-by-grade.)

Maurice Ghysels, the former superintendent of the Menlo Park school district, was hired last year as the district's new "chief innovation officer," in part to oversee the new Ravenswood Middle School. His salary, $180,000 plus additional compensation, is funded entirely by a donor, Pulido said. She declined to provide the donor's identity.

A $26 million bond approved by voters last summer promises to upgrade aging facilities to keep students "warm, safe and dry." This fall, Hernandez-Goff also agreed to begin talks with the city of Menlo Park and other local jurisdictions to create a joint powers agency that could increase funding for capital improvements in Ravenswood.

The district has worked to present an image of a district on the rise through press releases and events, including a first-ever "State of the District" last June at which Hernandez-Goff declared to applause and cheers: "Welcome to the new Ravenswood."

The district plans to recruit more students by promoting its improvements through an outreach campaign.

"Our goal is to trim all of the fat, but we have to keep essential programs going and our movement, our progress toward really improving our educational programs that will make us attractive to students and parents in our community," Hernandez-Goff said at last week's board meeting.

What's next?

Ravenswood is not alone in its financial struggles. The San Mateo County Office of Education also has been monitoring the Redwood City School District, which is experiencing its own shortfall for the same reasons as Ravenswood, Campbell said — losing students to a new charter school and as families move out of the city.

Redwood City, however, has been "more proactive" about making cuts over the last six months, she said.

Across the state, 41 school districts are on a Department of Education list for having a "qualified" financial certification in the 2016-17 year, meaning they are "in danger" of becoming fiscally insolvent in the current year or the next two years, said state department spokesperson Robert Oakes.

The most serious designation, a negative certification, means the district cannot meet its financial obligations for the current and subsequent year. Only two districts are on that list (including San Bruno Park School District in San Mateo County.)

In its letter this week, the county Office of Education cautioned Ravenswood to "strictly adhere" to Education Code requirements when determining the district's budget certification this spring. The county initially disagreed with the district's positive certification of its first interim financial report.

The Ravenswood school board plans to discuss the budget at special and regular meetings as well as community meetings in the coming weeks. Campbell said her office "will be a presence at every one of those board meetings" in addition to meeting weekly with district staff.

Under deadlines set by the county Office of Education, district staff must present fiscal-solvency plans and budget cuts for board review and approval by the next regular board meeting on Feb. 8. The board must also process any layoff notices before March 15 and submit a second interim report to the county no later than March 19.

The most serious, potential consequence for Ravenswood would be a state takeover. This would occur if the district had to seek an emergency loan from the California Department of Education.

In the most severe case, if the loan were to exceed 200 percent of the district's reserves, the state superintendent would assume governance of the district and appoint an administrator to act on the state's behalf, with the school board reporting to the administrator as an advisory group, according to a Department of Education webpage. The state's control lasts until "certain conditions are met."

If the loan is less than or equal to 200 percent of the district's reserves, the board retains its governing authority, but a state-appointed trustee monitors operations and has the authority to rescind any board action that could impact the budget. This level of oversight lasts until the loan is repaid.

Campbell said Ravenswood is now faced with making some difficult and urgent but "doable" changes.

"We have every expectation that the board and district leadership will take the steps that are necessary to maintain fiscal stability," she said.

Meanwhile, school officials are framing the budget as part of part of the district's ongoing efforts to cement a new culture.

"For this district to have long-term viability, fiscal reforms need to be implemented," Eichman said. "The practices of the old Ravenswood are no longer accepted."