Orange County, California has 28 school districts, and they all share the fiscal year end of June 30. The timely release of their annual financial statements is usually before the end of the year. However, only 22 of them had their auditors field work completed before Dec. 31, 2022.
Huntington Beach Union High School District has the honor of being the last to release its audited financial statements. Although the outside Certified Public Accountancy firm’s independent auditor’s report was dated Jan. 23, 2023, the report was not released until June 14, 2023, due to some form of certification expected from the State Controller’s Office. My thanks to its board president, Diana Carey, for her assistance in providing me with the information.
After all the accounting documents have been publicized, it provides an opportunity to rank the districts based on their unrestricted net positions. This number is obtained from the statement of net position—which represents a district’s combined assets and debt—and then divided by the population the districts represent. This provides a metric and a range which allows residents of the district to determine how their district(s) are faring regarding their financial health.
In reviewing this year’s graph below, 22 districts stayed pretty much in place, with most moving one place or not at all and four moving four places. Let’s look at the six districts that made major moves in the last year.
Huntington Beach City Elementary moved up four places. Its unrestricted net position (UNP) improved by $37.8 million. This was done by reducing the aggregate net pension liabilities by $41.4 million. School districts report defined benefit pension liabilities based on the status two years prior. In 2020, the California State Teachers Retirement System (CalSTRS) had a good year at 27.2 percent. Improving its per capita by $441 gives the district the most improved award, with Garden Grove Unified coming in second with $429.
However, the 2021 CalSTRS returns were not only below the assumed benchmark but were below zero, at -1.3 percent. So, expect the UNP to relinquish this year’s good numbers when the June 30, 2023, audited financial statements are released, hopefully before the end of this year. Tustin Unified also moved up four places for the same reasons. The pension bonus impacted Garden Grove Unified School District by $116 million, moving it up nine places. And as a bonus, it was also one of the seven Orange County districts recognized for their music programs.
All the districts were able to reduce their UNPs, which is very good news—except for two, Cypress Elementary and Los Alamitos. This explains why Cypress dropped four places.
While the districts rose an average of $142 per capita, Los Alamitos dropped by $243, a $385 swing, having it bump Santa Ana Unified out of last place. Magnolia, while staying close to even with last year’s numbers, dropped three positions.
Santa Ana Unified is nearly $600 million upside down. The residents of this city already find themselves in 32nd place among the county’s 34 cities, having a $468 million unrestricted net deficit. It would be wise for the residents to recruit candidates with finance degrees to turn things around and reduce the $1 billion of obligations hanging over their heads. Their dire straits may explain why there is a clash between the city and district over the funding of crossing guards for the students.
Newport-Mesa Unified School District in Costa Mesa, Calif., on Sept. 21, 2022. (John Fredricks/The Epoch Times)
Newport-Mesa Unified had a strong improvement and reduced its UNP by $404, making it the third most improved. Along with Laguna Beach Unified, it should be much higher in the rankings, as both are the only two basic aid districts in Orange County. Consequently, they receive more revenues than the other 26 districts, as they receive the Local Control Funding Formula (LCFF), the average daily attendance funding allocation the state uses to fund the majority of its school districts.
Placentia-Yorba Linda Unified recently made headlines with its board being more proactive about the books that are being utilized in the classrooms. But it should also be concerned about its own books, as it dropped one position and is now in 26th place.
School districts have been receiving plenty of media attention of late. And parents have a right to be concerned about what is being taught to their school-aged children. Monitoring a district’s tests scores is critical. But keeping an eye on its balance sheet should also be a high priority.
Thanks to a very cooperative stock market in 2020, the 2022 audited financial statements for school districts show encouraging news. However, with a 28.5 percent swing with the CalSTRS results in 2021, the 2023 audited financial statements will not be very rosy. And CalSTRS has time to improve on this year’s investment returns. If it is below 7 percent, then the 2024 audited financial statements will also not be pretty.
Should a recession hit the nation hard, then things may get very dicey. And that’s why we provide the rankings—so that you will not be surprised when certain decisions are made, especially for the districts nearer the bottom of the list, which may also impact your personal pocketbook.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
John Moorlach is the director of the California Policy Center's Center for Public Accountability. He has served as a California State Senator and Orange County Supervisor and Treasurer-Tax Collector. In 1994, he predicted the County's bankruptcy and participated in restoring and reforming the sixth most populated county in the nation.
