California school districts must file “interim reports” with the California Department of Education certifying their ability to meet financial obligations. Certifications fall into three categories:
- A “Positive” certification is assigned when the district will meet its financial obligations for the current and two subsequent fiscal years.
- A “Qualified” certification is assigned when the district may not meet its financial obligations for the current or two subsequent fiscal years.
- A “Negative” certification is assigned when a district will be unable to meet its financial obligations for the remainder of the current year or for the subsequent fiscal year.
The most recent report shows 46 school districts — including Los Angeles and Oakland — in the two troubled categories. Those districts are in trouble despite a long bull market, 30 percent income tax increase, and >50 percent increase in spending on schools since 2010. In contrast, just over half as many districts were in trouble during the last economic recovery and their budgets were 1/11th the size of the 46 troubled districts.
With 46 districts already in trouble, the next governor and legislature had better get prepared. That’s because the number of California school districts in financial trouble explodes during bear markets. Troubled districts quadrupled after the first dot-com bust at the turn of the century and sextupled after the 2008 financial crisis.