Laguna Beach Unified Might Face More Cuts

An auditing firm has told Laguna Beach Unified School District officials that they might have to make further budget cuts to survive the next fiscal year.

The school board plugged a $1.4-million hole in the current year’s budget in November by laying off some employees, trimming salaries throughout the district and borrowing $850,000 for onetime expenses.

Now, a grim report from the auditing firm Vicenti, Lloyd & Stutzman, says, “ . . . we have doubt about the ability of the [district] to continue operations without further budgetary actions in 1997-98.”

The board will discuss the report during a public meeting at 7:30 tonight.

Trustee Kathryn A. Turner acknowledged Monday that the consultant’s finding is bleak, but said school officials have known the district’s financial problems would take a long time to solve.

“All along we have been told this is not a one-year problem,” she said. “We need to look three years out to make sure our numbers are more trustworthy. I hope not, but it may be that we’re going to have to do layoffs again.”

Eileen T. Walsh, one of two new members on the school board, said the report “verifies what most of us knew, which is that we still have a fiscal crisis.”

However, any further reductions probably won’t be as dramatic as those the district has already endured, according to Wendy Margarita, director of business services for the Orange County Department of Education.

The school district’s financial condition this year “is much better than it has been in the last two years,” said Margarita, who has worked closely with school officials throughout the crisis.

The audit firm’s report traces the district’s financial woes to previous years, saying that property tax revenue were overestimated by about $500,000 for the 1995-96 fiscal year, while expenses were underbudgeted by more than $1 million.

Margarita said Laguna Beach Unified’s problems actually began in about 1993 or 1994, when taxes began to level off while expenses continued to rise. She also pointed out that the district suffered financial losses stemming from the community’s catastrophic fire three years ago, followed by costly storms the next year and compounded by the county’s bankruptcy.

“That was really the major thing that happened,” she said. “Then, on top of that, they had the disasters--the fire, the flood and the bankruptcy.”

The board began making cuts in the 1995-96 fiscal year, but the reductions weren’t enough to cover the deficit, she said.

School officials say the district managed to stay afloat for as long as it did by simply transferring funds from one account to another, a move one former trustee called “a huge error.”

The report says that in the past fiscal year, $1.4 million was transferred from other funds into the general fund, wiping out some funds. “These situations raise substantial doubt about the district’s ability to continue as a going concern,” the report states.

On the other hand, the district projects an ending balance of $696,090 for the current fiscal year, which ends June 30, and has completed a 12-year budget forecast indicating the budget will stay in the black and have an emergency reserve of at least 3%.

“I feel very strongly that they have made the cuts necessary and they have restructured,” Fiscal Services Director Lisa Howell said.

School officials have grappled with the district’s shrinking budget since last February. After making cuts, including eliminating some treasured programs, the board approved what it thought was a balanced tentative budget in June.

But in August, a district consultant announced it did not have enough money for emergency reserves. School officials blamed the setback on $800,000 in bookkeeping errors.

In the ensuing furor, parents demanded that top school officials be ousted. The board fired its chief financial officer, Terry Bustillos, and Supt. Paul M. Possemato took an early retirement the following day.

The bad news continued to mount, and by November the district was facing a possible takeover by the county. Ultimately, school officials managed to balance the budget by a deadline.

The district’s ability to address its problems has been hampered by the virtual disintegration of its tiny administrative team. Besides losing Possemato and Bustillos, board members have accepted resignations from Special Services Director Nancy Hubbell and Assistant Supt. Robert Klempen.

Thurston Middle School Principal Cheryl Baughn is now serving as acting superintendent. The other three positions have not been filled.

In another blow, Howell announced last month she will leave her post on Jan. 31.

With Howell departing, the board tonight will consider hiring a consulting team to provide financial reports for the district and assist the business department.

Eventually, school officials say, they believe the district will land on solid ground.

“We’ve had a bumpy road,” trustee Turner said, “and I think we’ve got a few bumps left in our road.”

The school board meeting will be held at the district headquarters at 550 Blumont St.