The Santa Monica-Malibu Unified School District’s Financial Oversight Committee (FOC) held a special meeting Monday morning, February 26th, that included a discussion with interim chief financial officer Dr. Stephen Hodgson and a review of a Financial Crisis Management Assistance Team (FCMAT) report, concerning the district’s ability to fund a teacher pay increase.

The team’s report, dated February 8th, states that the school district can fund the five percent teacher salary increase proposed in a tentative agreement with the teachers union — and still maintain its required three percent reserve — if the district follows the recommendations and multi-year financial projection assumptions in the report.

In November, the Fiscal Crisis and Management Assistance Team was hired by the district to perform a comprehensive independent review of the district’s finances, including the preparation of a multi-year financial projection of the district’s general fund.

This came after a tentative agreement was reached between the district and the Santa Monica-Malibu Classroom Teachers Association (SMMCTA) union that includes a five percent teacher salary increase, estimated to cost $7 million over the next three years.

Some, including members of the Financial Oversight Committee, were concerned about how the district would fund the pay raise.

Without substantial changes and budget cuts, the tentative agreement would exhaust the district’s reserves and potentially put the district into a deficit starting in three years, some believed.

But, according to Fiscal Crisis and Management Assistance Team deputy executive officer Anthony Bridges, who prepared the report, it appears that, if the district follows his recommendations, “the district will be able to maintain its required reserve.”

At the school board meeting Thursday, February 15th, Bridges presented his findings and recommendations on district finances.

Among recommendations were an inter-fund transfer of $3 million from Fund 17 to Fund 40.

At the February 26th Financial Oversight Committee meeting, there was a follow-up to initial discussion about the Finan- cial Crisis Management Assistance Team report, and Financial Oversight Committee chair Paul Silvern reiterated concerns he had voiced at the earlier board meeting.

“This leaves less than $900,000 in free cash above and beyond the three perfect reserve,” Silvern said, which puts the district “right on the edge.”

Silvern also pointed out that the team’s report brought up a “number of very troubling issues” and said it “doesn’t assume any salary increases or any additional revenues that are known beyond this point.”

He said the district would be very well served if the Financial Crisis Management Assistance Team rolled out its projections one more year, to 2009-2010 because it will lead to different conclusions.

Despite his concern, Silvern said he was “impressed with how well Hodgson has come to know the district’s finances already,” and said Hodgson, too, “shared some of the same concerns” about the district’s financial situation that the committee did.

“I think the report speaks and gives some caution to us, but it does say the district can afford the teacher salary increase,” said teachers union president Harry Keiley, who attended the committee meeting.

Committee member Patricia Hoffman pointed out that she has always believed that “when you shake hands on a tentative agreement, it stands.”

“I’ve never talked about reversing the contract,” Hoffman said. “But the district has to take some fairly dramatic steps to be solvent. I do have a huge concern about the structural deficit of this district.”

Silvern said, among other issues, he finds it troubling that “the district has expiring parcel taxes and no strategy to renew them.”

“It is urgent that these issues be addressed quickly,” said Silvern.

Measure S, a parcel tax to raise revenue for the school district, will expire in 2009. Measure Y, another parcel tax for the district, will expire in 2011.

Hodgson had a few recommendations in moving forward.

“I think we need to look at what comprises our staffing,” Hodgson said. “We’ve lost 940 students [over the past few years], and we’ve increased staff.”

The district’s enrollment has decreased over the past two years — a result of a more restrictive district policy with the goal of reducing overcrowding in Santa Monica-Malibu schools. Enrollment is projected to continue declining.

“The first issue we need to get our hands around is staffing,” Hodgson said.

Focus also needs to be placed on declining enrollment, which is a more difficult issue to address, Hodgson said.

“We learned quite a bit going through this exercise,” said Hodgson. “We have very little time to do a lot of work.”

Committee member Gordon Lee said, “A plan going forward is going to be critical for the board, for the staff, for the community.”

Committee member Cynthia Torres said she felt that the Financial Crisis Management Assistance Team report was incomplete and she referred to it as a “dangerous document” that worried her.

Committee member Denny Kernochan agreed.

“I find the FCMAT report to be a little scary,” he said. “The problem is considerably bigger than what sits in this document.”

Kernochan also noted that the district was “overlooking a source that’s valuable” by not using the Financial Oversight Committee as a friend or ally.

Other members of the committee agreed that they were a “valuable checkpoint” that the district should use as a resource.

“I take all your recommendations very seriously,” said school board member Kelly Pye, who, along with fellow board member Maria Leon-Vazquez, is a liaison to the school board and attended the committee meeting. “I’m very concerned too. We need a plan, a strategy. We need to do it now.”

“I don’t have the solution,” said Hodgson. “It’s going to take some collective wisdom to pull this together. We can’t disregard staffing; we can’t disregard enrollment. We need to begin in earnest sooner than later. It’s all about what we can do now,” to help in the future.

The tentative agreement between the district and teachers union is available at www.smm, and further discussion about the tentative agreement is scheduled to take place at the next board meeting, Thursday, March 1st.

The school board will be asked to formally approve the tentative agreement between the district and teachers union at its meeting on Thursday, March 15th.