County Absolved in School Fiscal Crisis, Grand Jury Finds

The Orange County Department of Education “substantially complied” with its oversight responsibilities in monitoring the fiscally troubled Laguna Beach Unified School District, according to an Orange County Grand Jury report released Tuesday.

But communication could have been better between the two agencies, the report concluded.

Last October, the Laguna Beach district became the first in the county to see its budget rejected by the education department. By November, school officials managed to patch together a balanced budget by cutting salaries throughout the district and borrowing $850,000. The district’s fiscal woes have been blamed in part on declining property tax revenue that was not offset by spending cuts.

The education department began raising concerns in 1993 about “negative fiscal trends” in the district, and consistently challenged the district’s revenue projections and budget policies, the grand jury said. The county agency also repeatedly told the district to increase its reserve funds and to develop a financial plan to avoid program cuts and other problems, the report said.

While county officials had “substantial involvement” with district managers about the budget concerns, the grand jury made several recommendations to improve communication and help school districts avoid future financial problems.

For example, the grand jury suggested that the education department send reports directly to school trustees if concerns are raised about their district’s ability to meet financial obligations.

“Correspondence between OCDE and the staff of LBUSD was copied to the district’s Board of Trustees,” the report says. “There does not appear, however, to have been direct interaction between OCDE and the district’s Board of Trustees.”

The report also says it appears that “concerns raised by the OCDE were never fully communicated directly to its Board of Trustees by the district’s management staff.”

Former district Chief Financial Officer Terry Bustillos, who was fired by the board at the height of the fiscal crisis last summer and has since sued the district, said Tuesday that board members were informed of the district’s “significant fiscal problems” more than 18 months before his termination.

The report also recommends that the county agency conduct periodic countywide workshops for school financial officers and others involved in fiscal planning and budget management.

“While the fiscal crisis at the Laguna Beach Unified School District may be viewed as an isolated situation,” the report says, “it is imperative that all local districts have the required understanding of fiscal planning and budget management techniques to avoid future financial uncertainties.”

The Department of Education’s director of business services, who has worked closely with the school district during its financial crisis, said Tuesday that the report contained no surprises.

“There were no new facts or new information,” Wendy Margarita said. “And the recommendations . . . are all things we would agree with and, for the most part, are already doing.”