Los Angeles County School Districts See Unique Fiscal Changes in 2021

William S. Hart Union High made the biggest jump, moving up 24 places. It reported revenues in excess of expenditures of $72.8 million, transferring $8.4 million of it into restricted assets. Reducing its net investment in capital assets by $207.8 million explains the net reduction to its unrestricted net deficit of $272.2 million. But there’s one small problem. The capital assets did not change on the balance sheet.

Making incorrect changes to “Net Investment in Capital Assets” has become a common problem. The financial statement is the presentation of a school district’s accounting and is provided by management. But the independent Certified Public Accounting (CPA) auditing firm should catch this mistake before completing its field work. Having been the managing audit partner for a CPA firm, this is a critical quality control step that must occur. This error would be discovered and corrected in a subsequent year. Because the audited financials as published and posted are used for the rankings, I get to point out—as you’ll see—this common error.

With so many school districts and so few CPA firms in this market niche, trying to complete this critical service for numerous clients under a six-month deadline may be the main reason for these occasional occurrences. And having the COVID-19 lockdowns probably didn’t help matters.

Hacienda La Puente Unified had revenues in excess of expenditures of $17.6 million and a net transfer out of restricted assets of $0.6 million. But a reduction of $46.7 million to the net investment in capital assets helped reduce the unrestricted net deficit by $65 million. But, again, the increase in capital assets and related debt did not move a similar amount. The district moved up 22 places, but we’re seeing a “Hart Union High” pattern.

Arcadia Unified had expenditures in excess of revenues of $1.8 million. It also had a prior period adjustment of $19.3 million. It transferred $12.1 million from restricted assets. It reduced the net investment in capital assets by $6.8 million. Its long-term debt related to its fixed assets increased during the year. And the net reduction of $17.1 million to its unrestricted net deficit moved it up 14 places.

South Pasadena Unified had revenues in excess of expenditures of $7.9 million and moved $12.8 million into restricted assets. Although it saw its capital assets grow by $26.1 million and its long-term liabilities grow by only $15.9 million, which should have increased the net investment in capital assets by some $10.2 million, it actually dropped by $13.5 million. Combined, the unrestricted net deficit dropped by $9.9 million, with $1.3 million unaccounted for, moving it up 13 places. Put this district in the “Hart Hopper” category.

Inglewood Unified had revenues in excess of expenditures of $32.7 million, explaining the bulk of the reduction in its unrestricted net deficit, and its move up 12 places.

Santa Monica-Malibu Unified had revenues in excess of expenditures of $20.2 million, representing the bulk of its $25.4 million reduction in its unrestricted deficit, moving it up 10 places. But there was much more, including a restating of the prior year’s audited financial statements, along with major moves in capital assets and unrestricted assets.

Let’s go in the opposite direction now to see what we can learn about districts that slipped downwards by double digits.

Burbank Unified increased its beginning unrestricted net deficit by $48.6 million. It also increased its beginning net investment in capital assets by the same amount. For the year, it had expenditures in excess of revenues of $13 million, an increase in restricted assets of $7.3 million, and an increase to its net investment in capital assets by $14.1 million. This unexplained concoction resulted in an increase to the unrestricted net deficit of $53 million, somewhat explaining the move down of 12 positions.

Dropping 14 places, Alhambra Unified had expenditures in excess of revenues of $7 million and transferred $9.3 million into restricted assets. Taking on additional current liabilities may explain the additional $37.3 million in the district’s unrestricted net deficit. This unique activity may self-correct in subsequent years. In the meantime, this district should also be included as a “Hart Hopper.”

Redondo Beach Unified School District had revenues in excess of expenditures of $2.9 million. It transferred $6.8 million into restricted assets and appears to have paid down debt related to capital assets of some $26.8 million, explaining the bulk of the $30.7 million increase in its unrestricted net position. This may be the reason for it dropping 18 positions.

Los Nietos School District had revenues in excess of expenditures of $614,000 and transferred $2.4 million into restricted assets. It also had a $3 million increase in its net investment in capital assets. Combined, its unrestricted net position dropped by $4.8 million and its ranking by 18 positions.

Manhattan Beach Unified had revenues in excess of expenditures of $3 million and transferred $18 million into restricted assets. But it increased its net investment in capital assets by $73.3 million, with no obvious correlation to the balance sheet, thus increasing its unrestricted net deficit by $88.1 million and dropping 24 places. The “Hart Hopper” list is getting longer.

The biggest mover was Mountain View Elementary, which dropped 32 places. But this one is on me. Did you know that California has at least three school districts with the name “Mountain View”? Throw me into the “Hart Hoppers.” I’ve been providing the financial data of the Mountain View in a neighboring county for the last few years. I told you, quality control was important. My apologies to Los Angeles County’s Mountain View, as San Bernardino County’s Mountain View, located just over the border in the city of Ontario, which had a much lower unrestricted net deficit, was provided in previous rankings.

What have we learned? Always have your work double and triple checked. I can still remember my first time attending a CPA Day in Sacramento. One of our speakers was then State Controller Gray Davis, who commented on how quickly external auditors were rushing through school district audits. In order to avoid the “Hart Hopper” situation, a thorough review process needs to be administered. And that could include you, if you reside in L.A. County, by using this ranking to ask better questions of your elected school board trustees.

John Moorlach is the director of the CPC’s Center for Public Accountability. He has served as a California State Senator and Orange County Supervisor and Treasurer-Tax Collector.

This article originally appeared in The Epoch Times.