DENAIR -- Denair Unified School District got official notice Tuesday that it is on the brink of insolvency and could run out of cash by February.
The financial report prepared by an outside expert gives the budget a "negative" declaration, the first such designation in Stanislaus County history. Last year, there were 12 districts statewide at risk of insolvency.
"A lot of school districts are under incredible stress. They've had about a third of their budgets cut because of state funding (loss)," said Tina Jung, spokeswoman for the California Department of Education. "A lot of districts did all they could to keep the lights on. They cut to the bone."
The district estimates that it needs to cut about $300,000 between now and June 30. The 2012-13 budget is about $10 million.
Denair Unified Superintendent Ed Parraz said Tuesday afternoon that the board expected the news and is set to begin negotiations with its teachers after the Dec. 13 board meeting to get immediate salary concessions. He said the district will resist laying off employees.
"That would be the last resort. We do not want to lay off people," Parraz said. The district has about 85 teachers, 48 part-time and 30 full-time support staff, and seven administrators.
Denair has cut only by attrition the past five years, shaving three administrative positions and one teacher despite a 30 percent drop in enrollment.
Where Modesto public high schools squeeze up to 40 students in a room, Denair High's average class size is 16.
Attempts to reach the five members of the school board and union officials for comment were unsuccessful Tuesday.
Blame him for the financial fallout, Parraz said. "That falls squarely on my shoulders. We know we're being a little risky, for the fact that we were trying to save jobs," he said.
Even if it wanted to, the district missed legal deadlines to lay off teachers for this year. It still could cut support staff. To save $300,000, all employees would need to take a pay cut of about 7 percent, using figures in the report.
The financial report criticizes the district for assuming that enrollment would rise in 2012-13 and the next two years after years of declines, and anticipating a rosy rise in developer fees. But Parraz said he counted the homes going up to get that figure.
"I know I was criticized for being overly optimistic, but that's not a crime or a sin," he said.
This year, the district's optimistic forecast was for 1,028 students sitting in seats at Denair Elementary, Denair Middle and Denair High schools, but only 951 came. That 77-student deduction means nearly $400,000 less in state revenue for the district.
The largest drop was at the high school, which has only 340 students this year, about half the size of Riverbank High. While 124 students transferred in from outside the district, 268 transferred out, most to the two 2,000-plus student public high schools in neighboring Turlock, Parraz said. The larger schools offer more electives, stronger band programs, water polo and significantly higher state test scores 777 and 790, compared with Denair's 693.
Other problems identified in the report:
Short-term planning: One-time federal stimulus funds were never meant as a long-term solution, but they "masked the underlying deficit spending crisis in the district," the report says.
Budget accuracy: The report questions the district's June projection of a deficit far lower than the actual number, and the lack of any customary notes of concerns by auditors despite clear problems.
Deficit spending: The district spent $700,748 more in 2011-12 from the unrestricted general fund than it received, roughly 10 percent of that fund's revenue. The report takes the district to task for not holding open discussions about its deep dips into shrinking reserves. By the end of 2014-15, the district is projected to be $2 million in the red.
Without spending cuts or a state loan a last resort the district will end this year dead broke, Parraz said.
The district already borrows from county funds to cover cash shortages caused by late state payments. A state loan, however, would come with a state takeover. Only nine such takeovers have happened since 1991, state records show. Only one district among those has regained clear local control.
"I'm trying to avoid that at all costs," Parraz said. "That's not my plan, and I don't think that's the county plan. They're working closely with us to get us back in the black. I'm not looking to lose my job."
He said the Denair community has been supportive, raising money with recycling of electronics, pancake breakfasts, and small donations of needed gas or supplies to make it through the day. But those little extras are just not enough, he conceded.
"We're at that point now where we have to fish or cut bait," Parraz said. "I'm hopeful we can make our concessions or compromises to make it through this tough time."
Bee education reporter Nan Austin can be reached at firstname.lastname@example.org or (209) 578-2339, and on Twitter, @NanAustin.