Oakland Schools' Bad Credit Costing Homeowners Millions

By Doug Oakley
Staff Writer
doakley@bayareanewsgroup.com
OAKLAND -- A decade of sloppy financial record keeping in Oakland's schools is now costing city homeowners and businesses more than $29 million in extra property taxes after the district lost its credit rating for borrowing money, according to a new report to the Alameda County grand jury. 

Rating agency Standard & Poor's withdrew its credit rating of the district in 2011 and Moody's removed its in 2012, driving up the cost of current borrowing on bonds that are repaid in residential and business property taxes. 

The credit ratings were removed because the district has not been able to complete any financial audits mandated by the state since 2003 due to missing records, a lack of internal accounting controls and books that are basically in shambles, according to a spokesman with the State Controller's Office. 

"The District's financial advisers have estimated the additional cost to Oakland taxpayers may be over $29 million," stated a Sept. 10 report to the Alameda County grand jury signed by school board President David Kakishiba and new Superintendent Antwan Wilson. 

Although the cost of borrowing money was driven up by just 1.4 percentage points in a recent round of borrowing, it amounts to a whole lot of money because so much is being borrowed. For example, Measure J, approved by voters in 2012, allows the school district to borrow $475 million for school facilities, and it does so in increments. 

Ever since 2003 when the state gave the Oakland school district a $100 million emergency loan and the State Controller's Office became the district's auditor, the school district has not been able to complete a single audit because "there was a weakness in internal controls and their records were in disarray," said controller's office spokesman Garin Casaleggio. The office has issued a finding of no opinion on the district's financial situation because it didn't have enough information. The latest audit it attempted to finish was for the 2010-11 school year. 

The state controller will continue to audit the district's books until it pays off the remaining $55 million of the emergency loan. 

"We're still their auditor, and what we're after to issue an opinion is at a minimum to have sufficient internal controls and accounting structures in place," Casaleggio said. "We've done seven audits in all, and we haven't issued an opinion on any of them." 

Oakland's school district financial books are in disarray because it has had trouble hiring and keeping solid employees who watch over them, Kakishiba said. 

To its credit the school district has recently hired a chief financial officer and an executive director for budgeting. It has also set aside $1.3 million to try and get its financial records together and has hired an outside accounting firm to help the State Controller's Office perform an audit. As a result, an audit for the 2011-12 school year that should be done soon is costing the district $400,000 from the State Controller's Office and $250,000 from the outside firm. 

"As a board member I've been frustrated about us not filling and retaining top-notch fiscal management leadership, and we've had a lot of turnover and many vacancies," Kakishiba said. "You could say the buck stops with the board and the superintendent who manages all these people, and that has been a source of deep frustration for me." 

Kakishiba said the state has not even looked at the district's financial statements in years past because "the controller's office has said it is not worth auditing -- the books are in shambles so it's not even worth auditing them." 

The State Controller's Office said it is a good sign that the district has hired an outside firm to help with its financial books. 

"We take it as a positive sign that Oakland has brought in an outside CPA firm to help prepare its financials for which we are auditing and to help implement reforms we are recommending," Casaleggio said. 

Kakishiba said the latest audit of the 2011-12 school year should be a little better as a result. 

"I suspect we will get to some kind of opinion this go around," Kakishiba said. "I don't think it will be 100 percent clean, but I do anticipate progress." 

Kakishiba said the fact that Oakland taxpayers have had to pay so much more to finance its school bonds is the fault of both the state for taking so long to do its audits -- they are two years behind -- and the fault of the school district for perpetuating a "grand conspiracy that people are out to screw over Oakland." 

"Either way the Oakland taxpayers are getting screwed, and the Oakland kids suffer, too," Kakishiba said. 

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