SAN FRANCISCO - A troubled rural school district in California is poised to fall under state control as the result of its financial woes, and more districts may join it, according to a state education official.

A bill to authorize a $5 million emergency loan to the King City Joint Union High School District - and ultimately a $13 million bond financing to help the district avoid insolvency - is working its way through committee in the state Senate.

In return for the emergency loan, the district, located in the Salinas Valley, will have to give up all governing authority to a state administrator appointed by California's superintendent for public instruction, Jack O'Connell.

The bill cleared the Senate's Education Committee in April and is currently on hold in the Appropriations Committee, which is expected to pass the bill out next week, according to a spokeswoman for the bill's sponsor, Jeff Denham, R-Merced. She said it is likely to pass out of committee because the state has a constitutional obligation to keep the district's schools open.

The King City high school district would join the Oakland Unified School District, the Vallejo Unified School District, and the West Fresno Elementary School District under the control of state administrators.

According to a Senate staff report, the district will need $13 million, but the immediate $5 million loan from the state general fund would keep the doors open in the short term.

Before long, the district would access the bond market through the California Infrastructure and Economic Development Bank through a $13 million lease financing, backed by an I-bank pledge to intercept of the district's state revenue apportionment.

Similar I-bank bonds have been issued to repay state emergency loans to Oakland USD, Vallejo USD, and the West Contra Costa Unified School District.

The King City high school district has been slipping into trouble for a while, according to a report prepared a year ago by the Fiscal Crisis and Management Assistance Team, a state organization charged with helping school districts comply with fiscal standards.

Structural problems stemming from declining enrollment and a lack of reserves were exacerbated when the city lost an arbitration case with its teachers' union, and was ordered to pay millions in back wages.

Though the King City district suffers from specific problems, others are likely to join it in need of state aid, as the state's shrinking budget results in shrinking allocation payments for local school districts, said Ellen Venturino, administrator in the California Department of Education's fiscal services division.

"It seems to be the districts that are going to be more prone to trouble are those that are declining in enrollment, because they're always having to adjust their financial structure," she said.

State per-pupil payments are the primary revenue source for most local school districts - as a result, enrollment drops hit revenue quickly, while fixed costs are harder to adjust.

"We have several others [districts] that we hear are really struggling to stay afloat, and they may not," Venturino said.

The real estate crisis may take a bite out of many districts facing a bust after planning for enrollment growth during the boom years, according to Venturino.

"I understand from talking to a lot of county offices [of education] that districts right now that are engaged in major facilities projects are in a lot of trouble, especially those that had been relying on developer-fee revenue to play an important role in facilities projects," she said.

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