Oakland teacher strike plan underscores district's fiscal woes

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Following the footsteps of their counterparts in Los Angeles, teachers in California's Oakland Unified School District plan to go on strike Thursday.

As in Los Angeles, the teachers union has asked for increased pay, additional teachers to reduce class sizes and more school counselors while the district struggles to close a $30 million budget gap for fiscal 2020.

Los Angeles teachers walked out for six school days in January, ending with a contract that among other things promised lower class sizes and the hiring of more counselors and librarians.

“This strike is as much about the structure of our school system and services for our students as it is about a living wage for educators,” Oakland Education Association President Keith Brown said.

The parties have been negotiating for more than a year and the teachers have been working without a contract since June 30, 2017.

OEA rejected the school district’s offer of a 5% pay increase over three years, because it wants a 12% increase over that time frame. The district estimates each 1% salary increase costs about $1.9 million per year for teachers and $3.5 million per year for all employees, according to a Fitch Ratings report.

Board president Aimee Eng said the district has done the hard work to prioritize increasing compensation and asked the teachers to return to the bargaining table.

The school district, which has about 50,000 students, has been contemplating closing 24 of its 86 schools in what the teachers union claims are predominately African-American and Latino neighborhoods.

The state took Oakland Unified over in 2003 during a financial crisis and returned it to local control in 2009, though a state trustee still has veto power over district finances.

Fitch Ratings said in a Feb. 7 report that it did not expect to take rating action on the school district’s BBB-plus issuer default rating based solely on the teachers' union’s plans to strike, but said the labor tension underscores the district’s financial pressures.

The issuer default rating already incorporates slow revenue growth and pressured budgets, Fitch analysts wrote, but assumes the district will maintain solid expenditure flexibility and adequate financial resilience throughout economic cycles, including at least 2% reserve for economic uncertainties as required by the state.

Fitch rates the school district’s unlimited tax general obligation bonds AAA based on a dedicated tax analysis without regard to the district’s financial operations.

The distinction between the triple-A GO ratings and the BBB-plus underlying rating reflects Fitch’s assessment that the bond payments meet the definition of pledged special revenues under the U.S. Bankruptcy code and bondholders would be insulated from the district’s operating risks.

S&P Global Ratings and Moody’s Investors Service both lowered the school district’s ratings in October, dropping them to A from AA-minus and to A1 from Aa3, respectively.

S&P also placed the district on Credit Watch with negative implications. Moody’s assigns a stable outlook.

S&P analyst Jen Hansen cited an Alameda County Grand Jury report that recommended the district close schools to meet current enrollment numbers and raised concerns over the district’s use of interfund transfers.

“Offsetting these serious concerns is the state support of the district, both in the past with a large loan, and in very recent legislation that gives the district extra funding to give it time to right-size its budget to its current enrollment,” Hansen wrote. “Without this strong state support, we feel that the district would be in severe financial difficulty.”

Including an outstanding state loan, S&P wrote, the district has $972 million in outstanding direct debt.

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School bonds Public school funding Oakland Unified School District California