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Bond Ratings Lowered for San Ysidro School District

January 18, 2018

By Alberto Garcia

Mario A. Cortez | La Prensa San Diego

San Ysidro School District’s bond ratings have been lowered after it failed to make a bond payment in September 2017 amid the firing of both its Superintendent and Deputy Superintendent last fall.

Standard & Poor’s (S&P), a global credit rating agency, lowered the District’s general bond rating from “A” to “BBB+”, and lowered the rating on Certificates of Participation (COPs) from “A-” to “BBB”, the lowest rating still considered investment grade. The next lower rating is considered to be junk bond status.

“The rating actions reflect our view of the District’s management practices and internal controls following its late principal and interest payment in September 2017,” said Benjamin P. Geare, primary credit analyst for S&P. “The negative outlook reflects our view of lingering effects from the District’s history of poor internal controls could lead to additional unforeseen events that would pose financial stress and affect the District’s ability to make timely debt service payments.”

The lower rating means future bonds the District issues will require it to pay higher interest rates, translating to higher payments for taxpayers in the District for decades to come. A 2015 report by inewsource, a San Diego online news outlet, revealed that San Ysidro School District residents already pay the second highest debt payments in the County of San Diego, after Rancho Santa Fe residents.

District Superintendent Julio Fonseca resigned at its Sept. 2, 2017, board meeting after a harassment complaint was filed against him by a female employee he had been dating. Fonseca had served as Superintendent since July 2015.

The Board elevated then-Deputy Superintendent Arturo Sanchez-Macias to fill in as Superintendent as they considered options to replace the lead role in the District. Macias had served as the chief financial officer under Fonseca since late 2015.

Macias managed all financial and operations for the District. Before being hired at San Ysidro, Macias had worked at Bassett Unified School District in Los Angeles, where he also worked with Fonseca.

The bond payment was missed during the time Macias served as Interim Superintendent. Macias continued in the role until he resigned on Nov. 4, 2017, after La Prensa San Diego revealed he and Fonseca had illegally cashed out unearned vacation time and life insurance benefits.

Within a few days after Macias’ resignation, the Board appointed Mary Willis to serve as their interim leader. Willis had previously served as a consultant in San Ysidro in 2015 when the District was recovering from another scandal after Superintendent Manuel Paul plead guilty to demanding and accepting cash from a prospective contractor seeking construction work from the District. Paul was sentenced to time in prison.

“It is my deepest hope that we’ll all work together towards making every decision based on what works best for students,” Willis said after her first board meeting. “I hope to put procedures in place that assure fiscal transparency for the Board and community when making recommendations for those student-based decisions,” she added.

Since the appointment of Willis, the Board has requested an independent audit and the County Office of Education has initiated its own “extraordinary audit” of the District’s finances. Depending on the outcome of the audits, the District’s bond ratings could change again.

“The new management team has made promising steps to correct the District’s multiple management and control shortfalls,” the S&P report details. “However, if the independent audits underway reveal additional problems resulting in new liabilities or other sources of fiscal stress, we could lower the rating.”

S&P also issued a dire warning about the District’s still unknown financial issues.

“As a result, there is at least a one-in-three chance we could lower the rating during our two-year outlook horizon,” its report concluded.

In addition to the fiscal audits, the District is also dealing with several lawsuits related to both Fonseca and Macias.

Two lawsuits have been filed by San Diegans for Open Government, a local taxpayer advocacy group.

In the first case, the lawsuit claims Fonseca and the District illegally paid over $114,000 to a former employee who was fired after he raised concerns about Fonseca’s hiring of his own girlfriend at the District. That employee, Enrique Gonzalez, now serves as COO of La Prensa San Diego.

The second case claims the District illegally paid Fonseca nearly $400,000 when it accepted his resignation in September. The lawsuit claims the Board did not properly notify the public before it took action on Fonseca’s contract, and that his contract only allows for a payment if he was fired. At that meeting, the Board announced it unanimously accepted Fonseca’s resignation, not fired him.

The Board has since indicated it may pursue legal action against Fonseca to recover the money it paid him upon his resignation, and it also voted to forward all information it has discovered to law enforcement agencies.

“We are working to restore the community’s confidence in our District,” School Board Member Rodolfo Linares said. “We must clean up our finances and make sure there are no other ticking time bombs that could jeopardize our ability to provide great educational opportunities for our students,” Linares added.

San Ysidro School District operates seven schools in San Ysidro, Ocean View Hills, and Otay Mesa, with over 5,400 students in gardes K-8.

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