Groups Join to Fight Withdrawal of Filing By Bankrupt Schools In Richmond, Calif.
WASHINGTON - Teacher and parent groups have joined to fight a move by California education officials to withdraw a bankruptcy petition filed by the Richmond Unified School District and quietly negotiate a deal with investors over the district's defaulted certificates of participation issue.
A hearing on the motion to dismiss the bankruptcy case, which was filed on Aug. 26 by the district's state-appointed administrator, Fred Stewart, is scheduled for Oct. 3.
Ernie Ciarrochi, executive director of the United Teachers of Richmond, said his 1,800-member union is working with a group representing parents and students to oppose the district's move to pull out of bankruptcy on the grounds that any settlements with creditors outside of the bankruptcy proceeding are likely to be inequitable and hurt students and teachers.
Earlier this month, state education department attorneys initiated private discussions with attorneys for Security Pacific National Bank, the trustee of the defaulted $8.3 million certificates issue, in an effort to reach such a settlement. But bank and education department attorneys declined to comment on the substance or progress of the negotiations.
The issue went into default in August, when the district failed to make a scheduled $1.1 million lease payment, but the bank used reserve funds to make the August payment to investors.
While investors initially hoped the state's intervention in the bankruptcy proceeding might mean the state would step in and help cure the deficiency, state attorneys have emphasized that the state is in no way taking over the district's financial responsibilities and is only helping the district to rescheduled its debt.
State officials have said in negotiations with the teachers' union that they believe they can strike a deal with investors that would involve giving them "something less than 100 cents on the dollar," Mr. Ciarrochi said.
Mike Keebler, Mr. Stewart's legal consultant, said Mr. Stewart also is attempting in separate, "informal" negotiations to "work out" repayment of a large computer equipment lease with International Business Machines Corp. That contract also fell into arrears in the past year. Mr. Keebler and IBM officials declined to comment on the substance of the negotiations.
"We have been talking on an ongoing basis with the school district, because it continues to be a customer," said IBM attorney Robert Bird.
By contract, state officials have made no move to renegotiate the large claims that the state itself holds over the district as a major creditor, Mr. Ciarrochi said. The state loaned the district $9.5 million before it filed for bankruptcy in April, and since that time has loaned it an additional $19 million.
Mr. Ciarrochi said state officials have indicated they expect to be repaid in full, unlike other creditors. The district in its fiscal 1992 budget slated a $2 million repayment in full on the state's pre-petition loan, he said, though it did not budget payment either for the August lease payment or another scheduled lease interest payment of $279,105 which is due in February.
State officials are maintaining that the only way the district can get out of full repayment of the state loans is if the California legislature grants full or partial forgiveness of the debt. So far, Governor Pete Wilson and legislators have not indicated a willingness to do so, Mr. Ciarrochi said.
School district employees, in the meantime, have taken a 9% pay cut, while investors and other long-term creditors apparently are being asked to accept something less than full repayment.
Everybody would be better off allowing the bankruptcy court to equitably settle the district's debt matters, Mr. Ciarrochi maintained. "The way this thing is going, if the district gets out of bankruptcy court, the only player to escape unscathed will be the state."
The move by the teacher and parent groups to force the district to remain in bankruptcy appears to have only a small chance of succeeding, according to Robert Hughes of Lempres & Wulfsberg, the district's bankruptcy attorney, and other attorneys, Mr. Hughes said he "expects the court to grant the motion to dismiss, but it does not happen automatically.
Mr. Ciarrochi said he has "no idea" how successful his group will be, but "we owe it to ourselves and the students - and even indirectly to the long-term creditors who are ready to let district off the hook - to try."