Despite receiving the largest bail-out loan in the state, fiscal conditions in the Vallejo school district are still so precarious, the $60 million loan may not be enough to stave off another cash flow crisis.

That's one conclusion the Fiscal Crisis Management Assistance Team (FCMAT) came to after a review of five areas of the district - community relations, personnel management, financial management, facilities management and student achievement.

In June, state lawmakers gave the Vallejo City Unified School District the largest loan in California history based on the number of students enrolled. Two days later, the district withdrew $50 million to cover immediate bills.

The state created FCMAT to assist school districts with budget and management expertise. Over the summer, FCMAT auditors in Vallejo reviewed budgets, board policies, newspaper articles and accounting reports; they also visited classrooms, toured schools and conducted interviews.

The thick FCMAT report cost $685,000 and assesses the district on 415 professional and legal standards. Using a scale of 0 to 10, auditors scored operations on each standard. A score of 0 indicates the standard is not being met. A score of 1 to 7 means partial implementation.

The vast majority of Vallejo scores on the 415 standards in all five areas were at 4 or lower. None of the major areas scored at 6, which the state considers to be an acceptable level for basic operations. The district must follow the FCMAT recovery plan.

Of the 415 standards, FCMAT highlighted 129 that Vallejo must address over the next two years. These priority standards received particularly low scores. For example, the average score for financial management was 1.31, and a score of 1.34 was logged for the human relations department.

Scores on these priority standards must be at least a 6 for the state to return the district to local control.

Persistent problems with student academic achievement and a lack of direction, consistency and leadership in instruction and curriculum also were noted.

The report notes that the achievement gap and state test scores "provide evidence of serious learning issues in Vallejo and also point to a critical lack of leadership and academic focus at the district level."

Despite the severity of Vallejo's financial problems, the FCMAT team said, "Only minor change has occurred since the state takeover and organizationally, the district appears to be operating in a business as usual' fashion."

The FCMAT report also says current cash flow management is not sufficient to leverage the bail-out loan while a financial recovery plan is put into place. Several factors compound the problem, it said, including a 1,500-pupil decline in enrollment from last year and employee contract language that calls for raises the district can't afford.

"FCMAT is concerned that there is not sufficient focus on cash flow issues related to the district," the report notes.

However, Tish Busselle, special consultant to the state administrator, said the district has enough money on hand because revenues come in at various intervals. She said if the district does nothing, the loan would run out by February of 2006.

She also adamantly disagreed that it's "business as usual" noting that State Administrator Rick Damelio, new fiscal chief George Kozitka, other administrators and staff members have made several changes to address the budget and lackluster student achievement. She also said the decline in enrollment is closer to 1,000 less than last year.

Damelio was out of town Monday. In a press release prepared by Busselle, he is quoted as saying he agrees with the FCMAT findings. "I am not at all surprised by the ratings for two reasons: This school district is in trouble and has been for several years. The ratings confirm my own observations during my first three months, and also support the goals that I established for the district in August," he said.

The district's budget development procedures come under particular scrutiny. The FCMAT report says there is no "set procedure" that outlines how the district develops its budget, noting a major lack of communication. The report's findings indicated prior administrators did not always practice appropriate behavioral standards or properly manage the financial activities of the district. Accurate financial information was not given to the school board or community, and the board did not do its job monitoring the budget, the report said.

On May 1, FCMAT will develop a progress report, with two more completed Nov. 1, 2005, and May 1, 2006.

Roberta Majors, a FCMAT administrator who headed up the auditing teams, will present the report Thursday at a school board meeting that begins at 6 p.m. at the district office, 211 Valle Vista.