The Denair Unified School District is one step closer to a state takeover.

Denair Unified Trustees held a special board meeting on Friday to receive a formal notice by the county board of education rejecting the district's budget for the current and two subsequent fiscal years.

“It’s not a pretty picture,” said Deputy Superintendent of the Stanislaus County Office of Education Don Gatti. “Cash flow has deteriorated. We lent the district money twice. My office is not in the position to loan that kind of money to the district anymore. I am compelled at this point to ask the state to come.”

The county will now monitor the district’s spending and exert pressure if they feel the district is spending too much on the day to day expenses.

“You are spending out cash, not yours,” said Gatti. “If we see something that doesn’t make sense, we will be all over it.”

Gatti also advised the district to hold off on hiring a permanent superintendent until the waters calm down.

“I don’t know if it’s wise to hire a superintendent at this state of the game,” said Gatti. “If the state takes over, he or she will get fired.”

Currently, Walt Hanline is serving as the interim superintendent of schools. He had planned to leave in January.

Due to the severity of the district’s financial crisis, the county will seek help from the Fiscal Crisis and Management Assistance Team. FCMAT is a statewide fiscal resource for school districts that is reports to a board of directors comprised of one county superintendent and one district superintendent from each of the state's 11 service regions. A representative of the California Department of Education also is on the board.

FCMAT can be called in to help with financial crisis by individual districts, a county office of education, or the state.

“Denair's failure is not an option,” said Gatti. “This needs to be done. We are creating a backup plan and local solution to get the budget back to where it was.”

On top of current expenses, Denair owes the county $1.3 million it borrowed to finish out the 2012-13 budget.

Contributing to DUSD's financial troubles is the continued impasse with the teachers union.

“If they don’t bargain a state takeover will happen,” added Gatti.

In August, trustees cut nearly two dozen full-time teaching positions. Remaining teachers are being asked to take an 11 percent salary cut.

“We want to do things diplomatically,” said Denair Unified Teachers Association President Barry Cole. “I’m leading this fight and I’m not going to stop.”

At DUSD's next board of trustees meeting, SCOE Director of District Business Support Shirley Buell will give a presentation on the process and timeline to declaring a State of Financial Emergency.

The Denair Unified School District will meet at 7 p.m. Thursday at the Denair Middle School Coyote Center on 3701 Lester Rd.