Report 2019-108 Recommendation 3 Responses

Report 2019-108: Sacramento City Unified School District: Because It Has Failed to Proactively Address Its Financial Challenges, It May Soon Face Insolvency (Release Date: December 2019)

Recommendation #3 To: Sacramento County Office of Education

To ensure that Sacramento Unified takes the steps necessary to address its fiscal crisis, the county office superintendent should do the following:

Direct Sacramento Unified to submit a corrective action plan by March 2020 that consolidates the district's plans to resolve its fiscal crisis.

Annual Follow-Up Agency Response From October 2023

On September 15, 2023, we approved the district's 2023-2024 Budget. However, we noted the following concerns:

- Multi-year projections submitted by the district show that the unrestricted General Fund balance will decrease by $33.9 million in 2023-2024, by $18.3 million in 2024-2025 and by $32.2 million in 2025-2026.

- The district has not settled with its classified bargaining units for 2022-2023 and must still bargain with both certificated and classified bargaining units for the current fiscal year and beyond.

- From 2018-2019 through to the current fiscal year, the district adopted several fiscal recovery plans and implemented $58.1 million in ongoing solutions and $21.9 million in onetime solutions. With the fiscal pressures the district faces and the significant reductions the district has already made, it has limited ability to absorb additional cost increases.

We have provided a fiscal expert to support the district and will continue to closely monitor its fiscal condition.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

The Sacramento County Office of Education has fiscal oversight responsibility of Sacramento Unified and all other school districts in the county. As part of his fiscal oversight, the county office superintendent reviews districts' annual budgets and interim financial reports to assess their ability to meet their financial obligations. When a district's budget or financial reports indicate that the district may be unable to meet its financial obligations for the current fiscal year or two subsequent fiscal years, the county office superintendent can take action, such as assigning a fiscal expert to advise the district or requiring the district to submit a proposal for addressing its fiscal deficiencies. As long as it continues to exercise its duties by overseeing Sacramento City Unified and raising its concerns, it will have addressed our recommendation.

Annual Follow-Up Agency Response From October 2022

Response submitted by email.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

In its response, the Sacramento County Office of Education (SCOE) notes that all of the items in the financial recovery plan that Sacramento Unified developed in 2020 required negotiations with its employee associations. SCOE indicated that, to date, the district has not been able to reach an agreement with its employee associations on items that would address the fiscal solvency issues of the district. SCOE notes in its response that despite one-time funding from the State that will mitigate the district's structural deficit over the next few years, Sacramento Unified's fiscal improvement is temporary due to declining enrollment and significant ongoing fiscal pressures for program services. Therefore, SCOE conditionally approved the district's fiscal year 2022-23 budget and maintains its fiscal advisor to support the district.

Annual Follow-Up Agency Response From October 2021

Response submitted via email.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

The Sacramento County Office of Education (SCOE) has required Sacramento Unified to develop and submit a fiscal recovery plan by December 15, 2021. In its response, SCOE notes that all of the items in the financial recovery plan that Sacramento Unified developed in 2020 required negotiations with its employee associations. SCOE indicated that, to date, the district has not been able to reach an agreement with its employee associations on items that would address the fiscal solvency issues of the district. SCOE notes in its response that despite one-time savings over the past two years, Sacramento Unified's fiscal improvement was temporary. Therefore, SCOE has determined that the district's 2021-22 Adopted Budget does not provide adequate assurance that the district will meet its future obligations.

1-Year Agency Response

As indicated in our 6-Month Response, SCOE received a fiscal recovery plan from the district last Spring (May 21, 2020, Board agenda item 10.3). Unfortunately, all the items on this plan required negotiations with the district's employee associations. To date, the district has not been able to reach agreement with its employee associations on items that would address the fiscal solvency issues of the district.

As part of the 2020-21 Budget development and approval process, SCOE directed the district to submit a new fiscal recovery plan by December 15, 2020. District staff have developed a fiscal recovery plan and have placed it on the December 10, 2020, Board agenda (item 9.3) for approval by the district's governing board. However, many of the items included in the revised plan continue to require negotiations with the district's employee associations. SCOE will support the district to adopt and implement the fiscal recovery plan and work with its employee associations on the negotiable items in the plan. Furthermore, SCOE will continue to monitor the district's budget and financial transactions carefully to ensure it does not take any action to put it at further financial risk and will look for additional opportunities to reduce expenditures so that the district can avoid any potential insolvency and move towards fiscal recovery.

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

SCOE directed the district to submit a corrective action plan and received the most recent copy of the plan (May 21, 2020 Board agenda item 10.3). This plan looks similar to the plan requested by the State Auditor. Unfortunately, all the items on the district's plan require negotiations with the district's employee associations. To date, the district has not been able to reach agreement with its employee associations on items that would address the fiscal solvency issues of the district. Furthermore, the amount of budget cuts needed will likely grow substantially if COVID-related revenue cuts are passed on to the school district from the State.

California State Auditor's Assessment of 6-Month Status: Pending

As indicated in Sacramento City Unified School District's recommendation #6, the district is currently in the process of developing a fiscal recovery plan and has not yet settled on how it will address its financial condition.

60-Day Agency Response

We will send a copy of the letter from the County Superintendent directing the district to submit a corrective action plan as directed by the State Auditor.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

At our 6 month review, we hope to see that the Sacramento County Office of Education was successful in obtaining the corrective action plan from the Sacramento City Unified School District and the county office will have begun working with the district to correct the items identified in the audit.

All Recommendations in 2019-108

Agency responses received are posted verbatim.