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Audit blasts Sac City Unified for budget mismanagement, warns of possible state takeover

The financial clock is winding down for the Sacramento City Unified School District.

An independent fiscal manager warned late Thursday that if the district fails to plug a $30 million budget hole, it could trigger a takeover by the state in six months.

The Fiscal Crisis and Management Assistance Team, a state-created financial adviser for school districts, faulted the district in an audit report for past mismanagement, communication failures, inexperienced staff and a staffing budget that could hinder its ability to solve the lingering budget problem.

The report concluded the district was at a high risk of insolvency by November 2019 and “without action, state intervention is certain.”

“You don’t get to this condition and these circumstances overnight. Many of the drivers probably started a decade ago, five years ago, eight years ago,” said Mike Fine, the agency’s chief executive.

“It is a governance and leadership problem, period. And it’s many years of governance and leadership issues — not purely the last twelve months. Not purely the tipping point of a particular agreement.”

Agency officials painted a bleak picture of what would happen if they were bailed out by the Legislature, urging them to work faster to find a budget solution.

The school district has been at an impasse with labor unions over potential but necessary changes to a contract approved one year ago. The deal gave teachers a steep pay raise and also plunged the school district into financial disarray.

Leaders of the teachers union said the report is an indication of the district’s failures.

“One of the glaring monetary pieces is the contributions and transfers to other funds,” said David Fisher, president of the Sacramento City Teachers Association. “The contributions from general education to special education went from $62 million in 2015-2016 to an anticipated $104 million in 2020-2021.”

Other findings in the report include:

The district’s business team does not communicate enough with other departments, making it more difficult to solve fiscal problems. Staff also does not fully use software and lacks understanding of how to maintain and analyze data.

Deficit spending, inadequate reserves and the approval of last fall’s bargaining agreement, among other things, were listed as “significant risk factors.”

Board members and Superintendent Jorge Aguilar, who stepped into the role last July, vowed to move faster. Aguilar said in an interview with The Sacramento Bee the report will guide changes in the district and he planned to meet with the unions the next day.

Aguilar is only in his 16th month as superintendent of the region’s third-largest school district, but the latest budget was created under his tenure. He said even though the budget practices that helped create the latest crisis extends beyond his time in in the job it was still his responsibility to correct it.

“I’m still going to treat the challenges as my own and make sure that we begin to remedy those,” Aguilar said. “I think there are elements in the report that speak to philosophies that have to change.”

The school district was warned on numerous occasions by the Sacramento County Office of Education about the apparent deficit budget it proposed, according to letters reviewed by The Bee.

Legislative involvement would strip the district of their ability to govern and the county superintendent of education would appoint someone over the district, Fine said. Since lawmakers are not in session in November, Fine said arranging a bailout would begin months earlier, shortening the district’s timeline to find a solution.

“Your backs are up against the wall. You’ve lost 12 months,” Fine said. “The county’s been pointing that out and to get your attention they rejected your budget.”

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