Sacramento City Unified suddenly has a budget surplus. Will a state takeover be delayed?

Less than one month after the Sacramento City Unified School District announced it will run out of cash in Feb. 2021, citing a $40 million deficit, both the district and an independent fiscal adviser said this week that the district serving more than 40,000 students likely won’t go insolvent that soon.

Instead, the financially distressed district and FCMAT, the Fiscal Crisis and Management Assistance Team, said the district is closer to having a $20 million surplus, due to savings from the coronavirus pandemic and overbudgeting on the district’s part.

The district is still in trouble down the road and will likely go insolvent. Mike Fine, chief executive officer at FCMAT, said it’s not a matter of if, but when.

And when SCUSD requests a state loan, it will likely be the largest in California history — more than the $100 million that Oakland Unified received beginning in 2003. The district will need to request a loan from the state to recover from its financial crisis, which will take them down a long, arduous path of insolvency and state control.

A report released by FCMAT this week stated the district closed its books this year better than anticipated. Sacramento City Unified, Fine said, can go another year without receiving a state loan.

While the district is able to delay insolvency again, Fine warned that it will still likely run out of cash. The district is merely able to “kick the can down the curb.”

District officials say they are still operating in a deficit.

In its expenditures report, which the district’s chief business officer was scheduled to present at Thursday’s school board meeting, the district also estimated a $23 million surplus.

Fine said that is probably the case with every school in California, due to a pandemic that led to fewer services being provided.

“The savings our district realized by the end of 2019-20 are one-time and because of unfortunate circumstances,” read a statement from the district. “The cost reductions that generally resulted in subsequent savings may postpone insolvency by a matter of months, but they don’t solve the underlying problem of our structural deficit.”

The Sacramento City Teachers Association union criticized the district for focusing on “sky is falling in” messages about its financial standing. The union’s statement did not, however, acknowledge the coronavirus pandemic’s role in the changing financial situation.

“With a surplus of $23 million from last school year and a reserve fund that now exceeds $93 million, it’s time to focus on the positive and determine how we can best redirect those resources back to the classroom,” said Sacramento City Teachers Association President David Fisher. “Especially now, with the added educational challenges that the pandemic brings, we need to employ more school nurses, lower class sizes, improve special education services and provide help so that our teachers can tailor virtual learning to the needs of each student.”

Coronavirus hit to school budget

FCMAT is determining how much the pandemic impacted the change in numbers – and how much is a result of the district’s fiscal management.

The district, like others, based its original projections on the May state budget revisions and concerns that schools may not get enough help from the state. But the district saved money, largely due to the pandemic, saving in contracts, utilities and more. Some of that money was one-time expenses.

Some of the surplus is a result of the district’s over budgeting, according to FCMAT’s report. The district over budgeted by millions of dollars in books, supplies, services, salary expenses, employee benefits and more.

“I’m going to be candid,” Fine, the FCMAT official, said in an interview. “They’ve got to do something. This is still preventable. They can’t go year after year doing nothing. The board and superintendent need to show some leadership and take appropriate action.”

FCMAT’s report states that the district’s enrollment is continuing to decline and that tracking enrollment and average daily attendance will help the district project future revenues and control staffing expenditures.

FCMAT also stated that the district has 551 vacancies, and is continuing to budget for those vacancies, amounting to millions of dollars.

District officials say the actual number of full-time vacancies is closer to 300, and that they intend to fill many of those vacancies, some of which are for bus drivers, yard duty employees, and other hard-to-fill positions that are not needed at this time due to COVID-19.

“Eliminating many of these positions would hurt our ability to meet our students’ academic, social, and emotional needs,” said district officials. “We continue to work with SCOE – our oversight agency. In addition, the data was produced April 30 and likely did not account for the vacant positions the Board approved to be closed during the April layoff resolutions.”

Eliminating those vacancies would not significantly affect the deficit, they said.

“Someone needs to make a difficult decision, and make that decision now” Fine said. “That’s the board’s job. They still can’t reconcile how many people they have (employed). When you are spending 90 percent on people, you should focus on the money that is managing your staff.”

Fine said FCMAT has been engaged with the district and district official have “done nothing to improve the conditions.”

FCMAT made a list of recommendations including: ensuring the district does not use one-time revenue for ongoing costs, monitoring and projecting enrollment often, freezing or eliminating positions that the district is not actively recruiting for, and monitoring its cash regularly.

“Sac City Unified is dedicated to cleaning up these personnel numbers and working as fast as we can to report the results to the Board of Education as soon as possible,” the district stated.

Fine said the savings the district is identifying could get them through this year, but the challenges will come in the following year. The district estimates they will postpone insolvency by a matter of months.

“With some painful and thoughtful decisions, they can turn this around,” he said.

The report details that the district will go negative for about four months in 2021, and then will go positive again.

“We still have some work to do,” Fine said. “We are currently not pursuing an emergency appropriation for the district.”

In August, district Chief Business Officer Rose Ramos said the district continued to look for significant savings, but it needed to identify tens of millions of dollars in cuts.

“That will be hard to come by,” she told The Bee in August. “It’s a pretty lean operation here.”

This story was originally published September 17, 2020 at 2:41 PM.