Sac City schools poised to leave state’s fiscal-watch list

Sacramento City Unified is poised to escape a state watch list after being the area’s last major school district on shaky financial ground.

During the recession, more than a dozen local school districts landed on the state Department of Education’s fiscal watch list because they struggled to show they could balance their books for three straight years. But as the economy improved and the state began spending more on education, all large Sacramento-area districts got off the list by last year except for Sacramento City Unified.

Trustees in the city school district Thursday night adopted a financial report signaling to the Sacramento County Office of Education that the district expects to meet its financial obligations this fiscal year and for two years beyond for the first time since 2008.

Sacramento City Unified officials say it took them longer than other districts because they initially resisted cutting transportation and adult education programs during the recession and waited longer than some districts to increase class sizes.

Sacramento City Unified Superintendent José Banda said Wednesday he is pleased about the new report for 2014-15 and two years beyond. But he warned that the district could fall back into watch-list territory with rising retirement and health-benefit costs, uncertain state funding and declining enrollment.

Faced with massive unfunded liabilities, districts statewide are paying higher contributions into the California State Teachers’ Retirement System and the California Public Employees’ Retirement System.

At Sacramento City Unified schools, the current year’s increase is $1.4 million for CalSTRS and CalPERS, district officials said. Starting July 1, pension costs will increase another $3.9 million, a trend expected to continue.

At the same time, revenue based on student attendance is expected to drop. Sacramento City schools’ enrollment measured about 40,500 a year ago. By mid-2017, it is forecast to drop below 39,000.

“I hate to keep piling on about the benefits issue,” Banda said. “Our benefits package is pretty, I don’t want to say rich, but it’s pretty comprehensive.

“We do cover a significant number of retirees, and that’s a huge impact as well, and I think that’s the big part of the reason why it has taken Sacramento City so long to try to pull out of this and to present a positive, balanced budget moving forward.”

David Fisher, chairman of the bargaining committee for the Sacramento City Teachers Association, said it’s good news that the district’s financial situation is improving. He said, however, that members in prior contract negotiations “did a lot to keep the district from going underwater” by making concessions, taking furloughs and enduring layoffs.

After the latest contract agreement a few months ago, the district unilaterally changed teachers’ health insurance options, a move Fisher said “is far more likely to have a negative effect going forward.”

The association has filed an unfair-labor-practice claim with the state, contending that the school district’s switch in health insurers for 2015 violates state employment law, breaches the contract and threatens to disrupt medical care for employees and retirees.

County offices of education certify the majority of school districts in any given year as having a positive financial footing. At the peak of the recession, however, about 130 California school districts were certified as “qualified,” meaning that they were uncertain if they could meet their financial obligations for the current and subsequent two fiscal years.

More than a dozen other districts statewide were in “negative” territory, meaning they would not meet their obligations and were at risk of a state takeover.

Since mid-2008, the Sacramento County Office of Education has certified Sacramento City Unified as qualified. It certified two districts, Natomas and Twin River unified, as negative during some of the intervening periods.

Other districts received “qualified” financial certifications in mid-2008, including Elk Grove, San Juan and Robla. One by one, the fiscal health of the districts began to improve as the recession eased and state funding improved, in large part after voters in November 2012 passed the Proposition 30 tax initiative, which helped boost education funding.

Elk Grove returned to the “positive” list two years ago. Natomas and Folsom Cordova districts followed six months later. San Juan did so last year.

Sacramento County schools chief David Gordon said the recession put pressure on district budgets and made it tougher to achieve the standard for projecting fiscal solvency.

“I think in our system, uncertainty has been the byword,” Gordon said. “It’s hard to count on consistency and stability, certainly not over three years. The state’s financial situation has proven to be volatile at best.”

The “interim financial report” adopted Thursday is separate from the district’s budget. Statewide, the reports serve as an early-warning system about districts’ fiscal health going forward and as a planning guide for future budgeting.

Call The Bee’s Loretta Kalb, (916) 321-1073. Follow her on Twitter @LorettaSacBee.