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Sacramento City Unified School District
Because It Has Failed to Proactively Address Its Financial Challenges, It May Soon Face Insolvency

Report: 2019-108

December 10, 2019

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814

Dear Governor and Legislative Leaders:

As directed by the Joint Legislative Audit Committee, my office conducted an audit of the Sacramento City Unified School District (Sacramento Unified). Our assessment focused on Sacramento Unified’s financial condition, and the following report details the audit’s findings and conclusions. We determined that Sacramento Unified has not proactively addressed its financial problems.

Sacramento Unified failed to take sufficient action to control its costs in three main areas—teacher salaries, employee benefits, and special education. Sacramento Unified increased its spending by $31 million annually when it approved a new labor contract with its teachers union in 2017. Despite warnings from the Sacramento County Office of Education that it could not afford the agreement, the Sacramento City Unified School District Board of Education approved the agreement without a plan for how it would pay for it. Sacramento Unified also failed to control the costs of the generous employee benefits it provides, which increased by 52 percent from fiscal years 2013–14 through 2017–18. We also found that Sacramento Unified lacked clear policies to guide staff on what are appropriate expenditures for special education, limiting its ability to control these costs. Consequently, Sacramento Unified projects it will largely deplete its general fund in October 2021 and will likely need to accept a loan from the State to continue operating. If it accepts such a loan, the required loan payments would result in less funding for students and a loss of local control to an appointed administrator.

Although both Sacramento Unified and its teachers union have proposed changes to stabilize the district’s finances, we found that the proposals are unlikely to solve the district’s ongoing financial problems. In fact, several proposals from the teachers union would increase costs dramatically. Given that accepting state assistance would result in less funds for students, we would have expected Sacramento Unified to develop a detailed plan for resolving its financial concerns, but it has not done so. It states that it needs to make $27 million in reductions by fiscal year 2021–22, but even that amount may not be sufficient to end its deficit spending. We have identified a number of options the district could take, including making changes to salaries and benefits for different groups of employees; however, if it is to avoid the negative effects of insolvency, Sacramento Unified must act quickly to develop and implement a plan.

Respectfully submitted,

California State Auditor

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