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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

Introduction

Background

The Sacramento City Unified School District (Sacramento Unified) is an urban public school district in Sacramento County that serves 41,000 students and employs 4,200 individuals, of whom 2,200 are teachers. ¹ 

We refer to certificated nonmanagement employees as teachers throughout this report. In addition to teachers, certificated employees include staff, such as counselors, nurses, and librarians, who are not teachers but provide direct services to students.

 It operates 83 schools including 59 elementary schools and 12 high schools. The Sacramento City Unified School District Board of Education (board) is the governing and policymaking body for Sacramento Unified. District voters elect its seven members for four-year terms. The board establishes Sacramento Unified’s long-term vision and ensures educational and fiscal accountability to the community while providing community leadership. The board is also responsible for employing the district superintendent, who is the general administrator of all of Sacramento Unified’s instructional and business operations.

The Sacramento County superintendent of schools (county office superintendent) 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. If the county office superintendent, in consultation with the state superintendent of public instruction, determines that a school district will be unable to meet its financial obligations for the current or subsequent fiscal year, the county office superintendent can develop and impose a budget revision or can reject any district action it finds to be inconsistent with that district’s ability to meet its obligations.

Funding Sources for School Districts

Sacramento Unified receives the majority of its funding in its general fund—which is the primary fund that it uses to pay for its activities—through the State’s Local Control Funding Formula (LCFF). LCFF has three primary funding components, which we describe in the text box. Based on its population of students, Sacramento Unified receives base, supplemental, and concentration funds. Because its enrollment has declined in recent years, state law allows the district to use its prior year average daily attendance—an amount that the district submits to the California Department of Education—to calculate the funding it will receive rather than its enrollment in the current year. Despite its declining enrollment, Sacramento Unified’s revenue has increased in recent years. The increase is because when the Legislature implemented LCFF in fiscal year 2013–14, it did not fully fund it, as LCFF represented a significant increase in the amount of educational funding the State was providing. However, LCFF reached full implementation in fiscal year 2018–19, so the district should not expect similar increases in funding in future years.

In addition to LCFF funds, school districts also receive state and federal funding to provide special education services. Examples of such services include speech therapy, psychological services, assistance for students with physical disabilities, and aides to assist students. The State bases funding for special education on a district’s overall attendance rather than its number of students receiving special education services. According to a study by the Public Policy Institute of California, state law structures funding this way to avoid creating incentives for districts to classify students as needing special education when they do not.

State law requires each school district to maintain a minimum reserve for economic uncertainties. This reserve allows a district to better manage its cash flow, mitigate volatility in funding, and address unexpected costs. The size of a district’s reserve depends on its enrollment and level of spending. For a district the size of Sacramento Unified, the required reserve is 2 percent of its general fund expenditures, which for Sacramento Unified would be $11.6 million for fiscal year 2019–20.

School District Budget Approval Process

Each year, Sacramento Unified must submit its budget to the county office superintendent for review and approval based on a number of criteria, including the district’s projected ability to meet its financial obligations. Sacramento Unified must submit its budget using forms the California Department of Education developed. These forms require Sacramento Unified to project its revenues and expenses for the budget year and the subsequent two fiscal years. If the county office superintendent disapproves the proposed budget, the district moves forward with a budget that reflects the lesser of its last budget or the disapproved budget. Sacramento Unified must also submit periodic financial reports during the year. As the text box describes, the county office superintendent reviews the information the district submits and confirms the district’s status as positive, qualified, or negative. Although qualified and negative statuses are similar, a qualified status describes a situation in which a district may not meet its financial obligations in the future, while the risk is more imminent for a negative status.

School District Labor Negotiation Process

The majority of Sacramento Unified’s employees are represented by five unions, the largest of which is its teachers union. These unions negotiate with the district to determine, among other items, the salary and benefit structures for their represented employees. Benefits include those that employees receive during employment, such as health insurance benefits, and those that they receive after retirement, such as retiree health insurance and pension benefits. As Figure 1 shows, Sacramento Unified and its unions must follow a negotiation process to agree on any changes to represented employees’ terms and conditions of employment. If the parties in one of these negotiations reach a final impasse, state law allows Sacramento Unified—as the employer—to impose an agreement, which allows the union to strike.

A labor agreement may have a significant impact on a school district’s budget. As a result, state law requires that before adopting labor agreements, districts at risk of failing to meet their financial obligations in the near future must disclose those agreements to their county boards of education. The Sacramento County superintendent of schools states that he goes beyond the minimum required disclosure and asks all 13 districts in his jurisdiction of Sacramento County, including Sacramento Unified, to disclose all labor agreements 10 days before adoption. This practice enables the county office superintendent to share any concerns with the communities of those districts before the districts adopt labor agreements. Sacramento Unified submitted its most recent labor agreement to the county office superintendent before adopting it.

Figure 1
The State Has Established a Negotiation Process for Public School Employers and Labor Unions

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