Report 2019-108 Recommendation 7 Responses

Report 2019-108: Sacramento City Unified School District: Because It Has Failed to Proactively Address Its Financial Challenges, It May Soon Face Insolvency (Release Date: December 2019)

Recommendation #7 To: Sacramento City Unified School District

To address its current financial problems, Sacramento Unified should do the following:

Revise its multiyear projections and update them at least quarterly until it has taken action that would cause it to no longer project insolvency. It should disclose these projections to the board.

Annual Follow-Up Agency Response From October 2022

Fully Implemented. All interim reports and fiscal updates are on the website in the board documents and include up-to-date multi-year projections. https://www.scusd.edu/budgets-financial-reports

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

We have cleared this recommendation because the district has regularly prepared multi-year projections in its most recent interim financial reports and budget documents. However, it also needs to fully address our related recommendation (recommendation #8) regarding developing and publishing a methodology for these projections.

Annual Follow-Up Agency Response From October 2021

The Business Department continues to frequently revise and present to the Board its multiyear projections (MYP) at least quarterly pursuant to Education Code requirements.

On September 15, 2021, the Sacramento County of Education (SCOE) issued its 2021-22 Adopted Budget Conditional Approval letter. The 2021-22 Adopted Budget has been conditionally approved and the District must meet various directives and timelines as provided by SCOE. Indeed, the District is required to submit a Board approved FRP plan to the County Superintendent and take any immediate actions needed to implement the plan no later than December 15, 2021. See Attachment 4.

The department and staff responsible are Superintendent Aguilar and Chief Business Officer Rose Ramos.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

The District continues to frequently revise and present to the Board its multiyear projections at least quarterly pursuant to Education Code requirements. Recently, due to the District's 2020-21 Adopted Budget disapproval by Sacramento County Office of Education (SCOE), the District was required to present a revised budget for adoption. At the October 1, 2020, Board Meeting, District CBO Rose Ramos presented the District's Revised Budget, including an updated cash flow at item 9.2. https://www.scusd.edu/board-education-meeting/board-education-meeting-83.

SCOE disapproved the revised budget due to the District not meeting the 2% minimum required budget reserve in all years and significant cash flow challenges. Accordingly, District staff has prepared the Fiscal Recovery Plan to address its serious fiscal needs. The most current updated budget information will be provided with the District's First Interim Report on December 10, 2020. https://www.scusd.edu/sites/main/files/file-attachments/9.2_item_0.pdf

As previously outlined in the 60 day and 6 month updates, the District is required to present numerous interim and annual budget updates and reports including projections while its budget remains in disapproved or negative status pursuant to the Education Code.

California State Auditor's Assessment of 1-Year Status: Pending

Although the district has regularly prepared multi-year projections in its most recent interim financial reports and budget documents, as we have previously stated, it needs to address our related recommendation (recommendation #8) regarding developing and publishing a methodology for these projections, including disclosing its assumptions and rationale used to estimate changes in its revenue and expenses. A clear and thorough methodology for these projections is critical to the district's financial planning. Further, the district must disclose this methodology and regularly update its projections to provide better information to the public about its financial condition, particularly while the district projects insolvency.

6-Month Agency Response

The District has prepared revised multi-year projections and presented them to the Board at the following meetings: 2/6/20, 4/2/20, 5/7/20 and 5/21/20. These multi-year projections reflected the impact of developing State Budget information. The District is also preparing the 2020-21 budget which will include revised multi-year projections and will be presented at the 6/18/20 Board Meeting. The 2019-2020 budget information, including interim reports are found at: https://www.scusd.edu/2019-2020-fiscal-year

California State Auditor's Assessment of 6-Month Status: Pending

Although the district has regularly prepared multi-year projections in its most recent interim financial reports and budget documents, it needs to address our related recommendation (recommendation #8) regarding developing and publishing a methodology for these projections, including disclosing its assumptions and rationale used to estimate changes in its revenue and expenses. A clear and thorough methodology for these projections is critical to the district's financial planning. Further, the district must disclose this methodology and regularly update its projections to provide better information to the public about its financial condition, particularly while the district projects insolvency.

60-Day Agency Response

With the Education Code requirements that correspond with a Disapproved budget and Negative budget certification, the District must provide three interim budget reports in December, March, and May, as well as its adopted budget in June. In addition, due to SCOE disapproving the District's budget because of its structural deficit and projected future negative balance, the District was required to additionally submit and present a Revised adopted Budget at the board meeting on October 3, 2019. (Board item 9.1 https://www.scusd.edu/board-meetings; SCOE letter 10/10/19). As long as the District's budget results in disapproved and negative status, it will continue to be required to submit the frequent budget updates and reports.

California State Auditor's Assessment of 60-Day Status: Pending

Going forward, we expect to see evidence from the Sacramento City Unified School District that it is regularly updating its multiyear projections to provide timely information to its stakeholders.

All Recommendations in 2019-108

Agency responses received are posted verbatim.