The Sacramento City Unified School District continues to navigate poor financial waters, for the second time in less than a decade.
The district is again facing the threat of state receivership and a budget deficit that has jumped dramatically in recent months from $43 million in December to $170 million as of last month.
The school board has also issued layoff notices to hundreds of employees, and recently approved a plan to spend up to $400,000 on consultants to help address its budgetary situation.
But that deal was blocked last week by the fiscal adviser assigned to Sac City Unified by the Sacramento County Office of Education.
Jennah Pendleton is an education reporter for The Sacramento Bee. She spoke with Insight Host Vicki Gonzalez to give an update on the district’s ongoing financial saga.
This interview has been edited for length and clarity.
Interview highlights
Give us a quick reminder of how the district found itself in this position?
In the fall, the district found out that there was about $80 million in unexpected funding at the end of the previous fiscal year. What that amounted to was a fiscal emergency, because there's been this deficit chasing the district for a long time. They already weren't in a great position. They knew that they were going to have to make some cuts to afford this teachers union contract that they approved over the summer. Then they find out, “wow, we overspent by $80 million.”
However, the district has not been in a good financial position for a long time. FCMAT [Financial Crisis & Management Assistance Team], the state-funded agency that serves as a watchdog for California school districts, issued a report back in 2019 that basically reads the same as the 2025 report… poor fiscal practices and internal controls, and spending habits that have led us to this point.
When you talk to the teachers union and others at Sac City Unified, what do they make of the district's financial crisis? What do they attribute it to?
They certainly don't attribute it to their own contracts. Union leaders have long been vocal about dysfunction at the district, and they're not the only ones. You have trustees on the dais saying as much, business officials saying that as well. So I think what they point to is just a lack of accountability over the last several years. When I talk to them about it their position is, “it's not our job to make sure the district can afford our contract. We fight for our members to get these benefits, pay raises, more staff to support special ed and social services…and it's up to them to make sure that they can afford the contract.”
I believe that the SCTA contract alone amounts to about $48 million over three years, including this year and the following two years. Not nothing for sure, but when you're facing $170 million in this year alone, it would be disingenuous to place it all on the teachers.
Back in December the district’s deficit was estimated at $43 million; the latest from March 19 is more than $170 million. Why are these shortfall estimates getting worse?
There’s been a lot of back-and-forth. We had this fiscal solvency plan in November drafted by budget staff. Then when interim CBO [Chief Business Officer] Lisa Grant-Dawson came into her position she looked at that plan and said, "I'm not really sure how to implement this. Some of these things don't seem actionable… I think that we're going to have to rethink that strategy.”
That added a lot of costs back to the district because they were already accounting for savings in that fiscal solvency plan… so that had to be undone. Additionally, Grant-Dawson says that she has found this $100 million deficit that has kind of been present in the budget, but more or less covered by [one-time] funds that the district got during COVID… which kind of masked this problem for a long time.
However, their current fiscal solvency plan has identified about $63 million in savings, meaning that we're looking at about $108 million right now to recover this year.
Where is the district spending most of its money?
Most of Sac City's spending is on its staff, which is true of every school district. I think other California districts hover at about 90% of their spending being on staff-related costs, and I believe in Sac City Unified it's closer to 94%, which means that there isn't a lot of room to cut except for people. There's a lot spent on salaries. Spending on teachers has gone up this year and in previous years as well.
The other thing is there is a lot of spending on special ed. They are provided some money from the state and federal government to account for special ed, but they have to transfer a lot of money from their unrestricted fund, which is where we're having the budget problems, to their restricted budget to pay for special education services. A lot of these are in the form of third-party contracts to provide. It can even be settlement spending when a family sues a school district and says, “you are not providing my child their legally-mandated fair and appropriate education, so we are going to go to a non-public school and you are going to pay for it,” which is their right and also very expensive.
There’s this issue where kids aren’t getting what they need initially, because of understaffing or other internal issues, and then it becomes a more expensive problem.
The district issued layoff notices to hundreds of employees last month. When could those take effect, and which parts of the district have been impacted?
Initially we thought it was going to be about 300, now it's closer to around 700 because every single member of the central office staff received a pink slip on March 15. The central office coordinates school services at the district level, things like budget management, personnel management, HR, homeless services.
There is criticism that there is administrative bloat at the district, that they have more administrators than they did pre-COVID despite enrollment going down. That is also echoed in other school districts. But I don't know if any other school district ever issued layoff notices to 100% of their central office staff. This includes leaders, chief communications officer, the interim superintendent. Not all of these people will be laid off because the school district simply will not function.
Interim Superintendent Cancy McArn and the board of trustees are using this as an opportunity to entirely restructure. To consider what roles are the most important, what do they need to be legally compliant, how they can trim down and just build from the bottom up to have a functioning central office without overspending. If they laid off all of these people that they issued pink slip notices to, it would only be about $40 million in savings… that alone wouldn't even be enough to account for this year's deficit.
The school board came under fire for approving a spending plan of up to $400,000 on consulting to help them untangle this budget crisis. What went on there?
The contract was cancelled after the county-assigned fiscal advisor for the district said, "no, we're not doing this." Part of it is that they have a CBO in place that should be doing most of these functions that they were contracting with this consulting firm to do. The other piece of it is that these state leaders involved in helping Sac City maintain fiscal solvency are not convinced that this is the right firm to be assisting them in this way.
So could there be another consulting contract for similar services soon? It's possible, but it sounds like the state and county really want the district leadership to partner with the interim CBO instead of bringing new people in right now.
Where does the risk of state takeover stand today?
There is a piece of good news here because it has been staved off until about September, meaning that it's in the next fiscal year rather than the possibility of going insolvent this year. That's a good thing because it gives them more flexibility with a new year's budget to move things around and retain cash.
Cash is the most important part. The district can still be in a $108 million dollar deficit, that's like their credit card bill, but they have some money in checking to pay people, pay for things that they need to function, and when they run out of money in their checking is when they face the possibility of state takeover.
