The Sonoma Valley Unified School District last month received an eyebrow-raising letter from the Sonoma County Office of Education, SCOE, warning that the district practice of deficit spending must stop. But district officials say they are taking the SCOE concerns seriously and are confident they’ll be able to trim nearly $2 million from the district budget in the coming year.
Interviewed on Wednesday, Superintendent Charles Young says that tough decisions will be need to be made, but he is confident about the long-term health of the school district.
“Our financial situation is certainly not great at the present time,” he said. “We’ve been running a deficit for the last three consecutive school years which has reduced our reserves. That is clearly, as the SCOE letter indicated, not a sustainable condition. At some point without actions, the reserves would run out and the district would not only be in danger of insolvency, but would be insolvent. The district has been working hard to address this serious issue.”
In a Sept. 29 letter to Young and board President Dan Gustafson, following its annual review of the SVUSD budget, the county office issued a qualified approval of SVUSD’s 2017-18 budget but attached a series of required actions. Those include:
An immediate spending freeze (Oct. 1) must be implemented, with all further expenditure requests vetted by the superintendent or his proxy.
Young said that the freeze is already in place, as well as a new expenditure request process.
District staff must immediately begin a “thorough review” of the budget – as well as past and current revenue and expenditures – and present those finding in an “interim report.”
Young said that this review was underway before the letter arrived.
“Now that the district has the benefit of excellent budgetary and financial advice, we have obtained a clear understanding of our current financial condition,” said Young. “And I’ve been working on this thorough review since the day I arrived [in July].”
The district must establish a team to propose budget reductions of at least $2 million, and the board of trustees must review and approve those reductions no later than Jan. 17, 2018.
According to Young, this team includes Human Resources Manager Loyal Carlon, Associate Superintendent Karen Strong, interim Chief Business Officer Linda Grundhoffer, newly hired fulltime Business Manager Helen Miller and himself. He said that they will have identified the cuts prior to SCOE’s January deadline. He also noted that the district has identified a finalist for the position of associate superintendent of finance.
All programs must be reviewed to identify potential cost savings to the general fund, and an updated staffing plan must be devised to align with projected enrollment.
Young said that staff is compiling a list of every possible cost savings option available to the district.
“We’ll leave no stone unturned looking for savings,” he said. He pointed out, however, more than 80 percent of the district budget goes toward teacher salaries and benefits, not allowing a lot of wiggle room.
If the district fails to follow the recommended actions, it would run the risk of receiving a “negative certification” from SCOE in the district’s next interim budget report.
Young says that is not going to happen.
“We will have addressed each of the concerns raised by SCOE before their deadlines,” he said.
Young made a point of noting that the district has a strong reserve, which he estimates may be as high as $6 million.
But district officials have faced criticism recently for deficit spending, and tapping that reserve.
While the current budget comfortably meets the state minimum reserve requirements, the SCOE letter states that if expenditure reductions are not achieved, the district would not meet its required minimum state reserve in 2018-19 and 2019-20.
“Sonoma Valley is not in danger immediately but it will be in deep trouble if its spending trend continues,” agrees Tahir Ahad, president of the educational financial consulting company, Total School Solutions, which was paid $27,000 by the district earlier this year to analyze its finances. The district has discounted the broad findings of the report, and the report was never formally presented to the school board.
“We believe the purpose of a budget surplus is to provide a reserve against unexpected and unplanned expenses or unforeseen reductions in income, or to cover necessary one-time expenditures that were unplanned and unbudgeted,” said Young. “A surplus is not to cover ongoing deficits for any substantial length of time… (but) it may provide the time needed to implement required changes.”
But even how the Sonoma Valley Unified School District is funded is more complicated than many other districts.
Some years, the district gets its funding based on enrollment (average daily attendance). News on that front is not good as each year as the district has seen slow but steady decreases in enrollment, dropping from 4,670 in 2012 to 4,564 in 2016.
Other years, the district qualifies to get its funding from property taxes (basic aid). The news here is not great either as the recent fires are expected to cause property tax income in Sonoma Valley to drop, although it is not yet know by how much.
“I have just been provided with a new map of the entire district,” said Young. “And I’m trying to get a better sense of that right now.”
The district’s budget situation is not expected to affect its bond rating in any way, as the school has already issued its first $50 million tranche of Measure E facility bonds and will not be issuing more bonds until 2020.
Gustafson said that he hears confusion from Sonoma Valley residents about how the district could be facing budget problems when the town just approved $120 million in school bonds.
“But these are two separate pots of money,” he explains. “The bond can only be used for facilities improvements and legally can’t be used for teacher salaries or curriculum.”
The budget will be the primary topic on the agenda at the Tuesday, Nov. 14, school board meeting. Steve Herrington, Sonoma County Superintendent of Schools will address the board at the meeting and answer questions about the letter from SCOE. The Oct. 14 board meeting was cancelled because of the fires.
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