County schools chief asks Sonoma Valley district to create special committee to oversee troubled budget

The Sonoma County Office of Education has recommended that the Sonoma Valley Unified School District create a budget advisory committee as part of a plan to eliminate deficit spending and reduce expenditures.

Steve Herrington, the county’s superintendent of schools, put forward that recommendation in an Oct. 13 letter to the district that raised alarm about the district’s deficit spending, both in the current fiscal year and in its multiyear outlook.

Herrington, in the letter, called that troubled financial snapshot cause for “serious concern.”

A district the size of Sonoma Valley’s needs to have at least 3% of its budget in reserves to be prepared for economic uncertainty. If it falls below that threshold,’ it is “at risk” and could eventually require a fiscal adviser or other interventions, said Sarah Lampenfeld, director of external fiscal services for the Sonoma County Office of Education.

The district is dipping into its reserves this year and next to balance a budget driven by rising expenditures and falling reserves. It is projected to dip below the 3% threshold as soon as 2024-25, when it shows $63.51 million in revenues, $68.43 million in expenditures and a balance of — $1.87 million in reserves — down from $8.91 million at the end of the current year.

“Even though the district meets minimum reserve requirements, the county office remains concerned about ongoing deficit spending,” wrote Sarah Lampenfeld, director of external fiscal services for the Sonoma County Office of Education, in a letter to Sonoma Valley Superintendent Adrian Palazuelos on Sept. 15. “We urge the district to review and monitor revenues, expenditures and balances of all funds.”

Sonoma Valley Unified School District oversees 3,265 students from K-12, with five elementary schools, two middle schools, one high school and two charter K-8 schools.

School districts do not receive a certification status for their budget during the adoption process; it is simply approved or disapproved. If Sonoma Valley’s district does not have reserves of more than 3% by Dec. 15, the time the first interim budget reports are due to the county, it will be given “qualified status” — one step above “negative status,” which is the highest level of concern/scrutiny by the county office of education.

A district is “negative status” if it is expected to have less than 3% reserves for the current academic year. It goes into “qualified status” if it is projected to have less than 3% reserves in one or both academic years after the current one.

If the district’s condition does not improve by the first interim and it is qualified, the county would first request a board-approved fiscal recovery plan by March 15, the second interim. At this point, the fiscal recovery plan, which is now recommended, would be required. If the recovery plan is not developed and/or the fiscal health of the district continues to decline, then the county would seek additional interventions, such as a fiscal adviser.

Herrington suggested that the budget advisory committee create a fiscal recovery plan for submission to the district’s board of trustees, which would then consider the plan in open session and direct staff to implement it.

“Balancing ongoing revenues and expenses should be the priority of the Budget Advisory Committee,” he wrote.

Maintaining the required 3% reserves has previously been a problem for the school district. Its 2017-18 budget was given “qualified status,” which prompted a spending freeze and other cost-cutting measures.

The current financial problems have been caused by several factors, including larger than expected construction costs that have been drawing from the $120 million Measure E school bond issue and steadily declining enrollment, which is expected to fall by an average of 92 students during each of the next nine academic years, reaching a low of 2,413 in 2031-32.

“Qualified status” is somewhat rare in Sonoma County. Currently, only Old Adobe School District in Petaluma and the Cotati-Rohnert Park district carry that label.

At the Oct. 18 board meeting, Palazuelos explained how he would like to proceed.

“The folks at the county are going to share some fiscal recovery plans that have been organized by other districts in this county, specifically citing Santa Rosa and one other school district that within the last few years have had to create a plan,” he said. “So, once we have a better understanding of that, our hope is to be able to bring something back to the November [board] meeting to engage the trustees about this process and make sure we get this financial recovery moving.”

Herrington said that the county also recommends that the Sonoma district continue to exercise caution with state and federal one-time funding.

“Funding ongoing educational investments and programs through one-time dollars will result in qualified and negative financial certification,” he wrote. “The expenditure of one-time dollars should alight with one-time costs.”

Herrington emphasized that restoring and maintaining a “positive” certification for the district’s financial status and multiyear projections should be “paramount.”

Reach the reporter, Dan Johnson, at daniel.johnson@sonomanews.com.