Sonoma Charter School faces financial challenges

Sonoma Charter School is facing financial challenges to maintain a positive cash flow projection, prompting the Sonoma Valley Unified School District, which provides financial oversight for the school, to call attention to the issue.

Josh Braff, associate superintendent of business services for the district, wrote in an email to Catherine Stone, the charter school’s interim superintendent, that the school’s first interim report shows a projected deficit of $95,630 for the 2022-23 school year, a decrease from the projected ending fund balance (EFB) surplus of $259,534 when the budget was adopted.

He stated that based on the expected deficit, the charter school’s ending fund balance, or reserves, will be $304,232, which is 9.53% of the total expenses, at the end of the 2022-23 academic year.

“There is always a delicate balance between keeping an EFB large enough to weather any potential financial problems and utilizing today’s dollars on today’s students,” Braff wrote. “We would like to see your charter keep a reserve of at least 10% in order to be fiscally responsible in ‘22-‘23.”

Braff later added, “It is up to the sponsoring district to provide fiscal oversight. If we do not do our due diligence in reviewing the charter’s financial reporting, that could make us liable for any fiscal mismanagement. This is all part of the Ed Code (California Education Code) and is not unique to our district.”

Stone told the I-T that the adjusted first interim figures show that the school has been spending more than the revenue it received for the school year.

“When we adopted our budget, the state hadn’t settled on how much revenue they were providing to schools yet,” she said. “When they decided, it was less than the forecasts provided to our schools. We also had fewer students show up than we expected. Because charters receive far less per student than other schools in the Valley, our budgets are tighter. Because we had a surplus, we are able to absorb this, and have tightened up on our spending.”

Stone said that based on the state’s cost of living adjustment last year, the school staff received a raise equivalent to that, and all of the schools’ other expenses went up, as well.

“While we have more ADA (average daily attendance) than last year, it doesn’t quite offset the increases,” she said. “However, our reserves are still very healthy.”

Stone said that the school hasn’t experienced declining enrollment yet — it has 211 students in 2022-23, compared to 203 in 2021-22.

“But we are very mindful of that and are building our budgets accordingly,” she said. “We are budgeting 208 students for ‘23-24 and 205 for ’24-25, based on Sonoma Valley Unified School District’s demographics study, trend analysis and siblings we expect to enroll.”

The charter school operates mainly on state (in lieu of direct property tax) and federal funding, as well as local fundraising.

At the board meeting, Trustee Celeste Winders raised concerns about Sonoma Charter School’s local fundraising, which includes soliciting donations from the school’s families via correspondence.

“As a trustee of the district that holds their charter, I have deep concerns about the way in which fundraising is done, because I think it treads really close on the edge of ‘Is this free education or not?’” she said. “If we’re depending on donations to meet budget needs, is that truly a free education? I’m happy to engage in that conversation with them or allow you to, or have staff send a letter, but I think it’s really important because it’s a massive equity issue.”

Contacted after the meeting, Stone said that if the contributions were mandatory, they would be illegal.

“We do not require any sort of contribution from our families, and never would,” she said. “It is completely voluntary.”

She said that given the uncertainty of contributions and other funding, budgets are just “best guesses” about what will happen in the future.

“If revenue comes in as expected, if we have the number of students we expect, if our fundraising is healthy, if there isn’t a sudden large expense, if the state doesn’t impose new mandates, if the state doesn’t go into a recession … then your budget might be accurate,” Stone said. “However, the predictions are usually not accurate. Because we are so small, we also have less budget flexibility.”

As a proactive measure, the school’s board is having a study session next week to identify cost-cutting measures, if needed, once it has a better idea of how the state budget will impact the school.

With plans to revisit the issue in March, Braff concluded his email to Stone by summarizing the situation.

“Based on the information you have provided, Sonoma Charter is in good financial health in 2022-23, but there is some concern in the out years when the ending fund balance dips far below 10%,” Braff said in his email. “As a charter, your cash flow statement must always have a positive balance at the close of every month, and having such a tight budget can lead to a negative balance if funds are not received timely from the granting organization.”

Braff also sent an email to Caroline Hopewell, executive director of Woodland Star Charter School, stating that based on its first interim report, the school “is in good financial health and would have plenty of time to make corrections if the financial situation was the change.”

Though Sonoma Valley Charter School and Woodland Star Charter School are considered to be part of the Sonoma Valley Unified School District, they operate autonomously.

“The district is just an oversight body for them,” Braff said. “We can ask them to grow their reserves, provide a plan on how to reduce spending, provide a plan on raising revenue, among other things. If the charters do not participate, then that will be part of the discussion when they are up for renewal.”

In a response to COVID-19, the California State Legislature enacted Assembly Bill 130, which extended charter school renewal dates by two years. Both Sonoma Charter School and Woodland Starr Charter School are up for renewal in 2024-25 for the 2025-26 academic year.

Anne Ching, president of the Sonoma Valley Unified School District board, raised the possibility of involving charter school personnel in more meetings. The charter school’s memorandum of understanding with the district only requires a charter school representative to attend one meeting per year, without making a presentation.

“Before I became a board member, there was a practice in which the charter schools would give their annual financial status report to the board, and we would have the multiyear projections and conversations about equitable practices in terms of donations and requirements,” she said. “I think that maybe we should reinstate some of those practices, since we do ultimately have financial oversight of the schools.”

Braff supports the idea.

“I think it’s not a bad thing for them to come in and talk with you all long before that date and on a more regular basis — not necessarily every month … maybe once a year, twice a year or something like that to come and say, ‘Here’s the status of our charter.’”

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