The Morning Report
Get the news and information you need to take on the day.
Sweetwater Union High School District in Chula Vista – the second largest in the county – suddenly discovered in recent weeks it is on the verge of a financial meltdown, according to documents obtained by Voice of San Diego.
Sweetwater miscalculated its budget for the current school year by more than $30 million, at least in part because of recent raises it failed to fully account for. The district now has several weeks to cut millions from this school year’s costs or face the prospect of a fiscal adviser taking control of its books.
Districts must regularly make cuts and plan for budget shortfalls in the future. What makes Sweetwater’s situation unique is that – due to its significant miscalculations between late June and now – it will have to make significant cuts to the school year that has already started. While budgets do regularly fluctuate, surprises of this magnitude are rare and sometimes end badly.
Sweetwater’s budget debacle did not come to light until just days after a new chief financial officer, Jenny Salkeld, took the helm. Prior to her arrival, three of the top finance workers at Sweetwater – its payroll supervisor, chief financial officer and finance director – all retired around the same time. The officials’ retirements were pre-planned, said a Sweetwater spokesperson, but it’s unclear how they might have contributed to the bookkeeping errors.
The single biggest mistake came in projected salaries for certificated staff, which includes teachers, for the 2017-18 school year. The district spent $182 million – roughly $9 million more than it previously budgeted – for certificated staff. The district also overspent by roughly $7 million on classified salaries and employee benefits combined. District employees previously negotiated a 3.75 percent raise in 2017 that significantly increased salary costs during the last school year.
The miscalculations about last school year’s costs cut into this year’s bottom line. Sweetwater officials believed they’d be going into the current year with $17 million in their coffers. Instead, the unrestricted general fund sits at negative $4 million. (The bottom line could have been $10 million worse off, but district officials managed to mitigate the damage by shifting $3 million in general fund expenditures to a separate fund for construction and pull another $7 million into the general fund from the same capital account.)
That means Sweetwater may have to cut as much as $20 million from the current school year’s budget just to right the district ship for the current school year. The cuts could be even worse in coming years, since the district was able to find a one-time $10 million offset for the current year.
Where that roughly $20 million comes from remains unanswered. District officials don’t have the option to cut teachers or other certificated staff, because they must be notified by March 15 of the previous school year if a district plans to let them go. Other classified staff, like bus drivers, classroom assistants or central office workers could be an option. Officials must give classified staff 60 days’ notice before letting them go.
The district budgeted almost $7 million for books and supplies for the current school year. That money is an easily identifiable target for making cuts to the current year. So is the $22 million the district has set aside for “contracted services,” which might include anything from legal fees to ongoing software costs.
The more than $30 million in miscalculations represents nearly 9 percent of Sweetwater’s $350 million unrestricted general fund.
Local school districts are required to submit their budgets to the San Diego County Office of Education for approval each year. Because of Sweetwater’s deficit and its likely effect on future budgets, the county office disapproved Sweetwater’s budget for the current year. Sweetwater officials now have until Oct. 8 to come up with general ideas for how they’ll slash the budget. They’ll have to get more specific after that as they work toward getting county officials to approve their budget before the end of the year.
The first priority, said Salkeld, the new CFO, is finding a way to restore roughly $9 million to the district’s reserve funds, which are virtually empty. Local districts are required by the state to keep roughly 2 percent of their overall budgets in reserve funds. Without the reserve funds in place, county officials would likely give Sweetwater’s budget a “negative” rating. A negative rating can result in the county superintendent appointing a fiscal adviser, who has the power to overturn a local school board’s decisions.
County officials forced San Ysidro School District to accept a fiscal adviser in 2013 when that district was $4 million in the hole.
In the absolute worst-case scenario, school districts must get a loan from the state of California to keep their classroom doors open. This means handing over virtually all control to a state-appointed emergency manager. The state has only given out a handful of emergency loans in the past, most recently to Inglewood Unified in 2012.
Sweetwater officials first made the budget deficit public Monday night at a board meeting, where Superintendent Karen Janney said the numbers represented “cause for concern.” But Janney and other officials tried to project certainty that Sweetwater would pull through with minimal disruption to classrooms.
They continually highlighted the $4 million deficit and spoke of regular budget fluctuations, instead of making clear that the district’s balance sheet is more than $20 million away from where it should be. When asked for her reaction, board president Paula Hall took a very long pause.
“It’s not good news,” she said.
Kayla Jimenez contributed to this report.