San Francisco schools meets state-imposed budget deadline. Now what?

‘I think it’s important to know that the district has made great strides’

The City held its breath this week as it waited for the San Francisco Unified School Board to hold a critical vote on how it would tackle its $125 million budget deficit.

Just a day before a state-imposed deadline to endorse a budget plan, or risk being taken over, the board voted Tuesday for a staff proposal that would cut from schools and administration. SFUSD’s state-appointed fiscal expert, Elliott Duchon, endorsed the staff plan rather than an alternative plan brought forward by school board member Matt Alexander, who withdrew his proposal.

But until the final budget is approved next year, the state will be watching closely. In the meantime, The Examiner answers some key questions about the plan as state fiscal experts oversee the process.

What cuts will be made under the approved plan?

In short, about $50 million will be cut from school-based budgets using funding formulas accounting for enrollment and attendance. However, no schools are planned to be closed. Another $10 million will come from direct services such as social-emotional supports, $14.1 million from indirect services such as equity services, $12.4 million in central budget operations such as transportation, and $3.5 million in central administrative costs. The remaining $35 million is covered by a state grant and savings in the current year.

The cuts come in the face of a long-running structural deficit that amounts to a $124.7 million shortfall for the 2022-2023 school year and $139.9 million in the year after. In September, state officials determined SFUSD to be a “lack of going concern,” meaning it was not expected to meet its financial obligations.

Paired with an interim report, SFUSD’s submissions “we believe will satisfy the (California) Department of Education, at least to the road to restore the district to going concern,” Duchon told the school board on Tuesday. “This is not the end of the road. It’s the beginning of the road toward fiscal recovery.”

What did the disagreement over plans come down to?

Alexander’s alternative plan shifted $50 million in cuts slated for school sites to central office operations. The proposal comes after years of frustration by educators over a top-heavy central office as school sites are under-resourced. The school board in May unanimously passed a resolution directing district staff to prioritize classroom spending in addressing the looming deficit.

“There are great ideas in there but it needs some vetting,” said Michael Fine, CEO of the state’s Fiscal Crisis and Management Assistance Team, of Alexander’s plan. “I’d certainly hope if there are reasonable things in that alternative plan, those are identified and vetting is immediate. There’s not much time.”

Superintendent Vincent Matthews and Alexander agreed to incorporate the core argument of Alexander’s plan to assess central administrative positions, an effort backed by other board members.

Teachers and supporters hold signs at the rally before the school board meeting on Tuesday. (Craig Lee/The Examiner)

Teachers and supporters hold signs at the rally before the school board meeting on Tuesday. (Craig Lee/The Examiner)

What happens now that the plan is submitted?

State officials will look over the plan and determine if it’s reasonable and practical, which Duchon has said he will recommend. Now the district must move to implement the plan. That first requires determining staffing changes because any layoff notices must go out by March 15. SFUSD is experiencing an extraordinary level of staff vacancies that deepened throughout the semester, which will likely absorb some number of possible layoffs.

Recommendations by Duchon and fellow assigned fiscal expert Pam Lauzon past the Dec. 15 deadline include exploring options to pay retiree benefit liabilities and analyzing central office staffing and responsibilities between SFUSD and its role as a county office of education. Long term, they recommended a comparative analysis of other districts with the combined county role. (Each county in California has its own office of education in addition to individual district school boards.)

By March, SFUSD will submit a second interim report to the state. Final school budgets must be submitted to the state by July 1.

How could the plan change?

The approved plan is based on the financial outlook of today, which could change in the coming months. For one, the state Legislative Analyst’s Office in October projected a nearly $20 billion increase in K-14 education funding partially based on local property tax revenue.

Public school enrollment in California dropped about 3% from 2019-2020 to the following year, leading districts and education advocates to increase per-pupil funding from the state’s formula based largely on enrollment. With the education surplus and united front, SFUSD officials have expressed optimism that Gov. Gavin Newsom’s budget, to be proposed in January, will bring added revenue.

“The district should match what the state’s proposing,” Fine said of after the budget is introduced. “In my mind, there’s no reason for them to be conservative. It doesn’t mean the plan is no good; it just means the numbers are going to change.”

SFUSD staff pledged to restore additional revenue to classrooms.

Will state officials take over SFUSD?

SFUSD is not clear from state fiscal oversight until a balanced budget is finalized by July 1 and it satisfies state officials. Both Fine and Duchon suspect a fiscal expert would remain until then before reverting back to a regular oversight process, but it is up state department officials.

“I think it’s important to know that the district has made great strides,” Duchon said. “The next step that the public should watch is the district following through with the plan … That will certainly make us feel like they’re on the right road.”

Should oversight officials determine the district is veering off the path to recovery, the next step would be to bring in a state fiscal advisor. This person would be able to pause or rescind decisions made by the school board that impact the district’s fiscal health.

If SFUSD runs out of cash to meet its financial obligations, the state could step in to issue an emergency loan and make decisions on behalf of local officials. Districts often take roughly a decade to emerge from a state takeover process and recovery continues long after the fact. Duchon said, “I don’t see that as anywhere near imminent” while Fine also had an optimistic assessment.

“If things go south between now and then, then the state has the opportunity to ratchet up the level of intervention,” Fine said. “I believe the district will ultimately do what it needs to prevent that.”

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