The San Francisco Unified School District headquarters on Thursday, March 12, 2020. (Kevin N. Hume/S.F. Examiner)

‘Time is of the essence’: San Francisco’s school district faces possible state takeover

Over the past year and a half, the San Francisco Unified School District has confronted a pandemic and wrangled a serious recall effort. And now, the district faces a dire new problem: a possible takeover by the state.

After determining that SFUSD may not be able to pay its bills in the coming years, state education officials kicked off a special process last month, according to documents made public this week. Years of rising costs has the district contending with a $116 million deficit for the next school year.

District officials must submit a plan by Dec. 15 to cut 13 percent of its $1 billion budget, the California Department of Education warned in a Sept. 15 letter. The state will provide a fiscal expert to help balance its books and any labor agreements must be reviewed by the State Superintendent of Instruction Tony Thurmond.

“If you fail to act accordingly, then CDE’s intervention will increase to the point where your governing authority is set aside,” said Michael Fine, chief executive officer of the state’s Fiscal Crisis Management and Assistance Team, at a special school board meeting on Tuesday. “There is nothing good about that process…now is the time to act.”

Fine had plenty of gentle, sympathetic advice for district officials, understanding the position school districts are in with increased needs from COVID, under-enrollment, and a lack of resources. He assured them that SFUSD could still act on its priorities around equity while bringing the budget in line by stretching out the timeline for certain plans. He also warned that the tough decisions they make may not be popular, especially with labor unions, but that maintaining the relationships are vital.

Fine also had some stern, sobering words. He noted that COVID relief funds weren’t intended to balance the budget, as other districts have done, and that the sooner cuts are made, the less painful it will be down the road.

“There was a time a year ago to start this process but it hasn’t really gotten off the ground in a way that we consider to be a thoughtful manner,” he said. “So now we’re crunched. I understand where your schools are coming from. I don’t mean to be critical of it. At the same time, time is of the essence here.”

CDE requested a fiscal recovery plan in 2020 but did not receive one, the letter said. SFUSD started to contend with its structural deficit early that year, submitting layoff notices to educators — some of whom threatened to strike — weeks before the coronavirus shelter-in-place order. School districts received state and federal aid, which SFUSD used to stave off cuts to classrooms this year in the name of stability.

But the district’s costs still exceed its revenue, leading to a projected $116 million deficit for the 2022-2023 school year and $112 million deficit for the following year. Enrollment is also down nearly 2 percent from 2019-2020 to the following year, which is compared to a 3 percent statewide drop in public school enrollment. Attendance and enrollment shape funding formulas from the state, which is where district funding largely comes from.

School board member Jenny Lam, who serves as an education adviser to Mayor London Breed, recalled “endless days and nights” spent working to remedy the accreditation crisis of City College of San Francisco as well as Oakland Unified School District during respective state takeovers.

“I’m emotional just thinking about it,” said Lam after Fine’s warnings. “Nearly a decade later and they have yet to rebound. I remember how challenging, just heartbreaking it was at times.”

Other school board members expressed optimism that they would tackle the challenge, and even excitement for the chance to overhaul district systems.

To prevent a state takeover, SFUSD must first complete a fiscal health risk assessment by Oct. 15. A financial stabilization plan for the 2022-2023 and 2023-2024 school years approved by board members must also be submitted to state officials by Dec. 15 before moving to implement it.

The state also has the power to withhold compensation for school board members and Superintendent Vincent Matthews for failing to provide financial information.

The bulk of the SFUSD’s budget is spent on instruction, adjacent services like librarians and the labor costs that come with that. Meanwhile, educators have consistently reported being understaffed and overwhelmed after a year and a half of teaching in a pandemic that’s yielded numerous vacancies this school year. District staff in September recommended $5 million in classroom cuts by eliminating vacancies, which board members rebuffed, some citing the need for the bigger picture.

“We find it troubling that in one of the wealthiest cities in the world, for decades, management has suggested deficits and cuts that take away valuable resources from our students, classrooms and schools,” the United Educators of San Francisco said in a statement. “We are calling on The City and state to work with us to ensure that our students receive more, not less.”

SFUSD may be on the cusp of major relief. The City has collected $150 million in revenue from the 2018 parcel tax measure Proposition G, which is held up in litigation and was replaced in 2020 by Proposition J. An appeal to the California Supreme Court is pending, district staff said Tuesday.

But it still wouldn’t solve the district’s structural deficit, one that has loomed for years.

“My hope is the staff and board don’t take shots at each other,” Matthews said. “It’s critical for the students and families of SF Unified School District that we, the adults in the room do all that is necessary…to get out of the situation we’re in. We’re all in this boat together. It is incumbent that we look upon it in that way.”

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