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State steps in to manage SFUSD’s budget amid growing fiscal crisis

With the district facing a fiscal crisis, the state of California is stepping in to oversee SFUSD’s budget and clear the way for what will likely be a painful round of cuts at local public schools. 

In a letter issued this week, the California Board of Education told Vincent Matthews, superintendent of schools, that the district is “no longer a going concern” and will be unable to meet its financial obligations unless it makes serious changes, including a partial freeze on hiring and non-essential expenditures. The state plans to install a fiscal monitor with the district to resolve shortfalls expected to top $100 million annually over the next few years. 

“We acknowledge that the District is working to identify strategic solutions for resolving the projected budget shortfalls; however, reductions have yet to be identified after a year of discussion,” wrote Elizabeth Dearstyne, the state’s director of school fiscal services. 

The state had earlier requested a budget recovery plan from the district, but never received any such plan, according to the letter. Under California’s education code, school districts found to be “no longer a going concern”⁠—an accounting term that refers to an inability to meet financial obligations⁠—are placed under certain restrictions. 

The district, which is required to balance its budget every year, is faced with cuts equivalent to 13% of its unrestricted expenditures for the fiscal year ending in 2023. Those estimates are based on a projected deficit of $116 million in that year and $111 million the year following, numbers that may worsen alongside falling enrollment. Much of SFUSD’s state funding is based on the number of students, which fell by about 1700 students between fall 2020 and 2021.

“CDE is partnering with SFUSD closely and is assigning a fiscal expert to assist the district in this process and to advise on how to reach a fiscal stabilization plan that will restore and maintain a positive fund balance and required reserve levels for future fiscal years,” said Maria Clayton, director of communications at the California Department of Education.

In addition to assigning a fiscal expert, state oversight will include tighter and more frequent reporting of the district’s finances and potential freezing of compensation for Superintendent Matthews and members of the Board of Education if they fail to provide requested financial information. Currently, “there is no plan to withhold any funding from the superintendent or the board of education,” added Clayton.

The district must also complete a financial risk assessment immediately and submit a board-approved budget plan for the next two fiscal years by Dec. 15, 2021. 

“There are a number of factors contributing to SFUSD’s expenses exceeding its revenue including current employee and retiree benefits, salaries and programs that serve our highest need students. These are just a few areas where costs have increased by tens of millions in recent years,” said Matthews. “The magnitude of this challenge warrants a strategic, priorities-based approach and we are working diligently with our community and the SF Board of Education to plan.”

SFUSD told Here/Say that it had requested to work with state budget advisors prior to receiving the letter, and has not missed any budget planning deadlines imposed by the state.

For now, the state asked the district to impose a hiring freeze on all positions that don’t require direct access to students and to freeze all spending that isn’t “operationally necessary.” The state will also review all labor negotiations with the district and warned that salary or benefit increases could further endanger the district’s finances. 

SFUSD spends 54% of its annual budget on instruction, including compensation for teachers, classroom assistants and technology aiding instruction. It spends another 16% on administrative and other costs related to instruction, and 14% on pupil services, including counseling, health and other support for students. 

The Board of Education is expected to further discuss the possibility of budget cuts this week, with two meetings scheduled on Tuesday and Wednesday that will address its fiscal issues. 

Annie Gaus can be reached at