15% Teacher Raises Doomed Sacramento City School Budget: Audit

SACRAMENTO, Calif. (CN) – A school district in California’s capital city is careening toward bankruptcy after it ignored warnings from county officials and approved ill-advised generous teacher raises, the state auditor announced Tuesday.

According to a biting report by State Auditor Elaine Howle, Sacramento City Unified School District has burned through its reserves since boosting teacher salaries by 15% in 2017 and is “close to insolvency.” Howle says the district has failed to account for the raises and spiking employee benefits and faces a looming $19 million deficit.

If it can’t quickly patch its finances, Howle says the district will have to turn to California taxpayers for a bailout, even if that means less financial support for its 41,000 students.

“Sacramento Unified projects it will largely deplete its general fund in October 2021 and will likely need to accept a loan from the state to continue operating,” the audit states. “If it accepts such a loan, the required loan payments would result in less funding for students and a loss of local control to an appointed administrator.”

Howle says the district’s financial woes stem from teacher raises, employee benefits that have increased 52% over the last five years, unfunded pension liabilities and special education costs that have doubled since 2014.

Though the county superintendent’s office told the district it couldn’t afford the raises and was basing its projections off faulty data, the district in December 2017 went ahead and signed the deal with its teachers union. To make matters worse, the audit claims the district ignored the superintendent’s request to come up with a reduction plan if indeed the raises turned out to be unfeasible, and relied on one-time funding allocated by the Legislature to local school districts from the state’s growing reserves.

While the district’s teacher salaries were lower on average than comparable districts in 2017, its “generous and expensive” benefits package was better than other school districts. In the current fiscal year, Sacramento Unified average teacher salaries and total compensation are both higher than surrounding districts such as Elk Grove Unified and San Juan Unified.

Greenlighting the raises based on unreliable information has the district floundering two years later, Howle says.

“The [district] could have mitigated the risk of adding these significant ongoing spending obligations to the district’s increasingly risky financial situation if it had certified the district’s ability to meet the costs of the labor agreement before approving it,” the 44-page audit states.

The troubled district is one of the largest in the Sacramento region, serving about 41,000 students and employing 2,200 teachers. The audit was requested this past February by Assemblyman Kevin McCarty, D-Sacramento, who was worried about the district’s finances and leadership.

The district and its teachers union have been going back and forth with proposals to save $27 million in the next budget and avert financial ruin, but they are at a stalemate.

Howle says the district hasn’t come up with a detailed plan to avoid a state loan and resulting takeover, while the union’s proposals would only “increase the district’s costs dramatically.”

To avoid future scenarios in other California districts, the audit recommends that the Legislature consider a law requiring school district boards to obtain approval from county superintendents on “significant spending actions.”

For the district, she says it should adopt a sweeping plan by March 2020 that is likely to include salary decreases for teachers as well as higher employee contributions to retirement benefits. The plan would serve as a model and blueprint for negotiations with its union.

In response, the district said it agrees with most of Howle’s findings and is working to find ways to reduce employee health care and retirement costs. The district’s education board president said the 2017 raises were necessary to avoid a strike.

“It is important to understand that our board made difficult financial decisions in 2017 to avoid a teacher strike that would have had a devastating impact on our students.” Jessie Ryan said in a statement. “We decided to not make additional cuts because they were a one-time fix with serious, long-term impacts to student learning.”

McCarty, who is married to a district board member, said he will introduce legislation in 2020 to try and cement the audit’s recommendations.

“We cannot wait any longer to address this budget crisis, and these recommendations must be implemented so this does not happen to another school district in California,” McCarty said in a statement.

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