SF School District Projects Growing Budget Deficits

Updated: Mar 12

  • San Francisco Unified School District is forecasting deficits of $100 million and $112 million in fiscal years 2022 and 2023, representing a worse outlook compared to estimates issued three months ago

  • The district's chief financial officer cautioned that declining attendance, which affects state funding, could deepen its fiscal woes in the longer term

  • Moody's and Fitch both downgraded the district's credit rating in recent months, noting falling enrollment, high fixed costs and long-term fiscal liabilities

San Francisco Unified School District's fiscal woes appear to be growing, according to new budget projections released by the district this week.

In an interim update to the Board of Education, SFUSD's budget office reported a $9.3 million decline in anticipated revenues for this fiscal year, primarily due to the local recession, which has hammered sales tax revenue in San Francisco. The district also expects to lose out on $1.2 million in state grants versus prior estimates because of miscalculations in the district's eligibility for funding.

"We have a lot of work cut out for us to balance our budget," said Meghan Wallace, SFUSD’s chief financial officer.

This fiscal year, which ends in June, federal stimulus money is helping to keep the district in the black.

Starting in fiscal 2022, the district is projecting a deficit of $100 million, followed by a deficit of $112 million in fiscal 2023. Those projections reflect a worsening outlook compared to a prior update in December 2020, which forecast deficits of $75.4 million and $94.3 million for fiscal years 2022 and 2023. Salary adjustments, revisions to contracts and adjusted revenue projections are the main causes of the growing deficit, according to the budget update.

Lost students present an additional risk to the district's long-term revenue outlook, which is derived partly from state funding based on the number of pupils served. The district said in October that it lost 1,036 students between 2019 and fall 2020, or roughly 2% of its student body.

Due to the impact of COVID, California is allowing school districts to use 2019 assumptions around daily attendance through fiscal 2022. But beyond that, a loss in students will produce a commensurate drop in state funding that could total in the millions per year.

"We're going to need to work over this next school to make sure we get those kids back to school. If we lose ground on our [average daily attendance] we're going to see those...funding levels decline," added Wallace.

SFUSD has not yet set a timeline for reopening schools for in-person instruction, and the past few weeks have seen a growing uproar among many parents, as well as many in City leadership, around the lack of a formal plan. City Attorney Dennis Herrera filed a lawsuit against SFUSD, the Board of Education and Superintendent Vincent Matthews to force a swifter reopening of in-person instruction for the district's more than 50,000 students; a group of parents also launched a recall effort targeting several members of the Board of Education.

Days ago, Gov. Gavin Newsom announced an incentive plan for school districts in the state that offers $2 billion in total funding for those that reopen in-person learning by April 1.

Under that plan, school districts in counties in the 'red' tier must offer in-person learning to all elementary school students, and at least one grade of middle or high school, in order to tap all available funds.

In a statement earlier this week, Matthews said that the state's plan "does not change our timeline because there are many steps we need to take to get there and many of those aren't able to be expedited, even with financial incentives."

San Francisco could potentially stand to gain $17.8 million through the state incentive plan, but likely won't access that amount. The available funding is cut by 1% for each day in-person instruction is not provided, Wallace said.

In the background is SFUSD's faltering credit profile, with both Fitch and Moody's downgrading the district's rating in recent months. A lower credit rating translates into higher costs of issuing bonds and less funds available for schools.

In a report issued in February, which downgraded the district's bonds to an Aa3 rating and assigned a negative outlook, the investor service noted SFUSD's declining enrollment, high fixed costs and long-term liabilities.

"Governance is a key driver of this rating action, primarily reflecting the district's use of nonrecurring revenues to support salary increases, which has driven a sharp reduction of its various reserves," Moody's wrote.

Image by Jake Buonemani
Image by Rasmus Gundorff Sæderup

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