County Office of Education says School District is “at risk of insolvency”

Posted on October 27, 2017 by Sonoma Valley Sun

The following letter was received by the Sonoma Valley Unified School District on October 9, 2017. It indicates that “…the District is at risk of insolvency and has not addressed ‘critical elements in the District’s operations'”…

Sonoma County Office of Education
5340 Skyline Boulevard
Santa Rosa, CA 9503-8246

September 29, 2017

Chuck Young, Interim Superintendent
Daniel Gustafson, Board President
Sonoma Valley Unified School District
27850 Railroad Avenue
Sonoma, CA 95476

Dear Dr. Young and Mr. Gustafson

In accordance with Education Code Section 42127, the Sonoma County Superintendent of Schools (County) has reviewed the Sonoma Valley Unified School District’s (District) 2017-18 Adopted Budget to determine if it complies with the Criteria and Standards for fiscal stability and allows the District to meet its financial obligations for the budget and two subsequent years. The 2017-18 Adopted Budget may only be approved subsequent to the approval of the District’s 2017-18 Local Control Accountability Plan (LCAP). The District’s Adopted Budget has been analyzed in the context of the May Revision to the Governor’s budget proposal for the 2017-28 year, as well as the 2017-18 Adopted State Budget and related trailer bills that were approved subsequent to the District’s budget adoption. In addition, the County has reviewed and approved the Districts 2017-18 LCAP.

Upon review of the assumptions provided in the District’s Adopted Budget, the County Office has very serious concerns that the District is at risk of insolvency and has not addressed “critical elements of the District’s operations” as outlined in the attached Fiscal Health Risk Analysis issued by the Fiscal Crisis & Management Assistance Team (FCMAT). Based on our analysis, the County Office has concluded that the District has not provided adequate assurance that the District will meet its current and future obligations. The County Office approves the District’s Board Adopted Budget, however, the County Office requires that no later than January 17, 2018, the District Board must take the following actions in order to avoid qualified or negative certification of the Second Interim Report, as well as the assignment of a fiscal advisor, who will have “stay and rescind” authority:

  • A spending freeze must be implemented no later than October 1, 2017. All expenditure requests must be reviewed and approved by either the Interim Superintendent or his designee(s). This will insure adequate monitoring of expenditures.
  • No later than October 1, 2017 staff must begin a thorough review the Adopted Budget, review past and estimated current revenue and expenditure patterns; update revenue and expenditure projections; and reflect these updates in the First Interim Report. This action will assist the District in evaluating the budget and making recommendations for budget reductions.
  • All categorical programs must be reviewed to determine costs that can be transferred from the unrestricted general fund to restricted programs. This action may provide relief to the General Fund.
  • Develop a staffing ratio plan with updated projected enrollment.
  • No later than October 15, 2017, the District will establish a team to identify budgetary savings and develop budget reduction proposals of at least $2M. This action is critical to the ongoing fiscal viability of the District.
  • The Board must review and approve a $2.M (or more) budget reduction proposal no later than January 17th 2018 and reflect these reductions in the Second Interim Report. This action will provide the District with a solid fiscal plan.

The following provides additional comments and recommendations:

Adopted Budget

As adopted by the District’s Board, the 2017-18 budget reflects total deficit spending of -$2,695,462 in 2017-18 and a negative ending fund balance in the General Fund of -$1,650,589; comprised of -$2,356,398 in unrestricted fund balance and $705,809 in restricted fund balance. With the use of Fund 17, the combined unrestricted fund balance reserve approximates $2.8 million and meets the minimum state reserve for economic uncertainty in 2017-18.

The combined General Fund and Fund 17 unrestricted fund balance reserve approximates $2 million in 2018.19 and $1.5 million in 2019-20 with the minimum reserve for economic uncertainty met in each year. However, these financial results include unspecified expenditure reductions of s2 million in each of the subsequent years. If such expenditure reductions are not achieved, the District would not meet its minimum State reserve in both 2018-19 and 2019-2o. It is critical the District meet its unspecified expenditure reduction goals noted in the MYP to ensure its financial stability.


Although the District has experienced a decline in average daily attendance (ADA) overthe last several years, the LCFF calculator projects ADA of 3,880 in 2017-18 through 2019-20, with each grade level attendance being estimated the same as in the prior year. ADA is the foundation for State funding and district staffing. The County recommends the District assess and monitor enrollment/ADA to assist in altering operations both efficiently and effectively. The District may want to consider a demographic study be completed to provide further insight and improve long-term planning. As always, precise accounting of current staff members as well as accurately assessing future staffing needs based upon thoughtful ADA projections is critical to financial stability.

Property. Taxes

When local property taxes exceed LCFF funding, a district is considered locally funded (basic aid). The District’s property taxes can only be estimated at the beginning and during each fiscal year. Residual funds generated by the dissolution of redevelopment agencies (RDA) can vacillate significantly, up or down, in any given year. These two types of revenue are not final until the end of the fiscal year. Compounding the revenue uncertainty, locally funded districts (or those on the cusp of being locally funded) can receive revenue over

and above the LCFF funding. This includes $200 per ADA of education protection account (EPA) funding and basic aid supplemental funding for charter school students that are outside district boundaries. The County cautions against overestimating year to year property tax increases which result in locally funded status without a corresponding budget reserve to mitigate the risk if projections do not materialize. Should such property taxes not occur and locally funded status is not achieved, the District’s financial position could be substantially compromised.


The District is in the financial position where it has the potential of being locally funded or LCFF funded each year, as it is funded near the cusp of this determination. With the District moving in and out of locally funded status, it is essential the District gain a better understanding of its enrollment/ADA since this is a major component in determining LCFF funding.

Budget Reduction Plan

The narrative of the 2017-18 Adopted Budget includes a Budget Reduction Planning timeline which anticipates the Board will approve budget reduction criteria on September 12, 2017, work through a solution finding process, and ultimately adopt a budget reduction plan in December 2017. The County applauds the District in identifying goals and addressing its fiscal challenges in a timely manner. The County request the District’s Board Approved Budget Reduction Plan (Plan) be submitted to the County Office no later than January 17th, 2018. Should the District not provide such a Plan by January 17th, 2018 and unspecified expenditure reductions are not eliminated in the Multi Year Projection (MYP) for fiscal year 2018-19 and reflect these reductions in the 2017-18 Second Interim Report, the County Superintendent will assign a fiscal advisor with “stay and rescind” authority and will impose a Qualified or Negative certification on the District.

Collective Bargaining

Based upon the Criteria and Standards, negotiations with all bargaining units in the 2017-18 fiscal year are not settled. As always, the County recommends that ongoing costs be supported by ongoing revenue to avoid creating or exacerbating structural deficits. In addition, it is very important to provide the bargaining units and Board with information regarding the rate increases for STRS and PERS employer costs; step/column increases; and projected health and welfare benefit increases.

Risk Analysis Attachment

Enclosed is the FCMAT Fiscal Health Risk Analysis. The Board and staff should review the Key Fiscal Indicators for K-12 Districts Risk Analysis. The Governing Board and Associations are encouraged to review these indicators to help them measure the District’s economic viability.


Our Office appreciates the preparation and timely submittal of your Adopted Budget report. The First Interim Report is due to our office no later than December 25, 2017. No laterthan January 17th, 2018, the District must provide a Board Approved Budget Reduction Plan in order to avoid the assignment by the County Office of a fiscal advisor, who would have “stay and rescind” authority. We urge the District to take the actions outlined above. In addition, please review the attached Fiscal Health Risk Analysis and standard fiscal reminders. If you have any questions, please feel free to call me at (707) 524-2635.


Judy Thomson
Director of External Fiscal Services

cc: Dr. Steven Herrington, County Superintendent of Schools
Mary Downey, Deputy Superintendent, Business Services
Loyal Carlon, Director of Human Resources, SVUSD
Susie Raymond, Business Mgr.(temporary) –
Cindy Gordon, Accountant, SCOE Renea Magnani, President, VMTA
Andrea Deely, President, CSEA, Ch. 376

One thought on “County Office of Education says School District is “at risk of insolvency”

  1. Could this explain why some in the administration and on the board became defensive when new board member Kelly began asking a lot of questions? No doubt more questions to be asked and more shoes to drop. e.g., Why hasn’t the district had a finance officer for 3 years? Why did the former superintendent abruptly resign? Hopefully the days of a detached, uncurious school board are coming to an end.

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