Sacramento City Unified School District Presentation

Sacramento City Unified School District Presentation to the Governing Board Regarding Projected Cash Flow May 7, 2026 © Fiscal Crisis & Management 1 Assistance Team Current Engagements • The Fiscal Crisis and Management Assistance Team (FCMAT) is engaged with the district as follows: • At the district’s request, providing technical assistance. • At the county superintendent of schools’ request, conducting a cash flow analysis. • Tonight’s presentation is about the projected general fund cash flow for the 2026-27 fiscal year. • The cash flow analysis was provided to the district at no cost. 22 Signs of Fiscal Distress Minimum reserve Deficit spending is balances may be Over time, deficit defined as jeopardized, spending erodes fund expenditures that eliminating the safety balance. exceed revenues. net needed to respond to fiscal distress. Cash and fund Insolvency is defined balances are not the When deficit spending as having insufficient same. Cash balances is severe and cash and exhausting reflect actual persistent, it can lead all borrowing transactions and to cash shortfalls. opportunities to meet available liquidity. payroll obligations. 33 District Fiscal Condition Counting 2018-19 There were four On October 10, 2025, through this fiscal positive interim the county year, the district had certifications during superintendent three qualified interim the pandemic years designated the district certifications and six with large infusions of as a lack of going negative certifications. resources. concern. The 2024-25 audit Projected current year The projected ending report raised deficit spending fund balance as of substantial doubt about escalated from $94.7 June 30, 2026 is the district’s ability to million to $217.7 negative $60.6 continue as a going million. million. concern. 44 Deficit Spending Erodes Fund Balance June 30, 2026 Estimated Ending Unrestricted Fund Balance at Reporting Periods $40,000,000 $20,000,000 $24,218,634.00 $0 AAddoopptteedd BBuuddggeett Unaudited Actuals First Interim Second Interim -$19,062,211.00 -$20,000,000 -$34,167,427.00 -$40,000,000 -$60,000,000 -$80,000,000 -$100,000,000 -$108,211,340.00 -$120,000,000 Sources: District’s 2024-25 unaudited actuals and 2025-26 adopted budget, first interim, and second interim financial reports. 55 MYP Ending Balance and Reserve Concerns Unrestricted General Fund, 2025-26 through 2027-28 Fund Balance and Reserve Status 2025-26 2026-27 2027-28 Unrestricted Ending Fund Balance -$108.2M -$251.1M -$394.8M Available Reserves -$108.2M -$251.1M -$394.8M Available Reserves (% of Expenditures) -11.33% -28.77% -44.00% Statutory Minimum Reserve $19.1M $17.5M $17.9M Statutory Minimum Reserve (%) 2% 2% 2% Meets Statutory Minimum Reserve Not Met Not Met Not Met Reserve Shortfall -$127.3M -$268.6M -$412.7M Source: District’s 2025-26 second interim multiyear financial projection (MYP). 66 2026-27 Budget Assumptions • Fiscal stabilization plan elements as of March 5, 2026 are incorporated into the second interim report. • Savings from staffing reductions are included; however, no allowance is made for separation costs. • An allowance is included for the tentative agreement with classified employees. • The Governor’s January budget proposal is used for 2026-27 revenue in the second interim MYPs. • No assumptions are included for May Revise improvement. • Costs related to the receivership process are not included. 77 Budget vs. Cash Budget Cash • A budget is a plan that represents • Cash is the result of what actually how much the district anticipates happens. earning (revenues/sources), • Cash flow represents the change in spending (expenditures/uses), and available cash balance from the the projected year-end balance beginning to the end of a period. (positive or negative reserves). • Cash is comingled without regard to • The budget is accounted for as restrictions. unrestricted and restricted • Cash is king! Cash shows no mercy! resources. 88 Process to Project Cash • FCMAT’s process for projecting next year’s cash flow is as follows: • Establish the base year: • Current-year revenue and expenditures from the second interim report (March), and actual cash activity through March 31, 2026. • All fund cash balances as of April 15, 2026. • Develop next year’s projections: • Second interim MYPs for next year’s revenues and expenditures. • Historical cash flow timing patterns to estimate monthly cash activity (with some adjustments). 99 2026-27 Cash Assumptions • Actual cash transactions through March 2026, projections for the remainder of 2025-26 and all of 2026-27. • Assumes approval of the June 2026 apportionment deferral exemption. • Estimated at $30.8 million, which would otherwise result in a negative June cash balance. • FCMAT has not performed a cash flow analysis for other funds and used April 15, 2026 cash balances. • Approximately $36.6 million is estimated to be available for short-term borrowing. 1100 2026-27 Cash Assumptions (cont.) • Practices for advancing property tax apportionments were confirmed with the county treasurer. • It was confirmed that 85% of estimated 2026-27 property tax apportionments would be posted in July 2026 (approximately $111.1 million). 1111 Internal Borrowing Capacity Cash Balances as of April 15, 2026 Total cash in county treasury (all funds) $228,858,586 Less: General fund* and funds with negative or insufficient balances 57,206,033 Less: Funds not legally available for borrowing 110,107,254 Less: Self-insurance fund transfer into the general fund (per FSP**) 9,000,000 Less: Charter school fund transfer into the general fund (per annual budget) 3,755,880 Total funds potentially available $48,789,419 Applied borrowing limit 75% Maximum estimated internal borrowing capacity $36,592,064 *General fund balances include the district’s payroll clearing account – Fund 76. **FSP = Fiscal solvency plan. 1122 2026-27 Projected Cash Flow Report Dollars in Millions $40.0 $19.4 $20.0 $0.0 -$20.0 -$27.7 -$40.0 -$35.2 -$60.0 -$62.7 -$80.0 -$70.7 -$78.0 -$100.0 -$106.3 -$120.0 -$108.7 -$111.2 -$113.9 -$117.9 -$121.8 -$140.0 -$144.2 -$160.0 Source: FCMAT general fund cash flow projection without interfund borrowing or advances; values shown are month end. 1133 2026-27 Projected Cash Flow Report (cont.) Dollars in Millions $150.0 $119.9 $112.5 $100.0 $85.0 $69.7 $50.0 $41.3 $33.8 $19.4 $21.4 $0.0 -$50.0 -$25.7 -$16.5 -$52.0 -$74.6 -$85.2 -$100.0 Source: FCMAT general fund cash flow projection with interfund borrowing and advances; values shown are month end. 1144 Projection is Likely Best-Case Scenario • FCMAT’s projection is the best-case scenario given the following: • District office reorganization cost projections exceed second interim expenditure projections by $30 million to $40 million, moving the month the sustained cash deficit begins up to January 2027. • At $30 million, FCMAT projects a small positive ending cash balance in January; however, mid-month balances are likely negative. • At $40 million, FCMAT projects a small negative ending cash balance in January, and mid-month balances will be negative. • No allowance is included for separation costs associated with staffing reductions. 1155 Next Steps • Emergency advance apportionments are available approximately 60 days after legislation is enacted. • Scenario 1: Summer Trailer Bill • Current legislative session ends August 30, 2026 (last opportunity for trailer bill action). • Funds available in Fall 2026. • Cash needs met through June 30, 2027. • Scenario 2: December Urgency Legislation • Earliest possible legislative action in late January or early February 2027. • Funds available in late March or early April 2027. 1166 Next Steps (cont.) • Only trailer bill action during the current legislative session can deliver funding in time to address the district’s projected February 2027 cash shortfall. • Urgency legislation in the next legislative session would occur too late to prevent insolvency. • Approximately $60 million in payroll for roughly 5,000 employees would be at risk of not being paid. 1177 Next Steps (cont.) Next steps will proceed in parallel rather than sequentially. • The district board needs to work through the prerequisite steps and decide whether to request an emergency advance apportionment. • Legislative bill language will be crafted and introduced with the goal of adoption through urgency legislation or a trailer bill by June 30. • An interim administrator will be identified and appointed by July 1; a permanent administrator will be identified and vetted by August 31. • The initial cash apportionment from the state will occur, as needed, in fall 2026 or winter 2027, with the final apportionment occurring no later than 12-18 months thereafter. 1188 Next Steps (cont.) • All education partners need to acknowledge that recent news about the district invokes a range of emotions among parents, students, employees and the community – most notably, grief. We must all lead with this in mind. • Transparent, timely, and accurate communication is critical. • Irrespective of the board’s decision, FCMAT will continue to support the district with cash flow updates and other technical assistance. 1199 Thank you. 2200 Appendix 2211 The Consequences of Cash Insolvency • The district’s governing board may request and receive authorization for an emergency advance apportionment from the state; however: • The district will lose local governance. • Expenditure reductions will still be necessary and will need to be more substantial due to costs associated with the advance apportionment. • This is not a bailout – it is a cash advance to help pay the district’s immediate obligations and must be repaid. • In the context of insolvency, the district’s fiscal condition is more likely to deteriorate in the short term than improve. • Time is of the essence. 2222 Receivership Types • Statute provides two sets of conditions related to emergency advance apportionments. • The distinguishing characteristic of the two is the amount of the apportionment requested. • Type 1 – Equal to or less than 200% of the district’s required reserve for economic uncertainties. • Type 2 – Greater than 200% of the district’s required reserve for economic uncertainties. • Based on all available information known today, the district will require a Type 2 apportionment. 2233 Receivership Prerequisites • The formal process of receivership begins when the district requests an emergency advance apportionment from the state. • Prerequisites for an emergency apportionment include:* • A report by auditor on the district’s financial condition and budgetary controls. • A management review conducted by a qualified management consultant. • A fiscal plan adopted by the district board. • Review and approval by the State Superintendent of Public Instruction (SPI) of required reports, the fiscal recovery plan, and the repayment plan.** • The district board must discuss the need for the emergency apportionment at a public meeting and receive testimony.*** *EC 41320(a); **EC 41320(b); ***EC 41326(a) 2244 Governance Changes As a condition of accepting an emergency advance apportionment from the state: • The county superintendent shall assume all the legal rights, duties and powers of the district board. • With concurrence from the SPI and the president of the state board of education (SBE), the county superintendent shall appoint an administrator from a pool of candidates identified and vetted by FCMAT. • The administrator serves under the direction of the county superintendent. • The district board shall serve as an advisory board reporting to the administrator and shall have no legal rights, duties or powers. 2255 Appointed Administrator • Within 30 days of assuming authority, the administrator shall discuss options for resolving the district’s fiscal problems with a variety of partners. • Additionally, the administrator may: • Implement substantial changes to the district’s fiscal policies and practices, including filing for protection under federal bankruptcy law. • Revise educational programs to align with available resources and student performance standards. • Encourage all partners to accept a fair share of the burden. • Consult with a variety of partners, including FCMAT. • Adjust and modify policies as needed to effectively implement recovery plans. 2266 Regaining Local Control • The return of local control occurs when the administrator’s work is complete, and a transition is made to a trustee. • The return is contingent on a series of determinations and approvals and may occur no sooner than one* year after acceptance of the loan. • Recovery plans are approved, and FCMAT completes at least two* comprehensive reviews. • The administrator certifies that all collective bargaining agreements have been negotiated and ratified and are consistent with the terms of the recovery plans. • The district has completed all reports required by the administrator and county superintendent. *One year and two reports are in conflict given that the reports are annual. 2277 Regaining Local Control (cont.) • The administrator, county superintendent, SPI, and SBE president determine that future compliance with the recovery plans is probable. • The county superintendent approves the return of local control, with concurrence from the SPI. • The return of local control is based on both objective and subjective considerations. • The probability of future compliance with the recovery plans is best determined by the district’s progress in implementing the recovery plans, as evidenced by the annual comprehensive assessment conducted by FCMAT – the comprehensive review. 2288 Comprehensive Review • Within six months of an emergency apportionment, and annually thereafter, FCMAT must conduct a comprehensive assessment across the five operational areas over which governance is exercised: • Financial management. • Pupil achievement. • Personnel management. • Facilities management. • Governance and community relations. 2299 Comprehensive Review (cont.) • The SBE adopts a list of professional and legal standards that all school districts are encouraged to use as a guide to maintain sound educational programs and fiscal and management practices. • These standards serve as the minimum basis for evaluating the improvement of a district in receivership. • The standards were last updated in 2019 and total approximately 150. 3300 Phases of Recovery Under Receivership Apportionment Greater Than 200% of Recommended Reserve The trustee monitors and Local governance authority reviews district operations District experiences fiscal is reestablished, and a and may stay or rescind distress leading to projected trustee is assigned governing board actions The district makes its final cash insolvency. (EC 41326(g)). (EC 41320.1(c)). apportionment repayment. 1 2 3 4 District applies for and Progress is documented Before apportionment repayment, the Based on the internal accepts an emergency through annual district must conduct an audit of its control audit, the trustee apportionment, including comprehensive reviews, fiscal systems (generally interpreted may be retained until assignment of an which determine readiness as internal control systems) identified deficiencies are administrator (EC 41326). to transition to the next (EC 41320.1(a)(4)). corrected. phase (EC 41327.1). EC = Education Code This graphic is for illustration purposes only. 3311 Summary of Receivership Process A summary of the work around fiscal crisis and the state’s receivership process for school districts is available on the FCMAT website: • Fiscal Crisis in School Districts (report). • Fiscal Crisis in School Districts (presentation). 3322