By Diana Lambert, EdSource
Last week, Sacramento City Unified leaders thought they had solved the district’s financial problems with a plan to save $158 million, in part by dipping into retiree health benefits, to stave off bankruptcy.
That plan fell through Monday when state Superintendent Tony Thurmond denied an appeal by the district after the Sacramento County Office of Education rejected an agreement between the district and its teachers union. The plan would have used $67 million in retiree health benefits, $22 million in Medi-Cal reimbursements and $6 million worth of unfilled vacancies to backfill its general fund.
Now, the district of 41,868 students will have to find other ways to increase its cash flow before it runs out of money and is forced into state receivership, which a state expert says could happen by early April.
Despite the denial, Thurmond criticized the Sacramento County Office of Education in a letter for rejecting the district’s plan, which he said would have improved its ability to meet its financial obligations. Thurmond also threatened to assume oversight of Sacramento City Unified’s finances if the county office does not help it improve its bottom line.
“The CDE is concerned that this action by SCOE is not effective in resolving SCUSD’s financial problems,” Thurmond wrote. “I call on both parties to continue their deliberations regarding the best path forward toward fiscal solvency for SCUSD.”
The fiscal plan
The agreement between the teachers union and the district also would have extended the Sacramento City Teachers Association contract to June 2030 and added a provision that would guarantee teachers received the same raises given to all other bargaining units in the district.
The agreement is part of a fiscal sustainability plan that would “enhance the district’s financial standing by $158.6 million,” according to a board resolution approving it on July 30.
Los Angeles Unified approved a similar plan to draw money from a fund for retiree benefits. As part of a fiscal stabilization plan approved in June, the district drew $175 million from a post-employment account to avoid drastic cuts to its Black Student Achievement Plan for the 2028-29 school year.
Luz Cázares, a fiscal advisor appointed by the Sacramento County Office of Education, or SCOE, to oversee the district’s finances in December, had rejected the agreement between the teachers union and the district on July 31. The agreement, she said, would only delay the district’s impending insolvency, cost more over time and make it more difficult for the district to make a sustainable long-term fiscal recovery.
The denial
“The district is currently spending beyond its means and must identify the programs and services they are going to reduce or eliminate,” according to a statement on the county office website.
Several additional actions taken by the board to solve their budget crises were also “problematic,” according to the statement.
Both Sacramento County Superintendent David Gordon and Michael Fine, the chief executive officer of the state Fiscal Crisis and Management Assistance Team, or FCMAT, agreed with Cázares’ decision to reject the agreement, according to the county office.
A Sacramento City Unified school board resolution to appeal the decision on Aug. 4 said the county’s decision relied on faulty logic and would prohibit the district from achieving fiscal solvency.
The letters
The denial from Thurmond came in two letters sent to Sacramento City Unified Superintendent Cancy McArn and Gordon, the county superintendent, Monday evening. One denied the appeal and one criticized the county office for denying the fiscal plan.
The letters came after at least two days of discussions between district and county officials mediated by Thurmond.
Thurmond called the meetings “a productive first step” in a Friday email to EdSource.
It’s not clear why Thurmond denied the appeal if he thought the County Office of Education was incorrect in its assessment of the district’s financial choices, but some education experts say he wouldn’t have been able to act to overturn the SCOE decision alone.
Fine said Monday he wasn’t even sure if the decision could be appealed. If it was, it would have to be with agreement from Linda Darling-Hammond, president of the State Board of Education, or the executive director of the board, he said.
Unions exerts pressure
There was considerable pressure to overturn the county office decision. With its 310,000 members, the California Teachers Association threw its substantial political clout behind Sacramento City Unified and the Sacramento City Teachers Association.
“Your office has the clear authority and responsibility to review and reverse county fiscal decisions, conduct budget appeals and take necessary actions (on) school district efforts to maintain local control in response to county office of education ineffectiveness, particularly when such actions will enable a school district to avoid insolvency and avoid unnecessary and potentially onerous state loans,” said CTA President David Goldberg in the letter.
Thurmond also received almost identical letters from the San Diego Education Association, United Teachers Los Angeles and the Oakland Education Association.
Money problems
Sacramento City Unified faces a structural deficit of approximately $221.8 million, according to the Sacramento County Office of Education.
The district needs about $81.2 million to remain solvent, Fine said.
“Cash flow is my biggest concern because the bottom line, if you can’t balance payroll checks, instruction stops, and we have a mutual constitutional obligation, I believe, to ensure that there’s a continuity of instruction,” Fine said.
If Sacramento City Unified can’t come up with the money it needs to pay its bills, it will have to request help from the state Legislature by early January, as it takes about 90 days for state lawmakers to pass a bill relinquishing the funds, Fine said.
If the district takes an emergency loan from the state, the members of the school board would be stripped of their decision-making authority and would become advisors to a state or county-appointed administrator. The superintendent is often fired immediately.
Despite the dire prognosis, Fine said there is still time for the district to avoid receivership.
“You’ve got to identify things that you can really act on right away,” Fine said. “Every day that goes by that you’re not acting on them, the dollars … you’re going to use to offset this get smaller and smaller.”
Sacramento City Unified has had a history of fiscal problems that date back to at least 2017, when the district averted a strike by agreeing to increase teacher salaries 7.5% for most teachers and 11% for those with mid-range salaries.
Although the pay increases aren’t the only reason for the district’s money problems, many observers consider the 2017 agreement to be the tipping point.
Federal Covid funding boosted the district’s bottom line a few years, but when it ended, the district again began to grapple with deficits, Fine said.
In 2025-26 the district was in negative certification, meaning it was not able to meet its financial obligations that year or the next. A FCMAT report from 2025 found weaknesses in budget monitoring, including under budgeting for personnel, special education expenses, supplies and operating expenses.
A statewide issue
Sacramento City Unified isn’t the only California school district struggling to keep itself financially afloat. In May, Pleasanton Unified, Antioch Unified, San Ysidro Elementary and Weed Union Elementary joined Sacramento City Unified on the state’s list of districts that could not meet their financial obligations over two school years.
Since 1990, six districts — Vallejo City Unified, Oakland Unified, West Fresno Elementary School District, Emery Unified, Compton Unified and West Contra Costa Unified — have been in receivership, but were able to pay off their loans and have control returned to their school boards.
Three other districts — Plumas Unified, Inglewood Unified and South Monterey County Joint Union High School District — are in state receivership.
In Sacramento County, the only other brush with bankruptcy was when Natomas Unified had to cut $10 million from its budget or face a state takeover in 2011. The district hired an interim superintendent who had experience bringing districts back to fiscal health and avoided bankruptcy.
Mallika Seshadri contributed to this report.
