The Sacramento City Unified School District logo at the Serna Center in Sacramento on Thursday, Feb. 5, 2026.
JOSÉ LUIS VILLEGAS
jvillegas@sacbee.com
As it works to address its ongoing fiscal crisis, the Sacramento City Unified School District has revised its fiscal plan and asked the Sacramento County Office of Education to withdraw its rescission of a teachers’ agreement by Sept. 17, arguing that it has satisfied state and county demands for solvency.
In an email Wednesday to state and county officials, Superintendent Cancy McArn shared the district’s multi-year projection, which appears to improve its financial outlook for the current fiscal year, but relies on assumptions that a state financial expert described as “risky.”
“Cost containment, expenditure reduction, staffing decisions, and the need for long term fiscal stability have been discussed publicly during our Board meetings and reflected in the direction provided to staff,” McArn wrote in the email reviewed by The Sacramento Bee.
“The assumptions in this MYP are therefore not simply staff assumptions. They are consistent with the direction of the Board and with actions already taking place throughout the District.”
‘Risky’ assumptions behind the numbers?
The district says changes to its budget would improve its projected 2026-27 finances by $208.3 million — $70.8 million from additional revenue and transfers, and $137.5 million from lower spending. Under the revised projection, the district would end the year with a positive fund balance of about $162,000.
However, the district assumes that roughly $30.9 million in one-time state funding it received in 2026-27 will continue in future years, while also counting on receiving $22.7 million in both 2027-28 and 2028-29 from the roughly $3.9 billion in Proposition 98 funding the state withheld this year.
Kenneth Kapphahn, a Legislative Analyst’s Office analyst who focuses on Proposition 98 and school district budgets, questioned the district’s assumptions about those two funding sources.
“That’s risky because the block grant represents one-time funding that the state is providing because the estimates of Proposition 98 came in higher than what was anticipated when the state passed last year’s budget,” Kapphahn said.
“So there’s no guarantee, no certainty that revenues are going to continue to be projections over the coming years, just because they did in this year’s budget.”
Under Prop. 98, California is required to provide a constitutionally established minimum level of funding to K-12 schools and community colleges. This year, the state withheld $3.9 billion in Prop. 98 funding, drawing objections from education advocates and school officials.
As for the Prop. 98 funding the district assumes it will receive in future years, Kapphahn explained the money is expected to be deposited into the state’s reserve account and would be distributed to districts only if California experiences an economic downturn.
“But if we’re not making withdrawal, then I don’t know of any plans to do anything with it other than make that reserve deposit,” Kapphahn said.
During a special board meeting Thursday, district Chief Business Officer Gerardo Castillo acknowledged the projections were risky, but stressed that the district had based its assumptions — including about the one-time state allocation — on funding trends it had observed over the past five years.
“So yes, it’s risky, our multi-year projections, and one of the things could affect us, but we are using trends that have happened within the state in the last five years,” Castillo said.
District spokesperson Brian Heap echoed Castillo’s assessment, adding the budget assumptions were “reasonable.”
“We are not done and have a long way to go, but we feel confident the district is on a clear path to achieving a balanced budget and long-term financial stability,” Heap wrote in an email to The Bee.
The California County Superintendents association, meanwhile, also raised questions about the assumptions behind the district’s projection.
The association recently entered the dispute by seeking last-minute legislation to limit State Superintendent Tony Thurmond’s fiscal oversight authority. Its proposal would have required approval from the State Board of Education president or a designee before Thurmond could assume SCOE’s authority and directly oversee Sacramento City Unified’s finances.
“The basis for that assumption is unclear to me,” said Derick Lennox, the association’s senior director of governmental relations and legal affairs.
“The county office is best positioned to evaluate the soundness of the district’s revised numbers, but even a casual observer might raise questions about key assumptions that the county and state must grapple with.”
A fragile financial outlook
The district projects it will end the current and following fiscal years with balances only slightly above zero — about $162,000 and $150,000, respectively — but its balance is expected to fall back into the red in 2028-29.
Michael Fine, CEO of FCMAT, described the district’s projection as “absurd,” saying it did not meet California school-district budgeting standards and pointing to what he called “not a reasonable argument” about future funding. His organization is a state-funded entity that advises school districts on financial issues.
“There’s no other district in the state that would count that,” Fine said.
Meanwhile, McArn disclosed Wednesday the district and Sacramento City Teachers Association had reached a new agreement allowing SCUSD to use about $23.6 million from a retiree health trust for one additional year, in 2028-29.
McArn argued that rescinding the MOU had worsened the district’s financial position and reiterated that restoring the agreement would help the district stay afloat.
The district and teachers union also agreed to move employees and retirees from Health Net — which plans to cease offering employer coverage in California at the end of the 2027 — to the CalVEBA trust, a change the district estimates will save about $3.7 million annually by reducing ongoing health-benefit costs.
“This tentative agreement continues to demonstrate our willingness to work with the leadership of SCUSD to preserve local control, democratic decision-making and to make sure resources stay in the classroom,” said Nikki Milevsky, president of SCTA.
This story was originally published September 10, 2026 at 3:19 PM.
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Chaewon Chung is an education reporter for The Sacramento Bee. She has previously covered climate and environmental issues, focusing on energy and water. Before joining The Bee, she worked as a climate and environment reporter at the Winston-Salem Journal in North Carolina.