East Side Union High School District currently finds itself in a situation where Santa Clara County Office of Education has taken a more direct interest in the district’s budget than previous years. Currently, the county has threatened “stay and rescind” authority over all board decisions if ESUHSD does not comply with county demands. The most pressing demand is that ESUHSD cut $10 million from its expenditures going into the 2025-26 school year. ESTA leadership is working with the district to minimize the need to reduce certificated staff. However, the situation may require that at least some reductions occur.
The current situation is the result of four main factors: 1) ESUHSD significantly increased staff while student enrollment significantly decreased; 2) a state and county budget process that practically forces LEAs to project budget deficits to maintain operational capacity; 3) ESUHSD deviating from past practice when creating their most recent Fiscal Solvency Plans; and 4) inflexibility by Santa Clara County fiscal expert, who, when an LEA’s budget falls to qualified, exerts, in effect, near dictatorial authority over a district’s operations. The rest of this article will break down these four points.
ESUHSD has significantly increased staff while student enrollment significantly decreased.
2004-2005 | 2014-15 | 2024-25 (As of 10-18-24) | |
Student Enrollment | 25,496 | 23,686 | 20,006 |
Total Certificated Staff
| 1,114.51 977.4 137.11 | 1,137.3 966.1 171.2 | 1,131.8 890.8 241 |
Total Classified Staff | 635.7 | 597.3 | 704.523 |
Total Administrative Staff | 65 | 84.85 | 98 |
Total Staffing | 1,815.21 | 1,819.35 | 1,934.32 |
A decrease in student enrollment means a decrease in revenues, as roughly 70% of ESUHSD revenues come from California’s Local Control Funding Formula (LCFF), which sets the amount a district receives per student. That amount is then distributed based on student attendance averaged over the course of the year. Prior to COVID, ESUHSD’s ADA hovered around 95%. After COVID it dipped to around 91%. It has since risen to around 93-94%, but this increase occurs while enrollment continues to decline. To soften the blow of lowered ADA and declining enrollment, California instituted an adjusted three-year average for ADA, which allows districts to count the year or two during COVID when attendance was “held harmless”, which basically means that districts funding is higher than it otherwise would be because their adjusted ADA% is higher than their ADA actually is. But every year the adjusted ADA number declines, just not as fast as it would have under the previous ADA funding model (taking the higher of the current or previous year’s ADA for the following year’s revenue). Additionally, three major grants have run out (ESSER, LRBG, Arts). The ESSER funds were federal grants. The LRBG and Art were state grants. All told, this is about $20 million the district can no longer count on (ESSER: $12 million; LRBG: $6.5 million; Art: $2 million). And much of this $20 million was put into staffing. It is unclear if any other federal or state funding grants will be passed to replace these. Also, last year and this year has seen an approximate 40% increase to Kaiser healthcare costs (approximately $2.5 million annually), significantly more than year’s past.
The state and county budget process practically forces LEAs to project budget deficits to maintain operational capacity.
The second factor is a complicated mess of state law, county oversight, and district operational realities. California law requires school districts to budget three-years out while maintaining a projected unrestricted reserve fund of at least 3% of operational expenses for all three years. For revenues, the state regularly infuses money into schools late in the fiscal year. The same thing can happen at the federal and local government level as well. The problem is that school districts often cannot use these additional or “one-time” funds in their budget until the relevant government makes the funding official. Only then can the district use the funding source to change their projections. Since the state changed the funding process for school districts (which happened over a decade ago during Jerry Brown’s second run as governor), California has regularly infused “one-time” funds to schools well after the school year has begun. The problem, however, is as follows: even if the district could project expenditures with 100% accuracy over the course of three years, the revenues would be off to the point where it would be improbable for any district to accurately create a three-year budget that leaves them an unrestricted reserve fund of at least 3% of expenditures. To counter this flawed funding model, ESTA leaders, the Superintendents, and Board members agreed on a strategy: project layoffs in the out years of a budget in sufficient numbers to create an unrestricted reserve fund of at least 3% in year three knowing that those projected layoffs likely would not be needed. The strategy worked every year over the last six-or-so years.
ESUHSD deviated from past practice when creating their most recent Fiscal Solvency Plans.
On April 12th, 2024, the Santa Clara County Office of Education issued East Side Union High School District (ESUHSD) a letter stating their concern with the district’s second interim budget. According to the letter, the main problem with the district’s board-approved budget was that the projections for the out years resulted in deficit spending that left ESUHSD “unable to meet its financial obligations and unable to meet the required minimum 3% unrestricted fund reserve.” The solution sought by the county was to “require that the District work with the Santa Clara County Office of Education’s fiscal expert [Bill McGuire] to address deficit spending and develop a detailed budget stabilization plan with defined timelines for implementing detailed and specific reductions with a board resolution.”
Prior to the April 12th letter, ESUHSD submitted a qualified budget at the First Interim on December 14th, 2023 (The three possible qualifications are positive, qualified, and negative). At that time, ESUHSD prepared to enter into negotiations with East Side Teachers Association (ESTA), the bargaining unit for the district’s certificated staff. Bargaining over a successor contract began soon after with a qualified budget looming in the background. Board members referenced the budget situation with the county as a major factor preventing the district from supporting a salary increase in the realm sought by ESTA, and that the county would not allow such a salary increase given the budget situation, even if the board wanted to. The 2023-24 school year ended with ESUHSD and ESTA settling on a contract with a 2.25% salary increase and a 1.25% one-time bonus for the 2024-25 school year, despite the district sitting on a reserve of over $108 million (which increased to over $118 million after the year’s official close). In settling the contractual negotiations, ESUHSD and ESTA left open salary for the last two years of the contract, which means that this year both sides will again negotiate over salary.
In June of 2024, ESUHSD adopted a qualified budget for the 2024-25 school year. On August 15th, 2024, Santa Clara County again issued a letter to ESUHSD informing the district that the county was reviewing their budget and that the district needed to submit a new Fiscal Solvency Plan that included “specific details to explain the revenue enhancements and expenditure reductions outlined in the Resolution” passed by the district in June of 2024. Failure to do so would result in the county “assigning a fiscal advisor with stay and rescind authority over governing board actions.”
After completing their review of the ESUHSD adopted budget and Fiscal Solvency Resolution, both passed by the board in June of 2024, the county sent another letter on September 13th, 2024. In this letter, the county determined that the district’s budget does not comply with the county’s requirements. The county applauded the initial steps taken by the district in offering some details of revenue and expenditure alterations. However, as the county wrote, “even if the provisions in the Resolution are realized, the District is projected to deficit spend such that it will be unable to meet the minimum reserve level in the 2025-26 fiscal year and is projected to be unable to meets its financial obligations for the 2026-2027 school year.” The county reiterated their demands made in the August letter for a detailed plan with defined timelines for implementation while again threatening stay and rescind authority over all board decisions. The county also added an additional threat: to recommend taking away our fiscal independence as a district, which would mean that ESUHSD could no longer process payrolls. If such were to happen, the county would take over all payroll operations, which would not only result in layoffs for those ESUHSD staff members, but ESUHSD would have to pay the county for such services while losing control over the process.
This situation might have been avoidable. Beginning in June of 2017 and recurring every June thereafter until 2021, ESUHSD did exactly what the county asked for in their 2024 letters: that is, ESUHSD created a fiscal solvency resolution with detailed expenditure cuts with defined timelines for implementation, which allowed the budgets to balance the out years with reserves above the minimum 3%. For example, in June of 2021, the Resolution stated that “the District will be required to consider and implement budget reductions in force beginning in [fiscal year] 2023-24 of at least 185 Certificated FTEs, 75 Classified FTEs, and 14 Management and Confidential FTEs, all totaling 274 FTEs.” This same language was included going back to 2017, with 2020’s Resolution having the highest budgeted layoffs (435 in total). It’s important to note that these layoffs never actually happened because the district’s projected budget again turned out to be inaccurate (pandemic funds–such as the ESSER and LRBG mentioned above–were important in allowing the district to delay reducing expenses). The point is that the district had a plan should the need have arisen, a plan that the county accepted, and a plan that the Superintendents understood.
This changed in the 2022-23 school year. The previous detailed Resolutions became general. For example, in June of 2022, the Resolution stated that “the District will be required to consider and implement budget reductions beginning in [Fiscal Year] 2024-25 of $2,200,000 and Fiscal Year 2025-26 of $44,050,000.” These budget reductions stated a total without stipulating how the reductions would occur (e.g., no mention of layoffs, which is the only expenditure reduction capable of reducing the out-year expenditures in the amount needed to balance the budget). Again, adding specific layoffs from employee groups does not mean that such layoffs will happen. At no time between 2017 and 2021 did ESUHSD layoff staff as a result of the Fiscal Solvency Resolutions. The point is that the budget needs to balance in the out years for the county to certify it as positive. Given that all California public school districts need to project three years out, and the state gives districts inaccurate and incomplete revenue projections for the out years, such plans need to be in place to 1) keep the county happy and 2) enact if the situation demands it.
In Spring of 2022, administrators attempted to lobby the board to create an additional Associated Principal at each of the 11 comprehensive high schools. ESTA opposed the additional administrator given the district’s constant rhetoric of a structural budget deficit and that the additional positions likely wouldn’t add the value speculated by the district and site administrators. The board rejected the addition of 11 administrators in June of 2022, but the Superintendent pushed hard for the additional administrators throughout 2023, ultimately succeeding in convincing the board to create the positions. In June of 2023, the Fiscal Solvency Resolution again did not contain specific budget reductions, the second year in a row. Given that the county had not yet pressed the district, such an omission could fall under the “no harm, no foul” category. However, early in the 2023-24 school year, the county started to take an interest.
At the ESUHSD Budget Advisory Meetings in November of 2023, the then Associate Superintendent of Business Services (CBO) told the group that the county was not happy with the district’s budget and likely would not certify it positive at the first interim in December, 2023. Board members, superintendents, bargaining unit leaders, and other district staff attended the three Budget Advisory Meetings. The CBO’s message was the same as previous: layoffs were needed. In hindsight, what was needed in the adopted budget from June 2023 (for the 2023-24 school year) was a Fiscal Solvency Plan like those from 2017-2021 that detailed specific and timely reductions that could allow the district’s out years to balance with the required minimum 3% reserve. Passing such a resolution in June of 2023 may have given the district a positive certification for the 2023-24 school year, at least until March 2024, when it would have become clear that ESUHSD did not execute a RIF.
It is likely that the county would have nevertheless certified the ESUHSD adopted budget for the 2024-25 year (this school year) as qualified even with a detailed fiscal solvency plan (given that the district would not have implemented the RIF as planned last year and the budget projected a fund reserve below 3% in the third year). It is possible that the situation in which we currently find ourselves may have been delayed by a year. If the past eight years have taught us anything, it’s that one year can drastically change the situation of a district budget.
So, lastly, why did the June 2024 Fiscal Solvency Resolution not comply with the county’s demands? I can only offer correlation and speculation. This year ESUHSD and ESTA are again bargaining over salary for the remaining two years of the Collective Bargaining Agreement. Also, the additional Principal at each site continues to be a contentious issue. It may not be coincidence that the June 2024 resolution, in listing $7 million in layoffs to Certificated, Classified, and Management staff, did not specifically stipulate how many Management staff would be cut (as had happened in years past).
Inflexibility by Santa Clara County fiscal expert, who, when an LEA’s budget falls to qualified, exerts near dictatorial authority over a district’s operations.
Although the fourth factor exists as an understandable consequence of the first three factors, an individual determining the detailed operations of something as complicated as a school district entails obvious problems when said expert’s prescription is overly rigid. Santa Clara County appointed Bill Mcguire as the fiscal expert for ESUHSD. Mr. Mcguire has a long-standing history in public education, serving in positions such as Superintendent and Associate Superintendent, including CBO. If Santa Clara County invokes “stay and rescind” authority over ESUHSD, Mr. Mcguire will likely be the individual who would hold said authority.
Currently, Mr. Mcguire is requiring the district to reduce expenditures by $10 million going into next school year, despite the district currently projecting a 2025-26 unrestricted ending fund balance above the 3% minimum without expenditure reductions. The diagram below shows the district’s current projections, which shows that, despite the projected budget deficit of $32.9 million at the end of the 2025-26 school year, the unrestricted reserve fund is $25 million, which equates to an unrestricted ending fund balance of 6.32%. If the standard from years past were used in this situation, the county would require a plan to reduce expenditures going into the 2026-27 school year as the projections indicate an unrestricted ending fund balance of 0.29%, well below the required 3% minimum. This means that Mr. Mcguire is mandating reductions prior to being necessary.
The reason ESTA has historically opposed reducing staff prior to being necessary is because the ESUHSD budget has predictably turned out far better than projected. Over the previous three years, when compared to the unaudited actuals, the district has mis-projected their adopted June budgets by a total of $90 million dollars, their 1st interim December projections by a total of $62 million dollars, and their 2nd interim March projections by a total of $51 million dollars. This means that any deficit for a given year, including our current year, will likely be less than projected. Given that reducing staff is one of the most difficult and disruptive things a district can do, ESTA continues to advocate reductions to staff as a last resort. But now, such judgments are in the hands of Mr. Mcguire.
A natural question would be as follows: Does ESUHSD have the right to sue or appeal? Sue: no. Appeal: yes. However, any appeal could only happen if Santa Clara County exerts “stay and rescind” authority. In such a case, the appeal would go to the California Department of Education. The district has not demonstrated a willingness to go this route. For one, it’s not clear that such an appeal would succeed. Secondly, the right to appeal only exists after the district surrenders its autonomy to the county. And third, the district is trying to work with Mr. Mcguire to mend the situation as painlessly as possible. Unfortunately, pain seems unavoidable because the only apparent way to sufficiently reduce expenditures (which means by a number that Mr. Mcguire accepts) necessitates at least some layoffs. You’re ESTA leaders have been and will continue to push for the Associate Principal of Tiered Supports to be first on the list. We will be in conversation with the Superintendents throughout January and February seeking acceptable resolutions given the situation in which we currently find ourselves. Depending on any progress made, we may call upon you to help in this process.