Santa Rosa schools face $19 million shortfall over next two years

The discovery of multimillion-dollar accounting errors at Sonoma County's largest school district has exacerbated a bleak budget outlook and cast a pall over contract negotiations with teachers seeking raises and improved health benefits next year.

The Santa Rosa school district now faces a $10.7 million deficit in its $180 million current budget and a combined $19 million shortfall over the next two years, unless significant cuts are made.

Higher retirement costs, lower than expected state funding and errors in past budgets are all being blamed for the deep deficits, which administrators say will require sacrifices to get the district back on firmer fiscal footing. Two of the district's top financial executives have left their jobs in the wake of the accounting errors coming to light.

'I am confident that together and along with all the stakeholders, we will collaboratively problem-solve this budget problem,' said Diann Kitamura, superintendent of Santa Rosa City Schools.

With 85 percent of the operating budget devoted to personnel costs, however, Kitamura could not rule out the possibility that layoffs might be required next year, saying it is 'something we have to look at.'

The issues facing the district are nothing new. The budget passed by the school board in June 2016 projected spending about $10.3 million more than the district would take in. In September, Sonoma County Office of Education officials warned the district that it had a problem on its hands.

The letter cautioned that 'continued deficit spending of this magnitude cannot be sustained and will threaten the district's fiscal stability.'

The letter further states that the Santa Rosa school district, which employs about 1,600 people in 23 schools attended by 16,400 students, appeared overstaffed. It noted the district had added 50 positions in 2016 even as enrollment dropped by 100 students.

County schools Superintendent Steve Herrington said his goal in sending the letter was to ensure the district straightens out its finances before things get out of hand.

'Like any math problem, it compounds itself as it goes forward,' Herrington said.

He said he feels the district is working hard on the problem, including a move to hire a specialist in school finances.

'They are making strides to make things happen, but they are going to have to have a kind of austere plan until they get through this,' Herrington said.

The news comes at a particularly inopportune time for the Santa Rosa Teachers Association, which began bargaining with the district in September, proposing modest raises and better health benefits. The negotiations were put off until after Gov. Jerry Brown's budget was released this month.

The next bargaining session is scheduled for this week, but negotiators have been talking informally.

'It's not a pretty picture,' said Tawni Johnson, the association's lead negotiator. 'It's a much worse picture than it was when we started talking.'

Santa Rosa teachers are the second-highest paid in the county, with senior educators earning up to $89,000 annually. But their total compensation lags most other districts, in part because Santa Rosa teachers pay most of their own health care costs.

The union had intended to ask for changes that would allow teachers to get improved health care benefits without higher costs, but now that seems out of reach, Johnson said.

The word of accounting errors exacerbating the shortfall has not engendered confidence among union members in the district's fiscal management, Johnson said.

'They are alarmed by the fact that things don't seem to be under control over there,' she said.

Accounting errors made by district finance staff include failing to properly budget for about $3 million the district spends on substitute teachers, overtime and hourly extra assignments for teachers and other district employees.

Jenni Klose, the school board president, called the $3 million mistake a 'significant error by a former member of our accounting team.' She and others declined to identify the person.

Carolyn Bischof, the former executive director of fiscal services, departed following the revelation last year. Bischof, who now works as chief business officer at the Guerneville School District, did not reply to an email and call for comment.

Bischof's boss, Steve Eichman, assistant superintendent of business services, resigned effective last week. He said the decision had nothing to do with the district's financial affairs, but because he took a job closer to his home in San Bruno.

Another error included the way $880,000 in salary increases from a prior year were accounted for, which created confusion over what the actual salary increases had been year-to-year, said Terri Ryland, a Granite Bay school finance expert hired by the district to help resolve its fiscal issues.

The budget impact from the errors was offset somewhat by immediately recognizing savings from unfilled positions instead of waiting until the end of the year, Ryland said.

The district has set a goal of cutting $4 million from the next year's budget and an additional $2.5 million from the following year's budget. Without the cuts, the district faces an $8 million deficit next year and an $11 million deficit the following year.

The district is forming a fiscal stabilization committee that is going to look at an array of options to go about that task, Kitamura said. She pledged to do so in a transparent manner that involves the public before any solution goes to the board.

She and Herrington both declined to provide The Press Democrat a copy of a more recent letter Herrington wrote following the district's midyear budget report showing a deeper deficit than initially projected.

Herrington deferred to Kitamura, who said she hadn't fully read the letter yet and wanted her board to see it before she shared it publicly.

Klose said she now felt, in Ryland, the district had a 'level of expertise I think we haven't had.' That gives her confidence the board will be able to work through its financial issues.

'It's undeniably a challenge, but I'm really confident that we will be able to meet that challenge,' Klose said.

You can reach Staff Writer Kevin McCallum at 707-521-5207 or kevin.mccallum@pressdemocrat.com. On Twitter @srcitybeat.