School district financial risk analysis

About

Our analysis

For our school district financial risk analysis, we used a year-round process to gather and analyze the most current data available for 10 financial risk measures and communicate with the identified highest-risk districts. This analysis evolved from the Financial Stress Assessment included in our fiscal years 2012 through 2018 annual Arizona School District Spending Reports. While our financial risk analysis includes some similar measures, we refined and added to those measures with input from school business officials to help identify the highest financial risk districts. Collectively, the measures relate to a district's overall risk of not being able to operate within its available cash resources and budget constraints. Our analysis focuses on identifying the districts at the highest risk based both on their current and potential future financial difficulties. Districts that currently spend more than their budget limits or available cash resources likely missed the signs of their increasing financial risk in years their revenues or spending reserves substantially decreased. We identified and communicated with the highest-risk districts to help their decision-makers recognize their financial risks and encouraged them to plan for and take necessary actions to improve their financial position. Each of the current year's highest-risk districts provided a response describing recent and currently planned actions to address risk areas, and we've included the responses on the applicable district's results page.

From the State's 236 school districts, 207 were included in our financial risk analysis. Transporting districts, career and technical education districts, and accommodation districts were not included as they operate very differently than most school districts not only in terms of the services they provide, the students they serve, and the programs they offer, but also in their available funding streams. Therefore, the measures in our analysis do not apply to them in the same way.

We assigned risk points to each district that met any measure's defined risk thresholds and totaled those risk points to determine the highest-risk districts. We also identified districts approaching the highest-risk level by considering their total risk points and any other measures approaching the risk thresholds. We assigned more risk points to measures that contribute more to a district's overall financial risk.

Measure Risk points per measure
Receivership 5
Change in weighted student count 5
Budget limit reserve—Operating budget 1 - 7
Budget limit reserve—Capital budget 1 - 7
Financial position—General Fund operating reserve ratio 0.5 - 1.5
Financial position—General Fund operating margin ratio 0.5 - 1.5
Financial position—General Fund change in fund balance 0.5 - 1.5
Capital monies redirected to operations 1
Small school budget limit adjustment 1 or 5
Frozen tax rate 1
Maximum possible risk points 35.5

For this year's December 2023 analysis, the scope and methodology for identifying high-risk districts within each measure are consistent with prior years' analyses, unless otherwise noted. Below is a summary of significant changes from last year's analysis:

Revised measure methodology

We continued to identify high financial risk for districts that overspent their operating or capital budget limits in the most recently completed fiscal year when the total operating and capital budget limit overspending was more than 0.5 percent of the applicable years' total budget limit. However, we increased the assigned risk points for those scenarios from 1 to 3. In addition, we assigned additional risk points to districts that, on average, overspent their operating or capital budget limit by more than 0.5 percent of their total budget limit on average over the last 5 fiscal years, to ensure we identify the additional risk for districts that exceeded their operating or capital budget limits multiple times during the 5 years analyzed. As a result of these changes, the total possible risk points for the operating and capital budget limit reserve measures increased from 3 to 7, and the maximum possible risk points increased from 27.5 to 35.5.

District decision-makers and other stakeholders can use the information provided on the highest-risk districts and the data and analysis results for all districts to better understand district financial risks. Districts not included on the highest-risk districts list may still be identified as high risk for 1 or more individual measures. Therefore, all district stakeholders can use this data and any risks identified when evaluating district budget- and finance-related decisions.

The State results page summarizes results for each measure State-wide, by county, and by legislative district. The Measures page explains the measures analyzed and how we determined each measure's high-risk districts.