Santa Cruz Elementary School District (District) is at high risk of not being able to operate within its available budget constraints and cash resources. The District was among the highest-risk districts in our December 2023 report but improved some measure results the next year, including its property tax rate being unfrozen, which moved the District out of high risk in our January 2025 report. However, for this year’s analysis and as shown on the measure cards below, the District’s high-risk status is due to its change in weighted student count (WSC), operating and capital budget limit reserves, General Fund operating reserve ratio, General Fund operating margin ratio, General Fund change in fund balance, capital monies redirected to operations, unfunded small school budget adjustment, and frozen tax rate.

The District’s WSC has declined every year since fiscal year (FY) 2023, with an overall 32.22% decline, including a 4.71% decline in FY 2026, to date, impacting its budget limits and student-count-generated revenues.

The District’s operating budget limit reserve has fluctuated since its FY 2021 peak balance of just over $83,000. The District decreased its reserve between FYs 2021 and 2023, before increasing it to over $42,000 at the end of FY 2024 then reducing it to only $19,000 by the end of FY 2025, which represents a single-year decrease of 54.72% and a 4-year decrease of 76.87%. The District’s capital budget limit reserve fluctuated similarly, decreasing steadily between FYs 2021 and 2023 but increasing to over $64,000 at the end of FY 2024. The District then decreased the reserve to almost $43,000 at the end of FY 2025, which represents a single-year decrease of 33.09%. The District redirected all of its capital monies to operational spending in FYs 2025 and 2026, which could indicate the District is delaying necessary operational spending cuts or is susceptible to overspending its capital budget limit when large capital spending needs arise.

The District is also at risk of not being able to operate within its available cash resources. The District’s General Fund expenditures exceeded available revenues (i.e., negative operating margin) in FY 2025 by 6.63%. Additionally, during FY 2025, the District recognized a $212,554 loss in its General Fund that the county treasurer’s office apportioned to it related to an embezzlement involving the former Santa Cruz County Treasurer. As a result of the District’s negative operating margin and the loss it recognized, the District incurred a deficit General Fund balance of over $98,000 at the end of FY 2025. Further, the District levied a small school adjustment of $250,000 for the first time in FY 2026. However, that resulted in the District’s primary property tax rate being frozen again starting in FY 2027. The District’s operating budget limit reserve was already unfunded by over $185,000 at the end of FY 2025, and its frozen tax rate may limit the District’s ability to fully fund its small school adjustment in the current and future years.

While the District has not yet exceeded its statutorily prescribed budget limits, it has exceeded its available cash resources. The District must identify and implement appropriate risk-mitigation measures to prevent future overspending and eliminate its General Fund deficit balance.