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Litchfield board hears budget forecast showing $3.9M–$4.5M M&O gap; CFO proposes $500,000 Medicaid shift
Summary
CFO Michael Vaughn told the Litchfield Elementary School District board on Nov. 18 that recurring M&O revenues are likely to be $3.9 million to $4.5 million short of forecasted expenses; he recommended short-term use of one-time revenue and shifting about $500,000 to Medicaid to protect reserves while the district pursues cost controls.
Michael Vaughn, the district's chief financial officer, told the Litchfield Elementary School District Governing Board on Nov. 18 that updated forecasts show a structural shortfall in recurring maintenance and operations (M&O) revenues. Vaughn said the district is likely to overspend recurring M&O resources by roughly $3.9 million under an "aggressive" estimate and by $4.5 million under a more conservative scenario.
Vaughn said the district used the Governmental Finance Officers Association risk-based model and incorporated it into board policy 3-101.01. "Based on the GFOA risk based model and the district's characteristics, it is their recommendation and our governing board policy that our reserves should fall within 3.12 months of reserve," he said.
A major driver is special education costs, Vaughn said: non-salary special education costs climbed by about $2,000,000 from last year (excluding salary and benefits) and the district has spent about $90,000 on contracted substitutes for special-education instructional assistants through October. Board member Moran calculated that for roughly 24 outplaced students the district receives about $720,000 in revenue while incurring an estimated $2,000,000 in costs, creating an unfunded gap Moran described as "approximately" $1.3 million; Vaughn agreed that estimate was "approximately accurate."
To blunt the near-term impact on M&O reserves, Vaughn proposed two structural adjustments for 2026: (1) shift approximately $500,000 of special-education spending into the Medicaid fund (partial federal reimbursement) and (2) move a portion of one-time state revenues into M&O for 2026 only. "We could shift $500,000 of special education spending to Medicaid," Vaughn said. He cautioned that moving one-time monies into M&O is not a sustainable long-term strategy and would be done carefully.
Vaughn also identified operational steps the district will pursue: examine overtime approvals (he said one employee group is driving most excess overtime), pursue high-cost special-education grants with the Arizona Department of Education, evaluate options to reduce reliance on contracted substitute agencies, and examine open-enrollment work to restore a portion of lost ADM (average daily membership) revenue.
Board members sought options the district could control immediately. Moran urged prompt action on controllables and expressed support for a split approach to the one-time revenue shift to reach reserve targets in 2026 while continuing to explore longer-term structural changes. Vaughn said the scenarios show reserves would fall below policy targets in 2027 without intervention.
Next steps: the administration will provide updated multi-year forecasts, pursue ADE grant conversations, and return to the board with recommendations about which one-time funds to move to M&O and how to manage overtime and contracted substitute use.
