Moreno Valley Unified staff warn of recurring $13 million structural deficit in budget study session

Moreno Valley Unified School District finance staff presented a fiscal stabilization study session on June 22, saying the district’s 2026–27 adopted budget meets state certification for the next three years but shows an ongoing structural deficit of roughly $13 million if current assumptions hold. Chief Business Official Susana Lopez and Director of Business Services Johnny Leyva walked trustees through revenue drivers, enrollment trends and spending pressures, and led the board in exercises to prioritize reductions and revenue strategies.

Lopez opened the session by noting the budget that will be presented in the June 23 meeting “meets all of the requirements for a positive or approved certification,” meaning the district projects fiscal solvency through 2028–29 for the bases shown. She warned, however, that looking beyond the required three years shows challenges: “we are seeing that there’s some challenges to the budget,” she said, citing lower statutory COLAs, the end of one‑time state and federal grants, and declining enrollment.

The presentation laid out several concrete points. Staff said the district manages about 250 resource codes and roughly 145,000 budget lines. A three‑year average enrollment decline of about 465 students per year (staff projected 475 going forward) reduces Average Daily Attendance (ADA) and LCFF revenue; Lopez gave an example that a loss of 100 ADA at an LCFF rate of roughly $16,691 per ADA would reduce revenue by about $1.66 million, while eliminating four teachers would only recover about $360,000 in salary savings — leaving a persistent shortfall. Leyva summarized revenue composition: “the lion’s share of our funding comes from the local control funding formula,” which is attendance‑driven and therefore sensitive to enrollment changes.

Staff also reviewed COLA history and scenarios. Lopez and Leyva showed recent statutory and funded COLAs have been low (1.07% in 2024–25; 2.3% in 2025–26) and that the May revision sets the 2026–27 COLA at 2.87%. The presentation modeled alternate scenarios: adding modest future COLAs reduces the deficit but does not eliminate an estimated structural gap. Officials said a proposed augmented 1.44% COLA in the May revision would be accompanied by a state mandate to fund up to 14 weeks of paid pregnancy disability leave; Lopez gave preliminary estimates that 65–75% of that augmentation could be required to cover that leave but described the numbers as preliminary.

A major budget pressure is the end of one‑time restricted grants. Staff listed multi‑year or expiring programs — for example, an arts/music block grant (about $18.4 million total), an educator effectiveness allocation (~$7.7 million) and a learning recovery emergency block grant (~$51.7 million) — and explained that while restricted funds can look large on paper, many are committed to particular multi‑year uses. Staff identified a planned 2026–27 textbook adoption as a one‑time expenditure that would use much of the district’s student support/professional development allocation in that year.

Trustees and district staff discussed contracted services and special education costs. Presenters said restricted contracted services are significant (the restricted services/operating category was reported at about $74.5 million) and routine repair and maintenance programs alone are near $20 million. Trustees and union representatives urged the district to examine contracted services that might be performed in‑house at lower cost; staff agreed this is an area for review. On proposed state actions, staff said additional special‑education funding under consideration at the state level was not yet incorporated into the adopted budget but could be added at the 45‑day revision or first interim if the final state budget materializes.

Board members spent time clarifying targets and assumptions. Superintendent Dr. Rubalcaba and Ms. Lopez told trustees the district is using a conservative planning approach that, for budget adoption, assumes zero COLA in years beyond the near term; trustees discussed whether to set reduction targets that match the modeled $13 million structural gap. The board then participated in facilitated exercises to rank guiding principles for reductions (for example, protecting core programs, maximizing cuts away from the classroom, pursuing attrition before layoffs, and targeting structural rather than one‑time fixes).

Staff also reviewed reserves and committed fund balances. The board has a 2022 resolution that sets aside committed balances for safety/security, technology refresh leases, retirement increases, vacation pay and a reserve for deficit spending. Lopez noted a classified vacation liability of just under $7 million and reiterated that the minimum state reserve (3%) — roughly $20 million for this district — covers only a small fraction of monthly payroll and is one‑time money, not a recurring revenue stream.

No formal vote took place during the study session. Trustees directed staff to compile the board’s prioritized guiding principles and the options identified in the exercises for further analysis. Staff told the board the proposed adopted budget will be considered on June 23 and, if the state budget changes materially after July 1, the district could present a 45‑day revision; the next formal reporting points will be audited actuals in September and the first interim report in December.

Trustees and staff emphasized the twin approaches the board will pursue: (1) identify structural, ongoing reductions and efficiency gains (including contract reviews and right‑sizing through attrition) to close the modeled $13 million gap, and (2) pursue revenue or state funding changes (including monitoring any state special education augmentations or COLA changes) that could reduce the shortfall. The district will return with a summary of the board priorities and recommended cost‑saving and revenue options for subsequent board review.