A Close Read of OUSD's Latest Budget Developments

The board meeting on Tuesday, May 13 featured a long presentation by the Superintendent, District Senior Leadership and HYA (the financial consultant that the board hired) meant to bring an updated shape to the fiscal solvency outlook for the district. The following morning, Governor Newsom released the "May Revise", his update to the state budget that ultimately will determine how much money OUSD (and other public school districts) will get from the state for the 2026-2027 school year.

Together, the information dispensed to the public paints a much more complete picture about where things stand for the district through the rest of this year, the ongoing costs of the new OEA contract, and the actual one-time and ongoing revenue increases that will be available to OUSD.

It will come as no surprise that it's a mixed bag, but I do think the picture is clearer and more positive than it was before we got all this information.

First: The Superintendent's Report

I watched the entire presentation from the front row, and sussed out some pretty important core claims, as framed by the district:

The structural deficit, once estimated at over $100 million, has been reduced by more than $65 million since December.

OUSD will not be insolvent in 2025-26, 2026-27, or 2027-28. This is dependent on a lot of things being successfully implemented.

The 2026-27 budget will be based upon conservative assumptions, specifically not relying on the release of the whole Prop 98 settle-up of $5.6 billion, and treating one-time grants as actual one-time sources of funds.

The difficult structural reforms needed to maintain solvency and actually fix what's wrong, including "school model redesign" and special education program restructuring, are slated for 2027-28.

After many months of opaque communication and vague details about the district's plan, I found a few elements of the presentation to be genuinely encouraging:

The budget posture for 2026-27 seems legitimately sound and responsible. The district's latest projections do not assume anything about money being released by the state for next year's budget, and explicitly calls out not using one-time funds to cover ongoing costs. It lists block grants as being transitional, not something to depend on. If the district actually does what it says it will, it represents a real, welcome shift in discipline.

The presentation was unusually candid about execution and spoke directly to district challenges. One specific slide acknowledges that OUSD hasn't had "consistent execution, quarterly reporting and timely plan adjustments, and the institutional discipline to follow through even when decisions are painful and unpopular." Anyone who has been paying attention will say "no duh", but it's nice to hear leadership say it out loud.

There was true transparency regarding the OEA contract and its real costs. District staff confirmed for the first time publicly that the OEA settlement costs about $108 million over three years — $13 million this year, $33 million next year, and $62 million in 2027-28. The presentation acknowledged that none of this will pencil out without the "established fiscal solvency measures" that the plan outlines.

Repeated calls for better communication and more transparency were acknowledged. New Deputy Superintendent Tara Gard flatly owned the fact that OUSD has a lot of work to do in terms of gaining trust through proper communication, regular updates and more transparency. Obviously, it's a lot easier to say you're going to get better at it than to actually get better at it, but I'm going to try to be hopeful that it wasn't just lip service.

So it's all good now, right? Problem solved?

Of course not, silly! The presentation also had plenty to be concerned about.

The $65 million in deficit reduction still hasn't been broken down in detail for the public. Since I actually get to talk to folks a lot about the workings of the budget process at OUSD, I can say that I'm relatively confident that the overall reduction number they are touting is solid. The concern I have is, maybe obviously, that it's still not clear how much of that is being achieved by moving things around in a questionable way, specifically as it concerns the supplemental and concentration budget. Compliance is still a thing, folks!

The structural reforms slated for 2027-28 are (obviously) deliberately vague. "School model redesign to reduce per-site operational costs" could mean a lot of things! Does it point to a meaningful effort to reduce OUSD's number of schools, further cuts to services and programs, a shift towards a more coherent curriculum, or cosmetic operational changes that don't fix the problem? I mean, I wouldn't expect specifics here, but it's important to call this part of the presentation out, as maybe the entire success or failure of this plan depends on that one line item.

The "cash floor" numbers are hella confusing. There was a lot about cash flow in the presentation in general, and the slides were really confusing around what the district will have on hand month by month, but here's my reading: Total cash (Fund 01) will stay above $100 million through 2027-28, but unrestricted cash, which is the only kind that can be used for general payroll, will drop to only $5–10 million in March. This is mere days of financial cushion against roughly $40 million in monthly unrestricted payroll. Three board members called out this confusion. While saying OUSD won't be insolvent is technically accurate in terms of total cash on hand, the operational difficulty was buried, and is very concerning.

Overall, I think the plan that is coming into shape is more responsible than the district's track record (and public opinion) would indicate. It is vague in a few very important places and I still see a lot of risk, but as I've written many times before: If the plan is to maintain local control of the district, this is basically what we're looking at doing. Whether it works or not is a question we won't be able to answer for years, and it depends on how much of what we're hearing is actually executed, versus hopeful rhetoric.

Next: The May Revise

The state's revenue picture has improved dramatically since January. California is now projected to take in $16.5 billion more than expected over its three-year budget window, driven mostly by AI-related capital gains taxes. Thanks, future robot overlords!

If you've read other things I've written in this space, you'll know that there is currently $5.6 billion in what's called a "settle-up" that is guaranteed to public schools in California through Proposition 98. The May Revise addresses what will happen to this money (details below), but the TLDR is that schools will only see about $1.7 billion released for 2026-27, leaving $3.9 billion still owed until at least the next budget cycle in the name of caution against an AI bubble collapse and recession.

For the same reason, rather than passing most of the $16.5 billion increase through to schools, the Governor has opted to park a large bulk of it in state reserves, including boosting the Prop 98 Rainy Day Fund for schools from $4 billion to over $10 billion.

Overall, the May Revise adds roughly $8 billion to education compared to what was proposed in January, but only about $2.8 billion of that is ongoing, with the rest being earmarked for one-time block grants, the partial settle-up release, and deferral repayments.

A big, welcome surprise: the "Super COLA" of 4.31%. The cost of living adjustment through the local control funding formula for schools is almost double what was proposed in January. A portion of this increase is earmarked to cover a new state mandate providing up to 14 weeks of paid pregnancy disability leave for school employees, but the majority will be a significant increase in discretionary new base funding, which is particularly beneficial to OUSD.

Special education funding will see the largest single-year increase in state history. This is proposed as an additional $2.4 billion in ongoing revenue. For a district like OUSD that has historically had to backfill special education costs from its (perennially deficit-saddled) general fund, this is likely the most consequential ongoing revenue increase in the budget. OUSD's proportional share works out to roughly $11–14 million in new ongoing money, almost all of which translates directly into reduced unrestricted general fund pressure.

Only $1.7 billion of the $5.6 billion Prop 98 settle-up will be released. Newsom proposes to maintain a $3.9 billion obligation as a hedge against a significant downturn due to, most likely, the AI bubble bursting. Thanks, future robot overlords.

What is important here is that if revenue holds through spring 2027, the Legislature is required by law to schedule repayment of the remaining $3.9 billion, though it could be done over years and not all at once. For OUSD, that means roughly $22 million (in one-time funds) is still owed but not necessarily arriving next year.

What these revised numbers mean for our district specifically is a (roughly estimated!) $21–26 million in new ongoing money above where we were in January, plus ~$39 million in new one-time money for 2026-27, from the discretionary block grant and the partial Prop 98 settle-up release.

You are allowed to feel happy about this! The remaining $3.9 billion settle-up will be part of a large fight (and lawsuit) ahead of the June 15th final vote, but even without additional funds being released, it gives OUSD some desperately-needed breathing room, and some time, albeit very little time, to make real changes to the way it operates.

Then: Putting These Things Together

Here's my back-of-the-napkin fuzzy math to try and make sense of where we are in very broad, uneducated terms. Note that these statements are only as accurate as my interpretation of what has been presented by the district and state. Everything is a projection until it isn't:

OUSD's current structural deficit for the 26-27 school year stands at around $35 million ($100 million reduced by $65 million in identified savings)

The May Revise adds $21–26 million in ongoing money, which effectively reduces that gap further.

OEA's contract adds approximately $33 million in new ongoing labor costs in 2026-2027. SEIU's agreement adds another $13.6 million.

The layoffs approved by the board and noticed in March saved approximately $11 million for 2026-2027

If my second-grade addition and subtraction skills hold, that puts the remaining structural deficit (for 2026-2027) at $45–50 million. Assuming I'm even remotely accurate in my assessment of these wacky numbers, I have thoughts and feelings about this.

While I believe the district can pass a balanced budget for 2026-2027, I'm anxious about what that document will look like, one-time block grants notwithstanding. Nothing new to say here other than, beyond the tragic cuts that we're seeing at school sites already, and the concerns that I have about the viability of S+C budget maneuvers, the line items on June 30th will tell us a lot about what our district will look like this fall. I'm not sure anyone's going to be happy about it.

None, or at least very few, of the 400+ positions cut during the reduction in force in March are going to be coming back. I'm not necessarily surprised by this, but it bears saying out loud in case you were hoping (as we were at Peralta) to get funding for a CSM or TSA restored.

The Special Education funding increase will have an outsized positive effect on OUSD's budget deficit. It's definitely impossible for me to put any real numbers to this right now, but consider this: We routinely backfill more than 60% of SpEd costs from our general fund, which translates to about $89 million of roughly $140 million in total SpEd spending. The federal and state contributions cover only a fraction of actual obligations. Being able to reduce systemic shortfalls in this funding by a significant amount reduces stress on the unrestricted general fund, which is where we need the most help.

It looks like the true reckoning will come in 2027-28. Consider first that the OEA contract is back-loaded; it increases in 27-28 by $29 million in ongoing costs. I don't believe that paying teachers market-rate salaries is the reason for our structural deficit, but it's a true driver of the reality check that we find ourselves in; to make things sustainable the district will need to find a way to restructure itself in a way that saves roughly $25–30 million. It will also need to practice methods of fiscal restraint and oversight that it has never done before, and use the significant bump in SpEd funding to produce ongoing savings there of another $10–15 million. This all needs to happen against the backdrop of a pivotal school board election and considerable uncertainty about the economy.

But ok, get ready for some cautious optimism. OUSD will see ~$39 million in one-time funds next year and another $22 million (also one-time) from remaining Prop 98 settle-up to come in the future if revenue holds. This is not money that can solve structural issues by just acting as a buffer to kick the can further down the road (much like Covid funds were used for), but it can be used to stabilize the district while hard decisions are made that will actually address the root causes of our perennial financial issues.

Finally: The Plug You Saw Coming

One of the more encouraging things about listening to the Superintendent's report on Wednesday was that, even though it had problems and omissions, I saw a multi-year plan that is starting to make sense. It may not be as well-articulated as it could be, but here's how I've been reading it, as simply as I can put it:

Right now, stabilize finances and keep local control by whatever means necessary. Looks like this one's happening.

For 2026-27, balance the budget by making deep cuts to staff and services, getting "creative" with the S+C budget, and leverage new one-time and ongoing money from the state. We'll see what this looks like on June 30th.

Before 2027-28, propose a comprehensive restructuring of the district in a way that will truly correct its structural deficit.

In 2027-28, we have to actually do it. For real this time.

That pretty much aligns with what the budget numbers say has to happen, and by when. The "comprehensive restructuring" part is what is referred to as "Phase 4" in the district's stated plan.

I'd like to plug here that Phase 4 is the main concern of the OUSD MSEG (pronounced "message"). It's an engagement group I am part of that includes key stakeholders from across OUSD's ecosystem, including parent leaders, staff and teachers, board members, labor partners and the district's senior leadership. We're building a voice that will actually shape decisions during the district's restructuring, not react to them after the fact.

If this sounds like a weird sales pitch, that's because it kind of is: I believe wide, robust community engagement will be the cornerstone of any successful restructuring plan, and that it will take years of sustained effort, oversight and accountability to make sure that it happens. Quite simply, we want to provide a space for shared facts and a common vision formed out of collaboration, not opposition.

Our last major event of the school year is in person on June 1st at Fremont High, so please sign up for our online engagement platform at ousd-mseg.org and register. If you're already signed up, please let other engaged community members know about it and encourage them to join us as well. Thanks in advance, I hope to see you there!