TUSD Budget Tells a Sad Story

Declining Enrollment, Shrinking Budget Reserves, and a Growing Operating Deficit Raise Serious Questions About Management's Financial Planning

John C. Blackshire, Jr. - The Accountware Group | October 2026

For at least five years, Tucson Unified School District (TUSD) has faced a financial problem that should have been increasingly apparent to its senior management and Governing Board.

The number of students supporting the District's funding formula has been declining. The financial resources generated by those students have come under pressure. Yet TUSD has continued operating a large educational and administrative infrastructure that has not been reduced sufficiently to match the changing revenue environment.

The consequences are now visible in the District's financial reports.

TUSD's FY2026 Annual Financial Report shows an approximately $8.3 million Maintenance & Operations (M&O) fund deficit and a $17.1 million gap between M&O revenues and expenditures before transfers.

Meanwhile, the Arizona Auditor General classified TUSD as among Arizona's highest-risk school districts in January 2026.

I have examined five Arizona Department of Education (ADE) budget-related reports covering FY2023 through FY2027, together with the FY2026 Annual Financial Report, the Auditor General's financial-risk assessment, and public information concerning enrollment and school reconfiguration.

The evidence raises an important governance question:

Why did TUSD's operating structure and financial planning fail to adjust sufficiently to a declining student population and increasingly constrained financial resources?

This is not simply a question about the accuracy of individual budgets. It concerns management's responsibility to anticipate financial risks, develop sustainable operating plans, and bring significant problems to the Governing Board before those problems become a financial crisis.

1. The Enrollment Decline Was Not a Surprise

The Arizona Auditor General's January 2026 financial-risk analysis documented the following history of TUSD's Group A Weighted Student Count (WSC).

Fiscal Year	Weighted Student Count	Annual Change
FY2022	47,085	—
FY2023	46,299	−1.67%
FY2024	45,205	−2.36%
FY2025	44,486	−1.59%
FY2026	42,851	−3.68%
FY2027 preliminary	40,538	−5.40%

Source: Arizona Auditor General, January 2026 Financial Risk Analysis; FY2027 preliminary figure from TUSD's October 6, 2026 CFO presentation.

From FY2022 through FY2026, TUSD's WSC declined approximately 8.99%.

The preliminary FY2027 decline suggests that the problem is accelerating.

Student enrollment is a critical driver of Arizona school funding. When the weighted student population declines, the revenue and expenditure capacity supported by that population generally come under pressure, subject to the State's funding formulas, adjustments, and other funding sources.

The District therefore had repeated indications that its traditional operating model needed to change.

Declining quality of the educational offerings at TUSD, declining birth rates, aging neighborhoods, migration of families to other communities, and competition from charter and private schools have contributed to enrollment pressures.

These demographic and competitive developments were not confined to a single fiscal year.

The financial-management question is why TUSD's recurring operating costs were not brought into closer alignment with the changing student population sooner.

2. Five ADE Reports Reveal Shrinking Budget Flexibility

The five ADE reports show a substantial reduction in TUSD's M&O budget balance carryforward.

Fiscal Year	M&O Budget Balance Carryforward
FY2023	$28.10 million
FY2024	$38.18 million
FY2025	$32.44 million
FY2026	$24.27 million
FY2027	$7.98 million

Source: TUSD ADE FY2023 BUDG75 Over Expenditure Report and FY2024–FY2027 BUDG25 Expenditure Budget Reports.

Between FY2024 and FY2027, the reported M&O carryforward declined approximately 79%.

This is a substantial change in the District's budget position.

An important accounting distinction must be made: budget balance carryforward represents unused statutory expenditure authority, not cash or unrestricted fund balance. The decline does not mean that TUSD spent down an equivalent amount of cash.

Nevertheless, the reduction matters because it indicates that the District has substantially less unused expenditure authority available to incorporate into future budgets.

The Arizona Auditor General has also identified declining operating budget-limit reserves as a significant risk.

The question is whether management recognized this trend early enough and developed a sustainable response.

A financial-planning process should not simply carry forward the prior year's operating structure while waiting for annual budget calculations to determine how much spending authority remains.

It should anticipate the consequences of declining enrollment and recommend changes to staffing, facilities, programs, and administrative costs before the District's flexibility becomes severely constrained.

3. The Capital Budget Reports Show a Similar Pattern

The five ADE reports also show a significant reduction in Unrestricted Capital budget balance carryforward.

Fiscal Year	Unrestricted Capital Carryforward
FY2023	$12.58 million
FY2024	$9.02 million
FY2025	$6.08 million
FY2026	$1.93 million
FY2027	$0.60 million

The decline from FY2023 to FY2027 is approximately 95%.

Again, these figures measure statutory budget capacity, not cash balances or total capital resources.

But the pattern is consistent with a District experiencing reduced budget flexibility.

This is especially concerning because TUSD has also relied on transfers involving capital resources to support operations.

The Arizona Auditor General specifically identified capital monies redirected to operations as one of TUSD's financial-risk indicators.

Using legally available capital resources for operating purposes may help address immediate budget pressures. It does not necessarily resolve the underlying mismatch between recurring operating revenues and recurring operating expenditures.

A sustainable operating model should not depend indefinitely on transferring resources from other funds to support routine operations.

4. State-Calculated Funding Capacity Declined Sharply in FY2027

The ADE budget reports provide another important measure: the State-calculated Revenue Control Limit.

Fiscal Year	ADE-Calculated Revenue Control Limit
FY2023	$283.74 million
FY2024	$290.03 million
FY2025	$293.92 million
FY2026	$294.06 million
FY2027	$277.90 million

The State-calculated Revenue Control Limit increased through FY2026 before falling approximately $16.16 million, or 5.5%, in FY2027.

This does not mean that TUSD's total revenues declined by the same amount. The District receives funding from multiple sources, including overrides, desegregation funding, grants, and other revenues.

However, the reduction demonstrates the pressure on the District's formula-based funding capacity.

The FY2027 report also identifies a substantial difference between the District-reported Revenue Control Limit and ADE's calculation:

• District-reported RCL: Approximately $294.82 million.

• ADE-calculated RCL: Approximately $277.90 million.

• Difference: Approximately $16.93 million.

This discrepancy deserves a detailed reconciliation.

It does not establish that management intentionally overstated revenue or used an incorrect student count. Differences may result from the timing of data updates, funding adjustments, or other calculation issues.

But the Governing Board should understand why the difference arose, when management became aware of it, and how it affected the District's financial plan.

5. The FY2027 Budget Used a 2% WSC Decline Assumption

One of the most important pieces of evidence comes from TUSD's own June 16, 2026 Governing Board budget materials.

The proposed FY2027 budget explicitly incorporated a projected 2% decline in Weighted Student Count.

However, the CFO's October 6, 2026 presentation reported a preliminary FY2027 WSC decline of approximately 5.4%.

The difference is approximately 3.4 percentage points. What should the Public believe the number is?

Using FY2026 WSC as a common reference point, the preliminary FY2027 count represents roughly 1,456 fewer weighted students than a simple 2% decline would imply.

This does not establish the final revenue loss, because Arizona's school funding formula includes additional components and timing rules.

It does establish that the preliminary student-count decline was substantially greater than the budget-planning assumption.

The question is whether management adequately stress-tested the budget against a larger enrollment decline.

A District with a negative M&O fund balance should not rely exclusively on one enrollment projection.

It should present optimistic, most-likely, and adverse scenarios showing the financial consequences if enrollment declines faster than expected.

The FY2027 discrepancy illustrates why that discipline is necessary.

6. TUSD's FY2026 Financial Statements Show That Operating Costs Remained Too High

The most persuasive evidence that management's financial response has been insufficient comes from the FY2026 Annual Financial Report.

The AFR reports:

FY2026 M&O Financial Results	Amount
M&O revenues	$362.95 million
M&O expenditures	$380.06 million
Shortfall before transfers	$(17.11 million)
Transfers into M&O	$16.15 million
Transfers out of M&O	$1.66 million
Ending M&O fund balance	$(8.33 million)

The $17.11 million difference is the excess of expenditures over reported revenues before transfers. It is not necessarily a precise measure of the recurring structural deficit because individual revenues and expenditures may include nonrecurring items.

Nevertheless, it demonstrates that M&O expenditures substantially exceeded current-year revenues.

The District transferred approximately $16.15 million into M&O during FY2026.

Without that transfer, the reported operating results would have been considerably worse.

Meanwhile, the District's M&O fund balance deteriorated from approximately negative $5.70 million at the beginning of FY2026 to negative $8.33 million at year-end.

The AFR also identifies a targeted M&O reserve of approximately $3.81 million.

TUSD therefore ended FY2026 approximately $12.13 million below its stated M&O reserve target.

These results are difficult to reconcile with the idea that management had already adjusted the operating structure sufficiently to reflect declining enrollment and available revenues.

7. Operating Expenditures Increased While Student Membership Declined

The FY2026 AFR shows that TUSD's Average Daily Membership declined approximately 3.7% from FY2025 to FY2026.

During the same period, M&O expenditures increased.

FY2025 M&O expenditures: Approximately $377.03 million.

FY2026 M&O expenditures: Approximately $380.06 million.

That is an increase of approximately $3.03 million, or 0.8%.

A school district does not necessarily have to reduce expenditures at the same rate as enrollment. Special education requirements, transportation, compensation, inflation, and other factors affect costs.

However, declining enrollment over multiple years should produce a comprehensive review of recurring expenditures.

The central issue is whether management has identified which expenditures are fixed, which are variable, and which can be adjusted as enrollment declines.

TUSD's financial results suggest that the necessary adjustments have not yet been sufficient.

When student counts decline year after year, maintaining essentially the same operating cost structure becomes increasingly difficult to sustain.

8. TUSD Continued Operating a School System With Significant Excess Capacity

The District's 2026 school-reconfiguration materials describe a system of approximately 88 schools, with overall building utilization around 58% and roughly 28,000 excess student seats.

Those numbers have major financial implications.

Underutilized buildings still require maintenance, utilities, custodial services, security, transportation arrangements, administration, and capital investment.

Not every underutilized school should be closed. Educational quality, neighborhood needs, specialized programs, transportation, and student safety must be considered.

But the District's long-term enrollment decline should have prompted continuing examination of whether its physical infrastructure remained appropriate.

Public reporting indicates that TUSD is now considering consolidations, closures, and grade-level reconfigurations.

Those actions may be necessary.

The question is why the District reached a point where major restructuring must be considered while its M&O fund is already in deficit.

An effective long-term planning process should integrate enrollment forecasts, school utilization, staffing, academic performance, and financial projections.

It should not treat facilities decisions as separate from the District's financial sustainability.

9. The Arizona Auditor General's Findings Reinforce the Concern

In January 2026, the Arizona Auditor General classified TUSD as among the highest-risk districts in Arizona.

The Auditor General identified six areas of concern:

1. Declining Weighted Student Count.

2. Operating budget-limit reserves.

3. Capital budget-limit reserves.

4. General Fund operating margin.

5. General Fund change in fund balance.

6. Capital monies redirected to operations.

The Auditor General concluded that TUSD was at high risk of being unable to operate within available budget constraints and cash resources.

This was not simply a criticism from a member of the public.

It was an independent assessment by Arizona's principal state audit organization.

The Auditor General also reported that TUSD had developed a financial-risk action plan.

That is an important positive development, and it demonstrates that management has identified actions intended to address the problems.

However, the existence of an action plan does not establish that the corrective actions are sufficient or that the underlying financial risks have been resolved.

The Governing Board should require regular reporting comparing the plan's projected savings with actual results.

10. Management Has Begun Making Reductions, but the Response Came After Years of Warning Signs

A fair evaluation must acknowledge that TUSD has taken corrective actions.

The June 2026 proposed FY2027 budget materials describe approximately $6.8 million in permanent administrative reductions.

The same materials acknowledge an ongoing structural deficit and the need to address approximately $25 million of projected financial imbalance by FY2030.

Public reporting also describes additional spending reductions and a reduction in planned transfers from capital resources into operations.

These are meaningful management actions.

The concern is their timing and sufficiency.

The Auditor General's data show declining WSC every year since FY2022.

The ADE budget reports show progressively declining operating and capital budget carryforward capacity.

The FY2026 AFR shows that M&O expenditures still exceeded revenues by approximately $17.1 million before transfers.

Management therefore faces a difficult question:

Why did the District wait until its financial flexibility was substantially reduced before implementing a more comprehensive operating restructuring?

The record supports concern about the pace of the response. It does not establish that no corrective action occurred in earlier years, and the District's earlier cost-reduction records should be examined before assigning responsibility for specific decisions.

Nevertheless, the financial results demonstrate that the cumulative response has not yet restored sustainable M&O operations.

11. This Is an Entity-Level Internal-Control Problem

From an internal-control perspective, financial planning is not merely an accounting department responsibility.

Under the COSO Internal Control Framework, management is responsible for establishing objectives, identifying risks, analyzing changes, communicating relevant information, and monitoring whether controls are operating effectively.

Declining enrollment is a foreseeable financial risk. But as a member of the TUSD Audit Committee TUSD Management never discussed with the Audit Committee or reported to the audit committee their Enterprise Risk Management Assessment!!

An effective control environment should require management to:

• Prepare realistic ADM and WSC forecasts.

• Compare actual student counts with original budget assumptions.

• Quantify the financial effects of enrollment losses.

• Develop multiyear expenditure and staffing plans.

• Integrate facilities planning with enrollment projections.

• Prepare downside financial scenarios.

• Report material forecast variances to the Governing Board.

• Monitor whether corrective actions produce the projected savings.

The most important control is not simply preparing a legally balanced annual budget.

It is maintaining a credible financial plan that aligns recurring expenditures with sustainable revenues.

A district can remain within statutory expenditure limits while continuing to experience serious financial deterioration.

TUSD's FY2026 results demonstrate that distinction.

12. The Governing Board Should Demand a Five-Year Management Accountability Report

I believe the Governing Board and Audit Committee should require management to prepare a comprehensive five-year analysis covering FY2023 through FY2027.

That report should include the original budget assumptions, final actual results, management's responses to enrollment changes, and the financial effects of those decisions.

At minimum, it should answer the following questions.

First: What ADM and WSC declines were assumed when preparing each original annual budget?

Second: How did those assumptions compare with actual enrollment and weighted student counts?

Third: How much revenue was lost or gained because actual student counts differed from management's forecasts?

Fourth: What recurring expenditure reductions were implemented in each fiscal year, and what savings were actually achieved?

Fifth: How did staffing levels, administrative expenditures, and school-building utilization change as enrollment declined?

Sixth: Why did the M&O budget balance carryforward decline from approximately $38.18 million in FY2024 to $7.98 million in FY2027?

Seventh: What explains the $16.93 million difference between TUSD's FY2027 Revenue Control Limit calculation and ADE's calculation?

Eighth: What is management's plan for eliminating the M&O deficit without relying on unsustainable transfers or nonrecurring resources?

The answers should be documented, quantified, and available to the public.

Conclusion: TUSD's Financial Crisis Did Not Develop Overnight

TUSD's financial difficulties are not the result of a single unfavorable budget year.

The warning signs accumulated over several years.

Weighted Student Count declined.

Budget carryforward capacity contracted.

The District continued operating substantial excess school capacity.

Operating expenditures remained high relative to current-year M&O revenues.

Capital resources were redirected to operations.

And the Arizona Auditor General eventually classified TUSD among the State's highest-risk school districts.

Management has now begun implementing expenditure reductions and considering school reconfiguration. Those actions should be recognized.

But they do not eliminate the need to examine whether earlier financial planning and management decisions were sufficiently responsive to the risks.

The five ADE reports and FY2026 financial statements establish a compelling basis for that examination.

My concern is that TUSD's Management is in denial and because of this has been too slow to translate declining student enrollment and changing revenue expectations into sustainable operating decisions.

The public record does not yet establish precisely what enrollment declines management forecast in each original budget, nor does it quantify every corrective action taken during the five-year period. Those details are necessary for a definitive assessment of individual management decisions.

But the financial outcome is clear: TUSD reached FY2026 with a negative M&O fund balance, a substantial gap between revenues and expenditures, and reduced budget flexibility.

The District now faces difficult choices that could affect schools, teachers, families, and students.

The Governing Board should not be satisfied merely with a new budget and promises of future savings.

It should require management to explain how the District reached this position, what warning signs were recognized, what corrective actions were taken, and why those actions did not prevent the present financial difficulties.

TUSD's Board Governance failure may not be the inability to predict declining enrollment. It may be the Board Governance is also in DENIAL and therefore had an inability to respond quickly enough to a decline that was already clearly evident.

For an organization responsible for educating tens of thousands of students and managing hundreds of millions of public dollars, that is a question of management accountability that deserves a thorough, independent answer.

Sources

1. Arizona Department of Education, TUSD FY2023 BUDG75 Over Expenditure Report.

2. Arizona Department of Education, TUSD FY2024, FY2025, FY2026, and FY2027 BUDG25 Expenditure Budget Reports.

3. TUSD, FY2026 Annual Financial Report, approved October 6, 2026.

4. Arizona Auditor General, TUSD Financial Risk Analysis — January 2026.

5. TUSD Governing Board, June 16, 2026 Proposed FY2027 Budget Materials.

6. Arizona Public Media, TUSD Reviews Attendance Policy as Enrollment Steadily Declines, September 11, 2026.

7. Arizona Public Media, Tucson School Closures: Takeaways from Engagement Meetings and What's Ahead for TUSD, September 26, 2026.

8. COSO, Internal Control—Integrated Framework (2013).