TUSD’s FY2026 Trial Balance Raises a New Question: Has the Financial Crisis Become a Cash Crisis?
For the past several months, I have been examining the developing financial condition of the Tucson Unified School District (TUSD). Much of that analysis has focused on declining enrollment, falling Average Daily Membership (ADM), Weighted Student Count (WSC), recurring Maintenance & Operation (M&O) deficits, declining fund balances, and the eventual effect these conditions could have on cash.
The District's FY2025–26 Trial Balance by Fund, covering July 1, 2025 through June 30, 2026, now provides another important piece of that financial picture.
The numbers in Fund 001 — Maintenance & Operation deserve careful attention.
This is a trial balance, not TUSD's final FY2026 Annual Financial Report (AFR).
Consequently, these figures should be considered preliminary until reconciled to the AFR and audited financial statements.
Nevertheless, the trial balance raises significant questions that the Governing Board, Audit Committee, management and taxpayers should understand.
The First Number to Watch: A $47.5 Million Operating Gap
TUSD's trial balance reports FY2026 M&O revenue of approximately $325.8 million and expenditures of approximately $373.2 million.
That produces a preliminary gap of approximately: $373.2 million expenditures− $325.8 million revenues= $47.5 million
In other words, based strictly on the trial balance, M&O expenditures exceeded M&O revenues by approximately $47.5 million before transfers.
That is not a small year-end variance. It is a number requiring explanation and reconciliation.
TUSD Transferred $16.1 Million Into M&O
The trial balance also reports approximately $16.15 million of operating transfers into Fund 001 and approximately $1.66 million of transfers out. FY26 TB All Funds
After those transfers, the preliminary calculation becomes:
FY2026 M&O | Amount |
Revenue | $325.76 million |
Expenditures | $(373.23) million |
Revenue less expenditures | $(47.47) million |
Transfers in | $16.15 million |
Transfers out | $(1.66) million |
Approximate deterioration after transfers | $(32.98) million |
This leads to an important governance question: Where did the $16.15 million transferred into M&O come from?
Management should provide a schedule identifying each source fund, the amount transferred, the statutory authority for the transfer and the Governing Board authorization.
Transfers can be entirely legitimate. But transfers do not change the underlying fact that the trial balance shows M&O expenditures substantially exceeding M&O revenues.
The Number That Concerns Me Most: Negative County Treasurer Cash
The trial balance contains another number that may be even more important than the operating deficit.
Fund 001 reports Cash on Deposit with County Treasurer of approximately: $(26.54 million) at June 30, 2026
The same account began FY2026 at approximately $(5.48 million).
That represents deterioration of approximately $21.1 million during the fiscal year.
This does not, by itself, establish that TUSD as an organization had negative cash at June 30. TUSD maintains numerous funds, and the relationship among district funds, county-treasurer balances, interfund activity and Arizona school-finance accounting must be reconciled before reaching that conclusion.
But the Fund 001 balance is significant.
For months, one of the questions I have been asking is:
When does TUSD's fund-balance problem become a cash problem?
The FY2026 trial balance makes that question considerably more important.
The Three-Year M&O Trend Is More Concerning
The FY2026 numbers become even more meaningful when placed beside FY2024 and FY2025.
Fiscal Year | M&O Revenue | M&O Expenditures | Revenue Less Expenditures |
FY2024 | $353.32M | $370.45M | $(17.13)M |
FY2025 | $353.13M | $377.03M | $(23.90)M |
FY2026 Trial Balance | $325.76M | $373.23M | $(47.47)M |
The developing pattern is difficult to ignore.
M&O expenditures have exceeded M&O revenues for three consecutive years based on these figures, and the preliminary FY2026 gap is substantially larger.
But another comparison may be even more important.
From FY2025 to the FY2026 trial balance, M&O revenue declined from approximately $353.1 million to $325.8 million—a reduction of approximately $27.4 million, or 7.8%.
M&O expenditures declined from approximately $377.0 million to $373.2 million—only about $3.8 million, or 1.0%.
That is the structural financial problem TUSD must address:
Revenue appears to be declining substantially faster than expenditures.
Enrollment, ADM and WSC Matter
This brings the discussion back to TUSD's enrollment problem.
For a school district, declining enrollment is not merely an educational statistic. It ultimately affects ADM, WSC and state funding.
The financial chain looks something like this:
Enrollment → ADM → WSC → State Funding → Revenue → M&O Fund Balance → Cash
The difficulty is that expenditures do not automatically decline when enrollment declines.
Schools still have buildings. Employees still receive salaries and benefits. Buses still operate. Administrative departments continue functioning. Utilities, insurance, technology, maintenance and other fixed or semi-fixed costs remain.
If revenue falls substantially faster than those costs can be reduced, reserves eventually absorb the difference.
When reserves are no longer sufficient, the problem reaches cash.
State Funding Also Deserves Examination
The FY2026 trial balance reports approximately $126.8 million of State Equalization Assistance and $23.7 million of Additional State Aid within Fund 001.
Those amounts should be reconciled directly to Arizona Department of Education records.
That analysis would help answer an important question:
Why did reported M&O revenue fall approximately $27.4 million from FY2025 to FY2026?
We need to separate the effects of enrollment and WSC changes from property-tax revenue, state formula funding, one-time items, accounting classifications and other revenue changes.
Don't Confuse a Trial Balance With the AFR
There is an important limitation to this analysis.
The document being examined is TUSD's year-end trial balance, not the final FY2026 AFR.
Year-end adjusting entries, statutory reporting classifications, transfers and other reconciliation items can cause the final AFR numbers to differ from the trial balance.
Therefore, I would not yet state that TUSD's final FY2026 M&O deficit was exactly $47.5 million or that its final M&O fund balance was a particular amount.
Those conclusions should wait for the AFR.
What the trial balance does tell us is that there are several large numbers requiring reconciliation and explanation.
Questions the Audit Committee Should Be Asking
The FY2026 AFR should allow the Audit Committee to reconcile the trial balance and determine what actually happened during the year. Among the questions I believe deserve answers are:
Why did FY2026 M&O revenue decline to approximately $325.8 million?
Why did expenditures remain approximately $373.2 million despite the revenue decline?
What funds supplied the $16.15 million transferred into M&O?
What was the business purpose and authorization for each transfer?
How does the $(26.54) million County Treasurer cash balance reconcile to TUSD's actual available M&O cash?
Were interfund balances or other financing mechanisms being used to support M&O liquidity?
What is the reconciled FY2026 ending M&O fund balance?
What is management's current 18-month cash-flow forecast?
At what point, under current assumptions, would TUSD require additional liquidity measures if operating deficits continue?
These are financial-management and governance questions—not predictions.
The FY2026 AFR Has Become Much More Important
TUSD's FY2026 AFR should provide the next major checkpoint.
When it becomes available, five numbers should immediately be compared with this trial balance:
M&O Revenue — M&O Expenditures — Transfers — Beginning Fund Balance — Ending Fund Balance
The reconciliation between the trial balance and AFR should then be documented.
After that, the analysis should move from fund balance to cash.
That requires an 18-month cash-flow forecast incorporating payroll, accounts payable, state aid, property-tax receipts, debt requirements, interfund activity and other significant cash inflows and outflows.
The Financial Story Is Becoming Clearer
The numbers increasingly describe a progression:
Declining Enrollment
↓
Lower ADM/WSC
↓
Pressure on Revenue
↓
Expenditures Not Declining at the Same Rate
↓
Recurring M&O Operating Shortfalls
↓
Transfers and Other Resources Used to Support Operations
↓
Declining Fund Balance
↓
Pressure on Cash
The FY2026 trial balance does not, by itself, prove that TUSD faces insolvency or that the
District as a whole has exhausted its cash resources.
It does something equally important: It identifies the questions that now need answers.
The most important number in this 4,000-page trial balance may not be the $373.2 million of M&O expenditures.
It may be the $(26.54) million reported in Fund 001 as Cash on Deposit with County Treasurer at June 30, 2026.
That number needs to be reconciled and explained.
Because the critical question facing TUSD is rapidly changing from:
How large is the operating deficit?
to:
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