Tucson Unified School District has made progress on about half of the six financial risk indicators the Arizona Auditor General identified earlier this year, but declining enrollment and reserves remain a struggle for the district, a new report shows.
The district presented an update on the six indicators as part of its annual financial report for the last fiscal year during Tuesday’s governing board meeting. The Auditor General identified the indicators as areas of high financial risk for TUSD in January.
TUSD chief financial officer Ricky Hernández said the district is moving in the right direction on some of the indicators, including its general fund balance, operating margin and the amount of capital funding redirected to operations. But other measures have continued to worsen.
Hernandez
“We've made progress on half of them at this point,” Hernández said.
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One of the biggest concerns remains student enrollment. TUSD's weighted student count is expected to decline about 5% from fiscal year 2026 to fiscal year 2027, from 42,851 students to 40,538, according to preliminary district figures. Weighted student count is based on average daily membership — how government funding is calculated and distributed based on the average number of students enrolled and physically in class over the first 100 days of school.
“The biggest one that everybody focuses on is our weighted student count,” Hernández said, calling it the most difficult indicator for the district to improve.
The district also saw further declines in its budget balance and capital reserves, a savings account for capital improvements and facility upgrades. Its one-year budget reserve indicator declined 22%, while its capital reserve indicator declined 26%.
Hernández said the district will need to continue evaluating its spending and make additional reductions or departmental changes to improve those measures.
There was significant improvement in the district's general fund balance following corrections regarding improper deposits. TUSD's general fund balance improved from a negative $28.3 million in fiscal year 2025 to about negative $251,000 in fiscal year 2026 — an improvement of more than $28 million.
Hernández attributed the improvement in part to spending reductions and a $16 million accounting correction. The district found that some state aid had been deposited into its capital fund when it should have gone to its maintenance and operations fund.
Hernández said the error was the district's fault and resulted from failing to update a calculation used to distribute state aid between the funds. The district has since corrected the calculation, he said.
The district's operating margin, the financial health metric that measures the structural balance between annual revenues and annual expenditures, also improved, falling from 9.3% to 4.5%, which Hernández attributed to reductions in expenditures.
TUSD also reduced the amount of capital funding it redirects to operations. The district moved about 20% of its capital budget to operations over the past five years, but that figure is projected to fall to 14% this school year. Hernández said the goal is to eliminate the redirection by the start of the 2027-2028 school year.
Despite the improvements, Hernández said TUSD's financial problems will not be solved overnight.
The district's next formal update from the Auditor General is expected in the first quarter of 2027, after the state's student counts are finalized and TUSD's audited financial statements are available. The report Hernández showed is not an audit summary, he said, and could differ depending on the metrics the Auditor General uses.
“The fact that we're not as negative as it was a year ago” shows progress, Hernández said, but the district still needs to demonstrate that it is moving in the right direction.
