School district in Nogales area at high risk financially, auditor warns

Santa Cruz Elementary School District in the Nogales area received an “A” from the Arizona Department of Education for academic performance but the Arizona auditor general says its finances are failing.

The single-school, kindergarten-through-eighth-grade district in Santa Cruz County is the only Southern Arizona school district among four deemed at “highest risk” in a new report from the Arizona Auditor General’s Office.

The designation is based on 10 financial risk measures determined by the auditor, including budget reserves.

Santa Cruz’s capital reserves went from more than $70,000 in 2019 to just under $13,000 in 2023.

The district’s budget reserve for maintenance and operation also dropped between 2020 and 2023, going from more than $80,000 to just over $23,000.

Santa Cruz Elementary School District was awarded $1.3 million in federal COVID-19 relief funds. The auditor general said the district reported spending $1.2 million of that from 2020 through 2023.

It had roughly $84,000 remaining to spend as of June 30, 2023. Districts have until Sept. 30, 2024, to spend awarded COVID relief funds or lose the money.

The district allocated 48% ($445,940) of its relief funds to maintaining operations. More than half of that amount was reserved for classroom salaries and benefits.

In their response to the Auditor General’s Office, district officials said part of the financial woes came from cost-of-living increases for faculty and staff, along with increased medical premiums.

They said the district posted 100% teacher retention over the last three years.

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The district’s student count, which makes up part of the auditor’s equation, has not seen the same positive trend.

In the past four years, Santa Cruz had an 11.2% decrease in students, meaning a significant loss in per-pupil funding from the state.

There were 180 students enrolled in the district as of school year 2021-22, according to the Arizona School Report Card.

Santa Cruz Elementary is working to increase student numbers, its officials said in their response to the auditor’s report.

“We have advertised/recruited for new students at the preschools, sending out mail postcards, radio advertisement, put up bulletin boards, used our social media, and used word of mouth with no positive results,” the district said.

Santa Cruz Elementary District also received unfavorable reviews for its general fund operating margin ratio and general fund change in balance. The Auditor General’s Office also dinged the district for its frozen tax rate, which has been unchanged since 2018.

Still, the district’s general fund operating reserve ratio was up to snuff, the office determined. In 2022 Santa Cruz’s balance was about $285,000. The following year it was nearly $101,000.

In its response, Santa Cruz stated: “The district will continue to maintain a close watch on unnecessary spending and do what is necessary to keep the district in line with its budget. The district is working diligently to identify expenditures to reduce and ensure budget limits are not overspent for FY 23-24 and moving forward. District has taken steps as far as reduction in force and reduced hours.”

The other districts on the Arizona Auditor General’s list of financially high-risk districts are: Antelope Union High School District (Yuma County), Isaac Elementary School District (Maricopa County) and Tonto Basin Elementary School District (Gila County).