It’s been just over two months since Phoenix’s Isaac School District was placed under state receivership as it faced a multi-million dollar cash deficit. But questions still remain about how its finances got so out of control and what the future holds for its teachers and staff.
One thing is certain: There’s no smoking gun — no sole cause of Isaac’s financial crisis. But a paper trail of audits and notices by the Arizona Auditor General’s Office shows the district was long on the brink of disaster.
“This is not something that’s brand new,” said Isaac Governing Board Member Harry Garewal, who joined the board in 2019. “It has been ongoing pretty much for the last 12, 13 years.”
He points to a letter from the auditor general that cited findings of financial issues dating back as far as 2012.
The 2015 report showed that, despite the closure of two schools in the district, it was still plagued by high administrative and operational costs, as well as higher transportation costs than its peer districts.
In 2020, state auditors added Isaac to a list of “high-risk” districts, meaning it was at a risk of not being able to pay its debts because of general fund deficits and dwindling reserves.
By 2022, more concerns arose as the district routinely used tax anticipation notes, a means of borrowing against future tax revenue to pay for current expenses.
Put simply, Garewal said, the district’s debt was growing. “To the extent that we borrowed $18 million in one year and $7 million the next.”
The situation got worse in 2023, when the Auditor General’s Office found the district’s self-reported financial audit did not comply with the accounting and financial reporting manual for Arizona school districts (Uniform System of Financial Records).
At the time, Isaac officials responded with a corrective action plan. But the very next year, state auditors again flagged significant errors in the district’s financial reports.
In an email to KJZZ, Governing Board President Patricia Jimenez said the errors were unintentional, caused in large part by a lack of experienced personnel in the business office.
“We are unaware of any submissions or changes to the report that were made with any intention to deceive,” Jimenez wrote. “We do need better oversight of the hiring process to ensure that the individuals we hire will do their job.”
Financial mismanagement extended beyond the district’s traditional budget.
In 2024, Isaac officials failed to file the reimbursement request for federal COVID-19 relief funds in a timely manner.
As a result, the district had to forfeit that money and it reverted back to the U.S. Department of Education.
“The magnitude of work created by these funds was unexpected,” Jimenez wrote. “The district should have created a position staffed by a highly qualified person to better manage the grants.”
She added that the district was able to recoup $5.9 million of the lost federal funds, but the county treasurer refused to process any warrants until the district was completely out of the negative.
Jimenez said, clearly some things could have been handled better, but added that the district serves a community with many needs beyond the classroom.
“We have consistently worked to stretch our funds to provide our mostly low-income students and families with additional support to improve safety, health and learning opportunities so that students can experience academic success,” Jimenez said.
Both the CFO and superintendent resigned in January and have been replaced. And under the terms of the receivership, board members like Jimenez and Garewal are required by state law to undergo financial training.
A full accounting of the root causes of Isaac’s troubles is expected in May, when the state-appointed receiver submits his report.
For now, Isaac has already sold some district-owned properties to help clear its debt, but isn’t out of the woods yet. Officials are also considering closing two school campuses and its online academy.
Staff members like kindergarten teacher Andrea Valencia are concerned that the receiver’s plan will affect their livelihoods.
“We understand that there’s going to be financial decisions made,” Valencia said. “We would just love to be a part of those conversations.”
She said staff members are often hearing about those decisions after the fact.
“The communication and transparency is not there and for us to receive it after is just blatantly disrespectful,” Valencia said.
A major concern is what will happen to their sick time. The district has a tiered system for how it pays out that time, meaning the longer an employee works in the district, the larger the percentage of unused sick days that are paid out when they leave.
But teachers like David Coughenour are worried that’s no longer guaranteed.
“Why should I have to pay for the failure of managing our 12 schools,” Coughenour said at a governing board meeting. “If you’re going to navigate your debt on my back, by changing our sick leave agreement without grandfathering those of us that have invested so much, then I’ll find it very difficult to continue my career here.”
That’s not the only way staff members feel they are being punished for a failure that wasn’t their fault. The district recently outsourced its custodial, cafeteria and landscaping positions to save money on payroll and benefits.
Staff members who lost their jobs could be offered roles at the new companies, but even if they’re hired, they’ll be without benefits for 90 days.
