By admin 
In a surprise move, the Sacramento County Office of Education rescinded the Sacramento City Unified School District board’s approval of its new labor agreement with the teachers’ association.
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The development came less than a day after the board approved the agreement, which district officials projected would provide about $97 million in financial relief over three years, in part by drawing from the retiree-health trust fund to cover retiree health costs instead of using general fund dollars.
“The long-term financial recovery of the district will take time and require extraordinary fiscal discipline, not just short-term loans and redirected funds, all of which must be repaid,” said David Gordon, Sacramento County Superintendent of Schools in a statement released Friday afternoon.
“The agreement would only temporarily delay SCUSD’s impending insolvency by a few weeks while also making it more difficult for the district to make a sustainable long-term fiscal recovery.”
The decision by Luz Cázares, the fiscal adviser appointed by the county office, was backed by Gordon and Fiscal Crisis & Management Assistance Team chief Michael Fine. SCOE’s statement said it was based on concerns that the agreement merely shifted money between accounts, would create greater long-term costs by drawing from the trust fund and would limit the district’s ability to pursue future labor savings.
The district did not immediately respond to The Bee’s request for comment.
The county education office said Friday that the district faces an overall structural deficit of about $221.8 million, a figure higher than the $170.5 million deficit previously reported by the district.
The county office also expressed skepticism about the broader fiscal recovery plan separately approved by the district Thursday, which identifies about $158.6 million in savings and other financial solutions, including relief tied to the teachers’ agreement. Gordon said many of the plan’s proposals overlap and lack enough detail to determine whether they raise other concerns.
“Significant work remains for the district to resolve its fiscal crisis,” Gordon continued.
“In summary, SCUSD cannot solve its fiscal crisis by merely delaying it.”
The Sacramento City Teachers Association released a response shortly afterward, with President Nikki Davis-Milevsky slamming the decision and urging the district to appeal the rescission to State Superintendent of Public Instruction Tony Thurmond.
“By overturning this agreement, Cázares undermines our democratically-elected board’s authority to solve local issues, compromises our district’s ability to avoid insolvency, and, in effect prolongs the need for her own paid oversight,” said Davis- Milevsky.
Letters reveal widening fiscal dispute
Tensions between the district and the county office over the fiscal crisis have become increasingly visible in recent weeks, with SCOE and Sacramento County officials requiring the district to submit planned payments two days in advance and warning that noncompliance could cost it its current ability to issue payments without prior county approval.
The county office’s reasons for rescinding the approval Friday echoed concerns Gordon raised in a July 24 letter to the district’s superintendent ahead of the board vote, in which he argued that the agreement would not provide enough cash quickly enough and could leave the district facing future costs to replenish the retiree-health fund it plans to draw from.
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He also argued that extending the contract through 2030 could prevent the district from seeking additional teacher pay or benefit reductions, even if more savings are needed, while requiring it to match certain raises or benefit improvements negotiated with other unions.
“None of the proposals the district has shared with us to date, even when combined, are likely to generate enough cash soon enough to avoid insolvency,” Gordon wrote in the letter.
Cancy McArn, the district’s superintendent, sent a rebuttal letter Thursday to Gordon rejecting the county office’s conclusion that the new teachers’ union agreement would not provide enough financial relief to help the district avoid insolvency.
“This letter is intended to address the significant inaccuracies in your letter in an attempt to aid your review and consideration of the District’s disclosure and fiscal analysis of the MOU,” McArn wrote in the letter reviewed by The Sacramento Bee.
“In summary, the District strongly disagrees with the conclusions and assumptions in your letter.”
The exchange came as the county office projects the district will need to close a $150 million gap by June 2027 to avoid a state takeover.
In Thursday’s letter, McArn argued that the union agreement was never intended to solve the district’s cash crisis on its own and should instead be evaluated as part of its broader fiscal recovery plan, adding that the agreement does not require the district to replenish the retiree-health fund after drawing from it.
She also rejected Gordon’s concerns about future labor costs, saying the district could not simply impose additional concessions without risking a strike and lost state funding, and that raises negotiated with other unions would not be extended to teachers without first considering their full cost.
“We believe that this MOU with SCTA, in addition to the many other cuts that we have made as a District, takes us further down the path toward fiscal solvency,” McArn wrote.
“We also believe that this MOU, when combined with the additional fiscal recovery steps…will allow the District to retain local control as we work through our budget challenges.”
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This story was originally published July 31, 2026 at 6:15 PM.