The Santa Monica-Malibu Unified School District expects to meet all its financial obligations for the current fiscal year and the subsequent two fiscal years despite a widening structural deficit, according to a budget report reviewed by the Board of Education last week.
The district's Second Interim Budget, presented at a special board meeting March 11, projects approximately $153.3 million in total general fund revenue for the 2025-2026 fiscal year. The report earned a positive certification from district officials, signaling the district can cover its expenses for the current fiscal year and the subsequent two fiscal years.
But the financial picture is not without concern. The district's structural deficit has grown from $6.3 million at the first interim report to $9.5 million, a $3 million increase driven largely by the decision to retain about 10 positions and rising healthcare costs projected to increase from 7% to 9% in coming years.
"We have an ongoing structural deficit that will need to be addressed by the Board of Education for future budgets," said Gerardo Cruz, assistant superintendent of business services and chief financial officer. "The district will need to make adjustments as financial conditions evolve and to ensure we continue supporting students and schools responsibly."
The budget snapshot, taken as of Jan. 31, comes as the district enters what officials described as a new financial phase. Pandemic-era relief funds and other one-time resources that helped stabilize school budgets in recent years have now expired, forcing the district to align pre-pandemic revenue levels with ongoing expenses.
Despite the challenges, the district maintains a healthy financial cushion. Reserves stand at approximately 21%, or roughly $52 million — well above the state-required minimum of 3% and in line with the Financial Oversight Committee's recommendation to maintain reserves equal to two months of general fund expenditures.
The reserve buffer is intended to protect against economic uncertainties, including potential wildfire recovery costs and cash flow gaps.
The district's status as a Basic Aid district continues to provide financial advantages. Local property taxes push funding approximately $19 million above what the district would receive under the state's Local Control Funding Formula. Revenue is supported by stable funding sources including property taxes, parcel tax revenue and community partnerships.
Enrollment figures also offered encouraging news. After years of significant declines — historically 300 to 400 students per year — enrollment dropped by only 80 students this year. Officials attributed the stabilization to the expansion of Transitional Kindergarten programs and new residents moving into the district.
In a Basic Aid district, higher enrollment actually dilutes per-pupil funding, but the leveling off suggests the district may be approaching a more predictable student population.
The budget report also detailed several mid-year adjustments. Health and welfare benefit costs were revised downward after open enrollment revealed that several vacant or newly filled positions did not require the more expensive family plans initially budgeted. The general fund's contribution to special education decreased by more than $700,000, primarily due to lower legal costs and fewer settlements.
However, operating costs increased by roughly $670,000 to account for updated maintenance agreements and new charges for recently acquired district properties on Colorado Avenue.
Salaries and benefits continue to dominate spending, accounting for 78% of the total budget and 85% of the unrestricted general operating fund.
Federal Title funding, which makes up about 2% of the budget, remains intact.
District staff said they are actively reviewing expenditure trends and identifying cost-saving measures to ensure revenues and expenses align over the long term. Additional budget updates are scheduled for May and June, when financial activity and planning adjustments will be incorporated.
The positive certification submitted to the Los Angeles County Office of Education represents the district's official declaration that it possesses the financial health and reserves necessary to meet all obligations, even amid deficit spending.