By Jon Chown
WATSONVILLE — The Pajaro Valley Unified School District Board of Trustees approved a $364.4 million budget for the 2026-27 school year Wednesday, adopting a financial plan that maintains required reserves, but warns of significant budget challenges ahead.
District officials said the budget remains balanced for the coming year, but continued enrollment declines and rising costs mean PVUSD must find about $20 million in ongoing spending reductions or new revenue by 2028-29 to remain financially stable.
The approved budget projects total General Fund revenues of $364.4 million and expenditures of $374.4 million. While the district expects to spend about $10 million more than it takes in, officials said it has enough reserves to cover the shortfall. The General Fund is projected to end the year with a balance of about $76.7 million.
“The district can maintain its required reserve levels during the current year and the next two fiscal years,” Said PVUSD Chief Budget Officer Gerardo Castillo.
Castillo said the presentation was a “transparent look at our current financial spending, revenue projections and fiscal challenge we must strategically navigate over the next three years.”
A major challenge continues to be declining enrollment. PVUSD estimates average daily attendance will fall to 12,658 students in 2026-27. Thankfully, Castillo pointed out, the state allows the district to use a three-year average number, which is 13,805 students.
Castillo said enrollment declines are being driven by a shrinking school-age population, housing costs and other demographic changes in the community.
The budget also reflects personnel reductions previously approved by the board.
Nearly 77% of district spending will go toward employee salaries and benefits. Certificated salaries are budgeted at $103.2 million, classified salaries at $55.8 million and employee benefits at $128.2 million.
The district will receive most of its funding through California’s Local Control Funding Formula, which is expected to provide nearly $230 million. Federal funding is projected at $25.9 million, while state categorical programs will provide another $94.2 million.
One bright spot in the budget is a proposed increase in state special education funding. The governor’s May budget revision increases the statewide special education base rate from $917 per student to $1,340 per student. But even with that increase, the district will still transfer nearly $28.3 million from unrestricted funds to support special education programs. Another $11.6 million will be transferred to meet required maintenance spending, bringing total contributions to restricted programs to nearly $40 million.
“Our unrestricted General Fund must make a massive contribution of nearly $40 million to restricted programs,” Castillo said.
Looking ahead, the district’s financial outlook becomes more difficult.
The budget projects a General Fund deficit of about $20.1 million in 2027-28, reducing reserves to approximately $56.6 million. Without additional action, officials estimate the district would be unable to maintain state-required reserve levels by 2028-29.
To address that problem, the district will need to identify approximately $20 million in spending reductions or revenue increases before the 2028-29 school year.
Castillo noted that future projections do not yet include any savings that could result from additional staffing reductions, enrollment-related adjustments or possible school consolidations, all of which are being considered.
“Plainly, our expenditures are outpacing our revenues. To maintain a structural solvency and a preserve a state-required minimum reserve the district must implement ongoing expenditure reductions are generate new revenues totally $20 million by 28-29,” said Castillo.
Under state law, school districts must adopt a budget before July 1 of each year. The budget will be updated after California adopts its final state budget and as actual enrollment and revenue figures become available.
“The board is standing by while the district is burning,” said Bill Beecher of Watsonville. “We added more than 30% additional classified staff after COVID 19 and we’ve only reduced it by a small amount since then. We’ve heard great crying by PVFT (Pajaro Valley Federation of Teachers) that we need to keep all those teachers. We don’t have any money for them.”
PFVT President Brandon Diaz said the district was not in the financial strait it said it was and Castillo’s presentation was “a misrepresentation of the facts.”
“The sky is not falling. We can’t have a deficit and a surplus at the same time,” he said.
Diaz suggested the district was projecting larger expenditures on items such as book and supplies, which were budgeted at $29 million, than would actually be spent.
“We’re projecting a deficit on purpose to manipulate you all into thinking that the only way to solve our woes is through more cuts. It’s not,” he said. “It’s just manipulation.”
Trustee Misty Navarro vocally disagreed. “I think it’s prudent of us to read the writing on the wall, which is that every district in the state of California is facing the same challenges. We can pretend that we’re not facing them, but that is not realistic.”
Trustees Olivia Flores and Jessica Carrasco also said the district’s financial problems were very real, and it was largely due to state regulations and a lack of funding from the state to fulfill them.
“I feel like we’re wasting our time fighting each other here,” Carrasco said. “We should really put a lot of our energy and effort and focus at the statewide level.”
Trustee Gabriel Medina then began attacking fellow board members and PVUSD staff. He demanded a breakdown of the $29 million for books and supplies and a detailed list of any expenditures made on consultants.
“Can I get that commitment from you?” He demanded of Superintendent Heather Contreras.
“You’re one board member. I work for the majority of the board,” she replied.
“Oh, just wait until November,” Medina said.