Scottsdale Unified School District Superintendent Dr. Scott Menzel told the Governing Board at a special study session on Oct. 28 that the district faces a structural funding gap for 2026–27 driven by long-term enrollment decline, falling cash-account balances and a county assessment reversal.

"The goal of tonight's meeting is not to make budgetary decisions for next year," Dr. Menzel said, framing the session as a data review. He and finance staff outlined a projected shortfall in the $7.8 million–$9.0 million range for the 2026–27 maintenance and operations (M&O) budget and warned that spending all available district additional assistance (DAA) or capital allocations this year would simply push the problem into future years.

Why it matters: Arizona funds districts primarily by Average Daily Membership (ADM). Menzel said the district has lost 6,032 students since 2010 — the equivalent, he said, of about 10 elementary schools or four 1,500‑student high schools — and that loss has a direct, ongoing effect on state revenue to support staff and school operations.

Key figures presented by administration:
- Enrollment decline since 2010: 6,032 students.
- Positions currently funded from non‑M&O cash accounts that may need to move to M&O: 57 FTE.
- Portion of projected shortfall tied directly to ADM decline: roughly $3.3 million (current‑year impact described by administration).
- Additional impact from moving cash‑account positions and expenses into M&O and funding self‑insurance: $3.9–$4.5 million plus another roughly $0.5–$1.0 million depending on self‑insurance decisions.
- Administration’s combined projected budget gap for 2026–27: $7.8 million–$9.0 million (before any salary adjustments).

Shannon, presenting the financial details, summarized near‑term pressure: "We are looking at right now about an $861,000 reduction that we'll need to make in the current year budget," and forecast that continuing enrollment declines would reduce next year’s revenue further. Shannon said the district had budgeted a carryforward assumption near 8% but that cash balances have fallen toward the 4% regulatory minimum.

Cash accounts and revenue streams: Administration described several non‑M&O cash accounts that previously helped smooth the district’s finances and have since declined:
- Medicaid/MIP reimbursements (special‑education billings) — now projected at under $1 million.
- Civic Center rentals — revenue and balances down after fewer rentals post‑COVID and the loss of a significant renter (about $250,000/year), coupled with higher on‑site costs such as security and staffing.
- Indirect cost reimbursements from grants, including a lower allowable contribution from nutrition services (reduced from 25% to 18%), and fewer federal grants overall.

Dr. Menzel warned that the district could no longer absorb all 57 of those positions on cash accounts in 2026–27 and would need to either move savings, reduce positions, or repurpose facilities. He said the district has already taken cost‑saving steps since 2023 — including reducing district office positions by 25.25 FTE (an estimated $1.4 million savings), moving some special‑education work in‑house (estimated $3.3 million savings), and eliminating an online principal role (about $150,000) — but those measures do not close the projected gap.

QuasiMeyer liability and cash flow: Finance staff told the board a county‑level assessment reversal commonly referred to as the QuasiMeyer matter resulted in roughly a $24 million reduction in previously recorded revenues for Scottsdale Unified; that change produced a negative M&O cash balance of about $5 million on the district’s AFR (Annual Financial Report). To manage cash flow the district issued short‑term tax anticipation notes (TANS) last year for $5 million and later sold them back to limit interest expenses.

Repurposing process and schedule: Administration explained that Arizona law requires a public hearing before a board may consider repurposing or closing a school (Title 15 statutory process). Because of that timeline, the district has scheduled a required public hearing (Nov. 13) and set a decision point for Dec. 9 to allow planning time should the board opt to repurpose schools for 2026–27. Dr. Menzel told the board two schools in the district’s Phase 1 list were under 300 students this year and that administration would not recommend keeping them open in their current configuration without a materially different fiscal picture.

Board concerns and alternatives requested: Board members pressed for line‑by‑line detail of the cash‑account declines, asked for school‑level projections that account for potential student movement after any announcement, and requested a two‑year strategic plan the board could consider at its Nov. 18 meeting. Several members urged the district to pursue additional revenue generation (centralized enrollment/marketing, expanded facility leasing, partnerships and programmatic platforms) and requested written breakdowns of the expected savings if a school is mothballed or repurposed.

Facilities and revenue options: Facilities director Dennis described rental operations and noted several constraints — long‑standing intergovernmental agreements with the City of Scottsdale that yield access but limit commercial rental, the need for certificates of insurance for renters, security staffing costs, and the time required to return turf or fields to useable condition. He and finance staff said some district sites host community partners and that longer‑term leases or ground leases could produce capital fund revenue, but proceeds from certain long‑term leases or sales are restricted to capital uses and cannot be spent directly on salaries.

Next steps: Administration committed to providing detailed, itemized estimates for potential school repurposing savings (utilities, staffing, operations) and updated facility revenue analyses before the Nov. 18 meeting. The board scheduled the Nov. 13 hearing as the statutory public comment step and will consider a recommendation and vote on Dec. 9. Dr. Menzel asked the board to identify priorities (for example, whether social‑work positions or specialty programs are off‑limits) so administration can model the least‑painful combinations of savings, revenue and program changes ahead of contract and compensation decisions in early 2026.

Votes at a glance: During the meeting the board unanimously approved procedural motions including moving into and reconvening from executive session and later voted 5–0 to provide direction to the district attorney as discussed in the executive session. (See the actions array for full motion text and recorded outcomes.)

What the district will not decide tonight: Administration emphasized repeatedly that this was a study session to provide context and options; no final budget decisions were made and no final action to repurpose any school was taken at the Oct. 28 meeting.

Evidence: The facts in this report are drawn from the Oct. 28 Governing Board special meeting presentation and discussion, recorded by district staff and summarized in accompanying finance slides and appendices.