Isaac School District faces long road to fiscal health after budget disaster

The immediate crisis has passed for the Isaac School District, and the Arizona State Board of Education awaits plans on what will likely be a years-long process to nurse the district back to fiscal health after going broke mid-school year.

Why it matters: Isaac's financial catastrophe nearly triggered school closures when the district couldn't afford to make payroll last month.

• The K-8 district in west Phoenix serves about 4,800 students.

Catch up quick: The crisis began last month when the State Board of Education learned that the Isaac School District was massively over budget and moved quickly to place the district into receivership.

• The district owed the county treasurer's office about $28.5 million as of last week.
• Tolleson Union High School District approved a $25 million plan to purchase Isaac buildings and lease them back to the district.
• The plan will provide enough money for Isaac to operate for the remainder of the academic year and allow it to make payroll, averting a potential teacher walkout.

State of play: The receiver is auditing the district's finances, and the Attorney General's Office and state auditor general are investigating as well, state board executive director Sean Ross tells Axios.

• The receiver will provide an update at the state board's April or May meeting, which Ross said will include details about when the district's financial woes began.
• However, it will be up to other entities like the Attorney General's Office and Arizona Auditor General to determine who or what's to blame.
• The receiver will be empowered to examine the district's finances and determine how to restore its fiscal health.

Threat level: Rectifying Isaac's financial problems will require "some pretty dramatic changes," Ross said, including possible school closures, consolidations and staff reductions.

• Isaac's agreement with the Tolleson district bars it from closing more than two schools while the agreement is in place, Ross said.
• The loan is for 12 years, but the typical receivership process, which includes loan repayment, usually lasts three to five years.

The intrigue: Gov. Katie Hobbs, Senate minority leader Priya Sundareshan, D-Tucson, and House minority leader Oscar De Los Santos, D-Laveen, on Friday called for the district's school board leadership to resign.

• Rep. Matt Gress, R-Phoenix, and Sen. David Farnsworth, R-Mesa, who chair their chambers' education committees, pledged to pass reforms to ensure that similar problems don't occur elsewhere moving forward.

The other side: Isaac School District board chair Patricia Jimenez told Axios she won't resign and that she feels obligated to help solve the fiscal problems and repay the debt to the Tolleson district.

• Jimenez said the board's job is to set policies and procedures, not "get into the weeds," which she said is the responsibility of the district's superintendent and chief financial officer.
• She added she was aware the auditor general found some issues in the district but thought they'd been fixed.
• Vice chair Maria Guzman told Axios she isn't resigning and the board didn't do anything wrong. "We're trusting that our finance people know what they're doing," she said.
• Board member Rudy Santa-Cruz told Axios he and his colleagues "were deceived by our CFO presentations" and said he wants new safeguards in place.