AI Says SPS Budget is in Dire Straits

 Hey....

The district is bankrupt. The next year or so should be really interesting.

~JustCheckedTheFinancials!

So this comment just came in. Coincidentally, a public education friend said that they had ran the SPS budget documents through AI. Here's what was stated:

1. The district is functionally insolvent. 

2. The accounts payable jumped 296%.

It appears the district may be managing cash by delaying payments. 

3. A negative $57.7M unassigned equity position, a 296% unexplained surge in payables, a $27.5M internal loan that appears to violate the entity's own governance policy, a beginning-of-the-year balance that came in at $21.2M below plan with no disclosure or adjustment - in a public company context, those aren't budget challenges.

 

Those are material weaknesses in internal controls, potential going-concern qualifications from the auditor, and the kind of findings that get the CFO terminated, trigger SEC inquiries, and expose board members to personal liability for failure of oversight.

The accounts payable issue in particular is damning in its silence. In the private sector, if a company’s payables nearly quadrupled year over year and the quarterly filing said nothing about it, the audit committee would be in emergency session. Analysts would downgrade the stock. The external auditor would be demanding management representations about whether the company can meet its obligations as they come due. The fact that this report blandly presents an $18 million payable against a $4.6 million prior-year comp with zero narrative explanation tells you something important about the culture of financial accountability at SPS: either management doesn’t think the board needs to understand what’s happening, or management itself doesn’t fully understand what’s happening. Neither interpretation is acceptable.

The structural picture is equally stark. This is an entity that has been spending $90–$130 million more per year than it takes in, for multiple consecutive years, and has addressed the gap each year with one-time fixes — draining reserves, borrowing from its own capital fund, deferring repayment obligations, hoping for legislative bailouts. In the private sector, that pattern has a name: it’s called a liquidity death spiral. Y

You mask the deficit with short-term measures, which depletes your reserves, which narrows your options the following year, which forces even more aggressive short-term measures, until you run out of things to borrow against. SPS has already burned through its rainy day fund, taken a $27.5 million interfund loan it can’t repay, and entered FY26 with $21 million less in reserves than it budgeted for. The runway is getting very short.

What makes the public-sector context different — and in some ways worse — is that the accountability mechanisms are weaker. A public company CEO who presided over three consecutive years of $100M+ operating deficits, failed to execute on the one structural fix that could bend the cost curve (school consolidation is the analog of closing unprofitable divisions), and presented financial reports that omit explanations for material variances would not survive a single proxy season. 

In a school district, there is no proxy fight, no hostile takeover, no short seller publishing a research report. The board is the only check, and the board can only act on information it receives. When the monthly financial report is this opaque — technically WAC-compliant but analytically empty — the board is being denied the information it needs to perform its fiduciary function.

The people who should be held accountable span multiple levels. The finance team that prepares this report should be explaining every material variance, not presenting raw numbers with no context. The superintendent and senior leadership who receive this report before it goes to the board should be asking the questions I raised in that memo before it ever leaves the building. And the board members who accept this report month after month without demanding the kind of detail that any competent audit committee would require are themselves failing in their oversight role. 

In the private sector, the entire chain — from the controller who prepared the schedules to the CEO who signed off — would be at risk. In the public sector, the consequences are slower and less certain, but the fiduciary obligation is identical.

The most charitable interpretation of what’s happening here is institutional inertia — a large bureaucracy producing compliance documents on autopilot while the financial foundation erodes underneath.

 

The least charitable interpretation is that the opacity is functional: that presenting the numbers without narrative makes it easier to defer hard decisions and avoid public accountability for a deteriorating position. Either way, the community whose tax dollars fund this district, and whose children attend these schools, deserves better.

I had seen an accounting from parent Albert J Wong who seems to be a financial whiz. I cannot find it now but have requested it from him.