SAN MARCOS — The San Marcos Unified School District is closing its books for the 2025-26 school year with an $8.6 million unrestricted General Fund budget deficit, as it navigates declining enrollment and rising operating costs.
This is the second year in a row that the district has sustained a deficit, following several years of surpluses, partially made possible by one-time COVID-19 assistance funds that have since dried up.
While not ideal, the $8.6 million unrestricted deficit is lower than the $9.6 million San Marcos Unified projected earlier this year, and it could still drop further by the time the district presents its unaudited actuals in August. Still, it will almost certainly be higher than the $3 million unrestricted deficit in 2024-25, staff told the district board of trustees at a budget adoption discussion on June 18.
For the 2026-27 budget, San Marcos Unified is anticipating around $333 million in total General Fund expenditures (including restricted and unrestricted funds) compared to $315 million in revenues. The district anticipates ending the 2026-27 year with a $6.7 million unrestricted deficit.
The district is maintaining a General Fund reserve of 10% for now, but anticipates it dropping to 8.7% at the end of next year.
“We’re definitely in deficit spending mode and spending down our reserves,” Assistant Superintendent of Business Services Erin Garcia said.
Declining enrollment is a major contributor to financial pains for San Marcos Unified, which is one of many districts that receive state funding based on ADA, or average daily attendance.
San Marcos saw a decrease of 365 students this past year, for a total enrollment of 18,201 students. The district anticipates losing another 300 students in the 2026-27 school year, followed by 150 students in each of the following two years.
Garcia said the district is working on attendance recovery, as even small increases in attendance can mean a difference of millions of dollars in state funding.
In response to a drop in students, district leaders said they have been “right-sizing” schools by reducing certificated staff to achieve $1.5 million in ongoing cost savings. Next year’s budget includes 25 fewer classroom teacher positions than this year, all of which were eliminated due to attrition through retirements and resignations, according to the district.
“The biggest issue right now in the district is declining enrollment, and as teachers, we don’t have control over that,” said Dale Pluciennik, president of the San Marcos Educators Association, which represents teachers in the district. “We’re constantly working very diligently to provide a world-class education for students in our district.”
In February, the district issued preliminary notices of layoffs and hours reductions to several certificated and classified staff members. Following strong community pushback, the school board reversed a proposal to drastically cut the hours and benefits of 10 library media technicians.
The district has since rescinded all notices that would have resulted in a loss of employment, SMUSD spokesperson Christine Lee said. Hours were reduced for two classified staff members and one teacher, and three classified employees who would have been cut have been moved to other positions or sites.
There are no salary increases included in this year’s budget, pending the outcome of negotiations with classified and certificated staff, Garcia said. The San Marcos Educators Association is beginning the school year with an expired contract.
San Marcos Unified leaders said overall costs to maintain the status quo of operations in the district are rising by 4% to 6% each year. The state budget includes a statutory cost-of-living adjustment (COLA) at 2.87%, plus an augmented COLA of 1.44% for a total increase of 4.1%, which is higher than in past years.
One area of significant growth is the cost of employee health care and retirement benefits, which increased by 10% last year, as well as increases in utility and district insurance. District costs will also increase to cover a new state mandate for 14 weeks of paid pregnancy disability leave for employees. The district currently provides up to six weeks.
“I’m noting that the employee benefit portion of salary and benefits is getting bigger and bigger all the time. We had a very significant increase this year for health benefits,” Garcia said.
Some elements of the district’s budget will be updated with new estimates in August to reflect changes in the governor’s final budget, which was adopted on June 29.
The state budget includes one-time discretionary block grants for districts struggling with declining enrollment. San Marcos Unified is expected to receive around $16 million, which will need to be spread out and thoughtfully spent over the coming years, Garcia said.
The governor’s signed budget also includes historic increases in special education funding, totaling $1,340 per ADA for school districts. This is greater than the $999-per-ADA amount that San Marcos Unified budgeted for, and it will continue into future years.
San Marcos Unified is also reimbursed by the state for 60% of its student transportation costs. The district also receives around $5.4 million in revenue from contracting out its buses and drivers to outside agencies, such as San Diego County YMCA summer camps.
“That helps very much maintain a very stable transportation program,” Garcia said.
San Marcos Unified has 12 other restricted funds outside the General Fund, including nutrition and construction and plans to spend over $500 million in total across all funds next year.
Money from these other funds cannot be used for personnel costs or other General Fund expenses.
“Just to be really clear, so everybody understands that we cannot take anything in the construction fund or whatever and use it to help our deficit or to pay for salaries or anything else,” said Trustee Stacy Carlson.
Capital projects
The district has a large capital budget for next year, with plans to spend around $132 million on construction.
Several projects funded by the 2024 school bond Measure JJ are underway this year, including the Knob Hill Elementary rebuild, the Woodland Park Middle School restoration, and the Paloma Elementary renovation.
The $94 million Knob Hill project involves reconstructing all of the buildings on campus, replacing portable classrooms with permanent buildings, and reconfiguring the site. The project is in its second phase, with around half the new campus scheduled to be completed in December.
The entire project is scheduled for completion in the spring of 2028.
Woodland Park’s restoration will cost $105.2 million and is currently in its first of four phases. The middle school has been identified as the district’s highest-need site, and the project will reconfigure the campus layout to be more streamlined, renovate buildings, and replace portable structures with permanent buildings.
Sixth-grade students will be relocated to San Marcos Middle School for the upcoming school year while construction is ongoing. The majority of new classroom buildings will be completed in early 2027, and the entire project should finish in the summer of 2028.
The $77 million Paloma Elementary project will renovate existing buildings, replace portable classrooms with permanent buildings, and reconfigure the campus layout. The district is currently creating an interim housing plan for students during the project.
Lastly, the district is working on a $13.5 million athletic improvement project at San Marcos High School, including a new track and turf, updates to the multi-purpose fields, and the addition of three beach volleyball courts.
A similar athletics project at Mission Hills High School was completed this year using $13.5 million in Measure JJ funds.
Garcia said the district is spending a lot of money on construction now rather than waiting until costs are higher. This time next year, the Measure JJ bond fund balance will have decreased from $87.5 million to around $20 million.
“We wanted to spend the funds so we can do more now. If we waited, we wouldn’t have been able to do as much,” Garcia said.
