The Morgan Hill Unified School District is facing an annual budget deficit of more than $13 million by 2025, and may have to cut a number of staff and programs that have been funded by state and federal pandemic funds in recent years. 

The district’s board of education at a recent meeting heard an Interim Report on the district’s financial state. The presentation from MHUSD staff included multi-year projections that show a spending deficit of $13.06 million by fiscal year 2024-25, and $13.77 million by 2025-26 in the district’s unrestricted general fund. 

The district is projected to end the current fiscal year with an $8.7 million deficit, according to the staff report. 

MHUSD staff at the Dec. 12 meeting noted the deficit is largely due to the forthcoming lack of one-time revenues from the state of California and federal government, provided to the district to assist with the impact of the Covid-19 pandemic. 

These Covid funds accounted for about $16.8 million in revenue for MHUSD since 2020, and all of it has been spent, according to staff. 

“These are big numbers,” Penny Timboe, MHUSD Assistant Superintendent for Business Services, said at the Dec. 12 board meeting. “This is a level of deficit spending that is not sustainable, unfortunately. We have a heavy lift coming our way to determine how we’re going to address that deficit.”

Timboe told the board that the multi-year projections reflect the “status quo” of current expenses and revenues, and don’t account for any cuts that are likely necessary before the 2024-25 budget is approved. 

Without such cuts, the district would have to make up the deficit by spending heavily from its reserve fund, which currently holds about $31.3 million, Timboe explained. If the district were to balance the annual budget using only its reserves, it would draw that fund down to about $4.6 million over three years—maintaining a state-mandated level of 3% of the general fund while also spending about $2.7 million from another local “special reserve” fund. 

However, trustees and MHUSD staff at the Dec. 12 meeting agreed that such a pace of reserve spending is unwise and unsustainable, and vowed to avoid that option. MHUSD officials are planning to spend the coming months determining exactly how to overcome the projected deficit with cuts and potential alternate sources of revenue. 

Timboe said staff will be “line by line, going through every item in the current budget” before next year’s budget is due. She noted there are numerous district staff positions that are funded but unfilled, which the board could reevaluate the need for in future years as MHUSD’s overall student attendance has been on the decline. 

“We are looking at every single grant opportunity that is out there right now” for additional revenue, Timboe added. 

Staff expect to provide the board with another budget update at the Jan. 23 meeting, Timboe said. By then, school officials will know more about the impact of the state’s 2024-25 budget, which Gov. Gavin Newsom proposed Jan. 10. 

MHUSD Trustee Mary Patterson said at the Dec. 12 meeting that the board has known all along that state and federal Covid-19 funds would not continue flowing in, and that the district had to spend that money almost as soon as it was received. 

“There will be no status quo. That is not a scenario for the future,” Patterson said of the possibility of solely using reserve funds to close the deficit. “It’s all about cutting…a lot of cutting and hopefully a lot of revenue to stop the pace of decline in our reserves.” 

In order to maintain a reserve of 17% in line with previous board policy, the district would have to cut a total of $6 million from its $99.6 million unrestricted general fund in 2024-25, and another $7 million in 2025-26, district staff said. 

Additional factors contributing to MHUSD’s projected deficit, according to Timboe, are an expected drop in the cost of living rate in Newsom’s budget; declining average daily attendance at MHUSD schools; and investment losses in employee retirement funds. 

Impact on teachers

Britton Middle School teacher Jim Levis, president of the Morgan Hill Federation of Teachers, said at the Dec. 12 meeting that multi-year financial projections are “worse than expected.” 

In addition to the use of one-time Covid funding to pay for ongoing programs, Levis said another key factor has to do with the district increasing its full-time staff force in recent years, while student enrollment has been falling. 

“Since 2018, the number of employees has increased by 150, (or) 21%, while students decreased by 400, or 5%,” Levis told the board. “In the last three years alone, 115 new employees have been added.” 

Levis added that 400 fewer students equates to about a $4 million loss in revenue. 

A chief focus of the Dec. 12 staff presentation was a mid-year update on the current 2023-24 MHUSD budget. According to that update, the district’s revenues for the year are about $3.2 million more than budgeted; while expenditures are up by about $8 million. 

That increase in expenses is due in part to the hiring of more than 10 full-time staff since the fiscal year started; rising costs for books, supplies and transportation; and a $1.4 million price tag for new turf at Live Oak High School, according to MHUSD staff. 

Timboe told the board that school districts throughout California are “in the same boat” as MHUSD with upcoming budget deficits, also related to declining revenues from state and federal sources. 

“We’re all going to be in the same boat and we hope that our legislators, staffers and lobbyists will be hitting the Capitol really hard, and talking to the governor (to make sure) that K-12 education stays at the forefront of the state budget,” Timboe said. 

Levis suggested that the MHUSD board of education trustees should have been keeping a closer eye on expenditures as the Covid revenues began to pour in.

“It looks like the board has allowed these increases and approved this budget without the proper oversight,” Levis said. “The district can propose all the great programs that they want, but there must be some limitations on the programs and personnel in balance with the long-term monies available to support them.”

Upcoming financial reports to the MHUSD board include the Jan. 23 meeting, as well as a Second Interim Budget Report that must be delivered by March, district staff said. Another report on “estimated actuals” for current and multi-year budget projections is due by June 30. 

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Michael Moore is an award-winning journalist who has worked as a reporter and editor for the Morgan Hill Times, Hollister Free Lance and Gilroy Dispatch since 2008. During that time, he has covered crime, breaking news, local government, education, entertainment and more.


  1. I am clueless in how the city operates when it comes to finances, been a resident of MH for almost 15 years and seen lots of new development projects around town most of the orchards have disappeared and multi unit housing and where warehouses have come up ,where is all that revenue Going?
    MH has all ways been the step child to San Jose and the surrounding school districts, BETTER SCHOOLS MAKE BETTER COMMUNITIES!!!
    MH SCHOOL DISTRICT IS a cesspit corruption….

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  2. I am clueless in how the city operates when it comes to finances, been a resident of MH for almost 15 years and seen lots of new development projects around town most of the orchards have disappeared and multi unit housing and where houses have come up ,where is all that revenue? Going?
    MH has all ways been the step child to San Jose and the surrounding school districts, BETTER SCHOOLS MAKE BETTER COMMUNITIES!!!

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  3. There are fewer students but they added over 120 faculty? All while tax revenues have grown. Clearly the school administration needs to be fired.

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