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The district will be leaving one well-known old Tucson building, at 1010 E. 10th St., for the old Tucson Electric Power building north of downtown, which the district bought in 2025.

Moving to the 80,000-square-foot building will be a nice change, but there's a worrisome financial backstory. The narrow part: The $16.7 million purchase and renovation was made with borrowed money — $3.5 million from the district's workers’ compensation account, and $13.2 million from its unemployment insurance account.

The broader view: In January, Arizona’s auditor general labeled TUSD one of nine school districts at high financial risk. Now, the district is seeking ways to slash $10 million in spending for the next fiscal year, in anticipation of cutting around $27 million by 2030 due to steady decreases in enrollment.

“It doesn’t mean we’re insolvent. Doesn’t mean we’re bankrupt,� Superintendent Gabriel Trujillo said at the TUSD board’s Feb. 24 meeting. “It means that if we don’t start making some decisions, we could be the next Antelope Union or Isaac, the only two school districts in the state that are in receivership.�

At that meeting, the TUSD board agreed to five out of six cuts proposed by Chief Financial Officer Ricky Hernandez. They rejected a proposal to centralize the attendance and registration technicians who are at each school, which would have amounted to a $1 million savings. So, their cuts so far add up to about $2.7 million of the needed $10 million.

Next, the district is going to look at across-the-board cuts of at least 7% and will look into consolidating schools — meaning closing some number — before the 2027-2028 academic year. Every proposed cut brings out employees and parents who oppose them, so the decisions are only going to get harder.

Expected profit evaporated

Fortunately for the board, they jumped into the purchase of the new headquarters building before these financial problems became clear, at least to the public.

The district first looked at buying the old TEP building about 20 years ago, in the early 2000s. More recently, they resumed their interest in 2024, as the mounting maintenance and renovation costs at 1010 E. 10th St. became unjustifiable.

When they first decided to go ahead with the purchase of 220 W. Sixth St., TUSD was expecting to make a profit. A student-housing developer was planning to buy the TUSD-owned block across the street from 1010. The preliminary deal was that TUSD would get $18.3 million for its properties, while spending $11.65 million for the old TEP building, then owned by the University of Arizona, plus a few million more on renovation of the new building.

In other words, they would net a few million dollars in profit.

That prospect diminished after two potential buyers backed out of proposed purchases in 2024-2025. Then something unanticipated happened: The University of Arizona’s enrollment dropped sharply at the beginning of the 2025-2026 school year.

Suddenly, the sure bet of student housing developments near the U of A became a risky bet that could not necessarily get financed or built.

“The fact that those dynamics have changed since we started talking about it a few years ago is making it harder,� Hernandez acknowledged in an interview.

So the district borrowed from itself instead of waiting for its properties to sell, a bit of a gamble. The accounts they borrowed from — workers' compensation and unemployment insurance accounts — are not the pools of money from which the district pays claims. They're the accounts for paying the district's premiums to their insurance pools. 

That means that they ought to be protected from problems or unexpected claims — as long as the district's property sales go through. 

'No apologies' for investing in people 

In the aftermath of the pandemic, TUSD was in good financial shape. In fact, they were sitting on $40 million in savings thanks to federal money.

The board chose to spend it on, among other things, raises and improved benefits and hiring some new employees: social workers, math interventionists, reading interventionists and others.

“We make no apologies for investing millions of dollars in the most competitive salaries,� Trujjillo said at the meeting. “It’s honorable we did that with that surplus.�

In an interview, TUSD Board Chair Ravi Shah agreed that spending that surplus was the right thing to do, because a school district shouldn’t sit on savings. And he noted that a budget override passed by voters in 2024 has softened the blow of the current financial hard times.

“The override gives us a little more of a runway, so that we don’t have to do all $25 million of cuts going into the next school year,� he said.

Still, that only slightly softens the hard times ahead. Hernandez has raised his forecast to the district losing 2% student enrollment per year, a big blow to a district dependent on per-pupil funding.

Saving some of that surplus would have reduced the pain now.

Far from the original good idea 

At the same time, the district has found out that selling its old headquarters and the parking lot across the street will not cover the purchase and renovation costs of the new building. Those two sales are expected to bring in around $14.5 million, lower than the $16.7 million borrowed from the insurance and workers' comp accounts. 

The Morrow Education Center at 1010 is under contract with Peach Properties for around $3.3 million. Ron Schwabe, president of Peach, said he plans to turn the old district buildings into a mixed-use development, with retail on the ground floor, studio apartments and possibly other uses.

Hernandez says he expects the parking-lot property across the street to sell for around $11.2 million, though the developers are still discussing their plans. 

That leaves around $2 million for the district to cover. They expect to pay for that from the proceeds of selling two other properties, the former Carson Middle School and Lyons Elementary School.

In other words, we are far from the original good idea — that the district could sell its headquarters properties and make a profit even after buying and renovating the new building.

That, in a way, explains the broader situation the district is in. Tempting financial ideas — like spending down a surplus to pay for raises and new employees or buying a property on the expectation of handsome profits from their own sales — seem good until the future plays out unexpectedly, with enrollment dropping at the U of A and TUSD.