SACRAMENTO (CBS13) – The California State Auditor’s office has released a report sharply critical of the Sacramento City Unified School District.

The school district faces insolvency as a budget shortfall of nearly $20 million is projected for the 2021-22 fiscal year.

With the district and teachers union continuing to be at odds over how to overcome the shortfall, the state auditor’s office conducted a review. The auditor’s findings were released on Tuesday.

Increased spending for teacher salaries and benefits is the primary factor for the school district’s dire financial situation, according to the audit. A new labor contract approved in 2017 increased teacher salaries by 15 percent – an additional cost of $31 million per year. Further, the auditor found that the cost of employee benefits has increased 52 percent over a five-year period.

As the auditor found, Sac City Unified has the highest total compensation for teachers among other nearby school districts – like Elk Grove, San Juan, Stockton and Twin Rivers.

Sac City Unified said, in a statement after the report was released, they agreed with the auditor’s finding. However, the district also argues that the new contract was necessary to avoid a teacher strike.

“It is important to understand that our Board made difficult financial decisions in 2017 to avoid a teacher’s strike that would have had a devastating impact on our students,” said Jessie Ryan, president of the Sacramento City Unified Board of Education. “We decided to not make additional cuts because they were a one-time fix with serious, long-term impacts to student learning.”

Further, the auditor found special education to be a major factor in the funding gap. The auditor says special education costs have doubled for 2017-18, accounting for 21 percent of Sac City Unified’s total spending that fiscal year.

The auditor urges the district to act quickly to implement a plan, the report states. The district says the solution lies in reducing healthcare and other labor costs.

Sac City Unified faces a state takeover if a solution can’t be found. The district is projected to exhaust its funds by October 2021.

Read the full auditor’s report here: http://auditor.ca.gov/reports/2019-108/summary.html.