The Los Angeles Unified School District faces \u201csevere\u201d indications that it will be insolvent by November 2027 \u2014 falling $231 million into the red and unable to make payroll \u2014 county analysts have concluded, setting up a 45-day deadline for the school board to amend its budget or face losing significant future authority over spending decisions.<\/p>\n
The county has appointed a \u201cfiscal expert\u201d to work with the district to eliminate the projected deficit. If that effort falls short, county authorities will appoint an official empowered to overturn school board spending decisions, according to the letter sent to L.A. Unified.<\/p>\n
The July 2 notice, from county education office Supt. Debra Duardo to L.A. school board President Scott Schmerelson, said the district\u2019s recent budget adoption \u201cerodes confidence\u201d in its decision-making. The county attributes the crisis largely to union contracts it repeatedly warned L.A. Unified officials the district could not afford. The projected annual cost of the union settlements and employee raises is well over $1 billion a year.<\/p>\n
\u201cThey have some serious financial concerns that they need to address,\u201d Duardo said in an interview Thursday. \u201cIt\u2019s very serious.\u201d<\/p>\n
The letter formally issues LAUSD a \u201cLack of Going Concern\u201d determination, meaning the district may not be able to meet its obligations in the 2027-28 and 2028-29 school years. It is a step the Los Angeles County Office of Education,<\/a> or LACOE, takes only when a district faces serious deficit spending, Duardo said.<\/p>\n L.A. schools Supt. Andr\u00e9s E. Chait suggested there was no need for alarm. <\/p>\n \u201cThis determination does not change our commitment to students, families or employees,\u201d Chait said in a statement. \u201cOur schools will continue to operate as normal while we work closely with LACOE to strengthen our long-term financial outlook. We welcome the opportunity to collaborate and remain focused on making thoughtful, responsible decisions that protect classroom instruction and student success.\u201d<\/p>\n School board member Tanya Ortiz Franklin called the district\u2019s predicament \u201cpreventable.\u201d <\/p>\n Franklin was one of two board members in June who voted against a \u201cfiscal stabilization plan\u201d<\/a> that the district was required to submit to the county due to its shaky finances. The plan limited cuts to a Black Student Achievement program and drew down funds from a retiree health benefit trust fund to show the district could stay solvent. The county letter cites the health fund withdrawal as a concerning move.<\/p>\n \u201cThis was preventable \u2014 not just in June, but months and years ago,\u201d Ortiz Franklin said. \u201cBut now that we\u2019re where we expected we would be, it\u2019s important we do everything possible together to maintain solvency and retain decision-making power within LAUSD.\u201d<\/p>\n Employee unions have repeatedly downplayed financial warnings, saying the projections don\u2019t fully account for increases in state funding that are almost certain to become available. Education advocates have asserted that California schools are legally entitled to billions more under state law.<\/p>\n State tax revenues have been at record levels but are heavily dependent on the current stock performance of artificial intelligence companies.<\/p>\n Gloria Martinez, president of United Teachers Los Angeles, said the problem was not unions but the need for more financial support from Sacramento.<\/p>\n \u201cLabor contracts are not the issue,\u201d Martinez said. \u201cFor far too long, it has been expected that school districts balance their budgets on the backs of students and teachers, when in reality school funding is determined at the state level.\u201d<\/p>\n Duardo said the goal is to keep the district from sinking so far that it would need a state bailout. <\/p>\n \u201cWhat we\u2019re talking about is just making sure that they don\u2019t get into a situation where they have to take out a loan from the state, and we\u2019re going to do everything possible to make sure that that doesn\u2019t happen.\u201d<\/p>\n Were L.A. Unified to need a state bailout, its school board would lose authority over the school system, with authority transferring to an administrator appointed by Duardo.<\/p>\n A financial expert now, possible oversight later<\/p>\n At this juncture, the county is not taking over the district. Instead, it is moving in two stages, as mandated by state law to ensure school districts remain fiscally sound.<\/p>\n On July 1, the county assigned a fiscal expert \u2014 Octavio Castelo, an official from the county education office \u2014 to work alongside district staff. That role is \u201cadvisory and diagnostic,\u201d the letter said. Castelo cannot unilaterally make district budget decisions.<\/p>\n The second stage involves major restrictions. If the district does not address the budget issue to satisfy legal requirements, the county may assign a \u201cfiscal adviser\u201d with \u201cstay and rescind authority over board actions,\u201d such as the power to block the board\u2019s spending. The adviser would not run the district but could reject board spending decisions.<\/p>\n The step beyond that would be a full takeover. That happened in 2012 in Inglewood<\/a>, where the school system received an emergency state loan. Duardo said she is optimistic LAUSD can avoid that fate.<\/p>\n Why the district is in trouble<\/p>\n The county\u2019s chief complaint is the high cost of district employee-union contracts. On June 16, the school board approved new contracts covering multiple employee unions. County officials warned the board at the time that deals were too expensive. The board approved them anyway.<\/p>\n The contracts add about $1.13 billion this school year, rising to $1.44 billion in 2027-28, the letter said. The deals, reached to avert a strike in April<\/a>, promised double-digit raises to teachers, aides, custodians and other workers.<\/p>\n The letter also faults the district\u2019s planning. About $231 million in previously planned cuts were never carried out. On the same night it approved the contracts, the board overrode its own chief financial officer to pull $175 million from a fund set aside for retiree health benefits. The county said it all \u201cfurther erodes confidence\u201d in the district\u2019s budgeting abilities.<\/p>\n