The Brief

Los Angeles Unified School District leaders say they are confident they can persuade county officials that the district can avoid a projected cash shortfall and remain under local control, and are preparing for budget cuts, possible furloughs and school consolidation.

A July 2 letter from the Los Angeles County Office of Education found that LAUSD met the criteria for a “Lack of Going Concern,” meaning the district’s financial plan does not show it can meet its future cash obligations. County officials project Los Angeles Unified will face a $231 million cash shortfall in 2027.

The finding, which also comes after the district failed to make sufficient cuts during the 2025-26 budget, triggered a 45-day period for LAUSD to revise its current fiscal plan for the coming school year. The county has appointed an expert to work with the district during that process. If Los Angeles Unified does not make adequate changes, a county advisor would be appointed, giving the county authority to overrule district decisions.

Like many California districts, LAUSD’s financial challenges stem from a combination of declining enrollment, the expiration of Covid relief funding and rising operative costs. Enrollment fell 3% during the 2025-26 school year in Los Angeles, reducing state funding tied to student attendance. Still, the amount LAUSD has received from the state has increased over the past three years.

The county’s letter also cites a series of union contracts reached this spring that will cost the district more than $2.5 billion over the term of the contracts. Union leaders have disputed the severity of the district’s financial crisis.

Superintendent Andrés Chait said during a press conference last week that the county office of education wants the district to prove it can implement its proposed savings, including possible furloughs, and explain its alternative cost-cutting options.

“I just think it’s really important for board members to take very seriously the process that this state has in place to ensure that every district is fiscally solvent,” said Yolie Flores, president and CEO of Families in Schools, a nonprofit focused on student success. A former LAUSD board vice president, Flores was also appointed to the district’s new revenue task force.

District officials and independent experts say LAUSD’s fiscal challenges have been building for years and are not unexpected. They’ve also warned that the district will likely need to make difficult spending cuts to restore its long-term financial stability, and that additional state funding alone is unlikely to solve its structural budget problems.

“Now we’re in a situation where this constriction is still happening, but now the artificial floor is gone,” said Stephen Aguilar, a professor of education at the University of Southern California. “So now, we’re falling through to the basement, and we’re sort of in this emergency period.”

Painful cuts are expected

The district’s most difficult decisions are expected to come over the next several months. Board member Tanya Ortiz Franklin said schools will receive their budget allocations for the 2027-28 academic year this fall, and the board will discuss workforce reductions needed to balance the budget.

She also said that the district must carefully manage workforce reductions so high-needs schools aren’t disproportionately affected by staff turnover.

The board will also need to weigh other cost-saving measures, including furlough days — a prospect Ortiz Franklin acknowledged could feel like a “slap in the face for our labor unions” — and possible changes to employee health benefit contributions.

Ortiz Franklin also questioned whether the district could successfully save $200 million by reassessing contracts with outside vendors, as some of the items being procured cannot be made in-house.

Looking beyond the immediate budget crisis, she said school consolidation is likely unavoidable as enrollment continues to decline, with those conversations expected to begin this fall.

The board will meet Aug. 11 in a likely closed session meeting to start discussing its fiscal recovery plan.

“The superintendent is clear that these are ambitious strategies, and that the board needs to not only be aware of them but also weigh in, given that we are elected to represent the voices of our communities,” Ortiz Franklin said.

“And we want to do our best to make sure we continue to do that, and don’t have a fiscal advisor appointed, so that we lose the ability to make decisions on behalf of our community who elected us.”

LAUSD’s financial situation

Education finance experts say the findings of the county office of education are serious, but not unusual. Districts across California have faced similar fiscal challenges, and many have restored their financial footing after county intervention.

“Unfortunately,” Flores said, “it takes a threat like what L.A. Unified is now experiencing for them to make the decisions that they should be making to show that they are fiscally responsible as a board and as management.”

The board received a similar letter when Flores was on LAUSD’s school board during the height of the Great Recession.

“I just got here, and that’s all we were doing is cutting, cutting, cutting,” she said. “Feeling the impact of what that would mean for our families and for children. … It was a long year.”

Michael Fine, the CEO of the Fiscal Crisis and Management Assistance Team, said the debate over whether union contracts pushed the district into its present predicament misses the larger issue. The concern, he said, is whether the board approved contracts without clearly explaining how it would pay for them.

He said that the district should have been more transparent. In July, the parent group Oleada, Inc. published findings from a public records request revealing a series of written warnings from LACOE to Los Angeles Unified dating back to April, months before the school board approved its fiscal stabilization plan.

“It’s when the board says, ‘I’m going to approve these contracts, even though I don’t know how I’m going to pay the bill,’ that’s where the problem is,” Fine said. “It’s not with the negotiations themselves. It’s not with the deal that was made.”

Despite his criticism, Fine said he does not believe LAUSD is beyond recovery.

“I’m normally the one worrying. I’m normally the one on behalf of all district staff all night figuring out or thinking through ‘Uh-oh, do we have a district in trouble?’ ” Fine said. “I’m not feeling that for L.A. right now because I truly believe this is well within their ability to address.”

California unlikely to come to the rescue

For months, LAUSD and its labor unions have lobbied lawmakers in Sacramento for additional education funding. But education experts say new state funding, while helpful, is unlikely to solve the district’s underlying fiscal problems.

Much of that advocacy — including from other districts — has focused on the $3.9 billion of Proposition 98 funds that the state has withheld, Fine said.

Even if the state releases those funds, Fine said, LAUSD’s share is unlikely to make up for the shortfalls. And because the funding may come with restrictions, the money may not come in the form LAUSD needs.

“We should be able to invest in our schools. However, that always has to come with the understanding that we can’t artificially raise the floor again,” Aguilar said.

“Because then, what you’re essentially doing is you’re kicking the can down the road, and I think this time it won’t even travel as far if you kick it.”

The Los Angeles region’s troubled homeless services agency announced this month that it will no longer manage the region’s federal homelessness dollars, amid scrutiny from the Trump administration.

Now, a federal court must help determine who will manage roughly $240 million in annual federal funding after the L.A. Homeless Services Authority gives up that long-held job in the coming months.

At a hearing Wednesday, U.S. District Judge David O. Carter said most of his attention is on who will administer the round of federal money that will be awarded in December and distributed next year.

The only potential near-term successor discussed in court was L.A. County, which created a new homelessness department and applied for the role. County officials have promised much stronger accountability and transparency.

But the city of L.A., where most of the region’s unhoused people live, is also interested in taking over some of LAHSA’s duties. The city could eventually try to break off and form its own regional body to receive federal funds, Carter said.

“But that’s for the future,” Carter said. “For now, we have to focus on providing for people experiencing homelessness — and also fraud and corruption.”

‘The watchdog wasn’t watching’

LAHSA has been used as a punching bag, Carter said, but he blamed recent cases of alleged theft of taxpayer funds on a broader “failure of government” by both HUD and LAHSA.

“The watchdog wasn’t watching, and the money got distributed without accountability,” Carter said.

In the meantime, Carter said, LAHSA isn’t going anywhere. He said any transition must unfold gradually to avoid displacing people from housing and services.

“We’re going to have to live with LAHSA for at least some period of time,” Carter said. “The question might be how much?”

How soon could the county take over? 

Carter said he agreed with LAHSA’s decision to entrust another administrator to manage the money.

Attorneys for the U.S. Department of Housing and Urban Development (HUD) told Carter the next round of annual funding would be distributed over 2027.

Carter acknowledged HUD may be uneasy sending that money to LAHSA, the very agency it is investigating for fraud. Carter said he was struggling with the issue himself.

Carter signaled that he wants to see federal funding transferred to the county by January if it is chosen as LAHSA’s successor.

‘The devil is in the details’

At the hearing, federal prosecutor Bill Essayli said the Trump administration would rather reach an agreement than litigate. He said “the devil is in the details” when it comes to any transition away from LAHSA.

“We want assurances of anti-fraud measures,” Essayli said. “That way the money is never stolen again.”

Carter said he hoped a transition plan would keep the parties from spending millions of dollars on attorneys’ fees that could otherwise go toward housing and services.

How we got here

In June, the Trump administration suspended LAHSA from applying for federal funding, alleging years of financial mismanagement. LAHSA then sued, and Carter blocked the suspension in August. Carter’s decision has so far held up on appeal.

LAHSA’s governing commission voted this month to give up its federal roles next year, including managing federal homelessness dollars and conducting the region’s annual homeless count. Local officials have been taking applications from organizations that want to take over those duties in 2027.

Meanwhile, investigations into fraud have been widening. Prosecutors have so far charged six people connected to L.A. homeless service providers. LAHSA has said none of its staff are implicated.

When asked if LAHSA’s current or past leadership has been culpable, Essayli recently said, "It is not against federal law to be incompetent, unfortunately.”

Major shifts happening

For decades, county, city and federal dollars have been managed mainly by LAHSA. But those funding streams are now being redirected in the wake of repeated findings of mismanagement.

L.A. County pulled roughly $300 million of its annual homelessness funding in July and gave it to its new in-house Department of Homeless Services and Housing.

That leaves the city as LAHSA’s last major funder. The City Council has explored leaving, but hasn't reached a decision yet. City staff has estimated that building a city homeless services department would take up to two years.

On the campaign trail, Councilmember Nithya Raman has pledged to exit LAHSA within her first year if elected mayor, while incumbent Mayor Karen Bass has said it would take "a couple of years."

What’s next

Carter did not rule Wednesday on federal funding. He scheduled a hearing for Oct. 27 and described it as “our decision-making day on so many matters.”

Before then, local officials are expected to select a replacement to take over LAHSA’s federal administrative roles.

Los Angeles city officials are asking LA28 to hand over a list of its contracts, saying the Olympics organizing committee could be in violation of its agreement with the city.

LA28’s annual financial report released last week included a broad review of the organization’s deals with contractors hired to help put on the event, but no names or detailed breakdowns of spending.

The Games Agreement between the city and LA28 requires the committee to submit the name, type, amount, term and purpose of each contract it has entered into worth more than $1 million.

No such list was provided in LA28’s report.

“It's inadequate, what we've been provided, and that's not acceptable,” City Councilmember Katy Yaroslavsky said at a committee meeting on the 2028 Olympics Wednesday afternoon.

Chief Legislative Analyst Sharon Tso said she has requested a full list from LA28 and is waiting to hear back.

Jacie Prieto Lopez, a spokesperson for LA28, said in an emailed statement to LAist that LA28 had received the request.

“We are working through those requests now and remain committed to meeting our obligations," she said.

Tso told the council committee she had seen a more detailed list of LA28’s contracts, but only when it was “flashed on the screen very quickly” at a meeting with her, Olympics organizers, the city administrative officer and the mayor’s office.

“So we don't have a list,” Tso said. “We don't have the names of the folks. We don't have the dollar amounts.”

Tso told the council that Olympics organizers were wary about making contracts public, due to concerns that public disclosure could harm negotiations over competitive event sponsor deals.

City Councilmember Hugo Soto-Martinez said that did not satisfy LA28’s obligations to the city.

“They can just be like, ‘Flash it, we're done, and we did our requirement,’” Soto-Martinez said.

The federal financial aid process opened this past week for students applying to college for next year. But for many California students, a source of state financial help remains untapped.

In 2022, the state launched the California Kids Investment and Development Savings Program, also known as CalKIDS, and began creating investment accounts for more than 6 million children in the state to use for higher education.

Babies born on or after July 1, 2022, can get up to $175 in their accounts, while low-income public school students can claim up to $1500.

In Los Angeles County, about 1.1 million public school students are eligible for the accounts, but fewer than 20% of kids have claimed them, said Cassandra DiBenedetto, executive director of California’s ScholarShare Investment Board. The claim rate is even less for babies — about 11%.

“The money itself, it has a long trajectory. So you have these newborns, and there's not a sense of urgency among some parents; they know the account's there, it’s been created. Parents are busy,” DiBenedetto said.

There is no deadline to claim the money, which is already growing in the investment accounts. (You do have to use the money by age 26). But DiBenedetto says kids are more likely to see themselves as college-bound if they have it — and will be able to watch the account grow over time.

“ You talk to second-and third graders who are like, ‘I'm gonna go to UC Santa Barbara,’ ‘I'm gonna go to Cal Berkeley,’” she said.

The state is working with the Los Angeles Unified School District and other school districts to get students signed up.

The city’s top financial adviser is recommending that the Los Angeles City Council deny a police department request to procure 300 additional vehicles for the 2028 Olympics and Paralympics.

The report, submitted to the council Monday by City Administrative Officer Matt Szabo, found that the L.A. Police Department would have enough vehicles to temporarily expand its fleet during the Games without the additional cars.

LAPD officials had previously requested around $31 million, arguing the additional officers deployed for the Games will need additional vehicles for their police work.

But Szabo disagreed in his report, finding instead that the department would soon have a large enough fleet.

“Given the current available vehicles and new vehicle procurements which have already been funded, it is not recommended to authorize the procurement of any additional police vehicles for the 2028 Games deployment,” Szabo wrote.

An LAPD spokesperson declined to comment on the city administrative officer’s report. Previously, the department has emphasized that its request seeks only to temporarily expand its fleet, with plans to retire old vehicles after the Games.

The police department has offered different estimates of how many additional vehicles it will need to patrol the Olympics. Two months after the LAPD asked for an additional 300 vehicles, the department released another report estimating an even higher need: 576 police vehicles.

Either way, Szabo’s report found that more than 1,100 police vehicles not yet in use by the department were funded in the past three budget cycles. He said those should be sufficient for the Olympics.