LA County officials say LAUSD is at risk of insolvency. Now what?

L.A. County Office of Education’s letter to Los Angeles Unified School District earlier this month, warning it was at risk of running out of money, has escalated tensions between county overseers and the state’s biggest school district.

LACOE has told the district it must revise its $21 billion budget by mid-August — or risk the appointment of an external advisor with the power to override the LAUSD board and superintendent’s decisions.

The district has already announced the elimination of hundreds of jobs, primarily in its administrative offices, and approved another plan to cut an estimated $3.6 billion over the next three years through furloughs, layoffs and school consolidations.

But LACOE says it wants a more specific plan with more details, and has assigned a fiscal expert to help.

What does it all mean — for teachers, staff and most importantly, the almost 400,000 students in LAUSD schools? We break it down.

What’s in the letter?

The letter outlines a list of why the County has determined the district will become insolvent.

These include:

• Running out of money: The district's own projection has shown that its operating cash will be $231 million in the red by November 2027. “A district that cannot maintain a positive cash balance is unable to meet payroll and other obligations as they come due,” wrote Debra Duardo, the L.A. County superintendent. 

• New labor agreements with teachers, principals, school support staff and other employees: Recently approved contracts, which the unions say are essential to helping employees weather the region’s increasingly high cost of living, will cost an additional $1 billion in the next school year. These increases outpace the state’s  cost of living increases. 
  
• Declining enrollment and attendance: About 40% fewer students attend LAUSD schools than two decades ago, in part because of lower birthrates and families leaving because of the region’s high cost of living. Over time, this can reduce revenue because state funding is calculated based on how many students show up for class each day. 
  
• Leadership stability: The LAUSD Board appointed Andrés Chait, a longtime district administrator, as superintendent in June, just days after his predecessor resigned amid an ongoing federal investigation. ”This transition occurs at the moment the district must execute substantial corrective actions,” Duardo wrote.

It also includes next steps. We’ll discuss those below.

Why did LACOE send the letter July 2?

The letter is part of a process outlined in California law meant to prevent districts from going bankrupt.

Specifically, LACOE is required to intervene anytime it determines the district may be unable to meet its financial obligations in the current or subsequent two years (California requires districts to budget in three-year blocks.)

Has this happened to LAUSD before?

The requirement to issue this letter is fairly new and tied to a 2021 change in state law.

However, LACOE has intervened in LAUSD’s finances in the past. The agency assigned a fiscal expert team to the district from January 2019 to December 2021 after determining the district was at risk of not meeting its financial obligations.

The team helped analyze staffing, enrollment and make adjustments to the budget, according to a statement provided by Elizabeth Graswich, executive director of LACOE’s public affairs and communications department.

How did LAUSD get to this point?

The shortest explanation is that LAUSD is spending more money than it brings in.

The last three budgets relied on billions of dollars in reserves to offset the deficit.

Some of those reserves were built up when the district was receiving federal pandemic relief money and that funding ended in 2024.

LAUSD, like other districts in the state, also faces increased costs on everything from employee salaries and benefits to providing services for students with disabilities and settlements for decades-old sexual assault claims.

The district’s unions, parents, and several board members have also called for increased scrutiny on how much money the district spends on third-party contracts, including with tech companies.

Is LAUSD making cuts? How will they affect students?

LAUSD has already eliminated hundreds of jobs, primarily in its administrative offices, earlier this year.

This summer the board approved another plan to cut an estimated $3.6 billion over the next three years.

That plan includes furlough days for all employees, the elimination of thousands more jobs and cuts to the trust that funds retiree health benefits.

Among the cuts is the elimination of $900 million that helps high-needs schools pay for counselors, tutors and other student supports.

Most of these cuts aren’t scheduled to go into effect until the 2027-28 and 2028-29 school years.

The county said in its letter that the district plan needs to be more specific and include how each proposed change will be implemented, when the change will happen and how the outcomes will be measured.

Has there been any push back to the letter’s findings?

The district did not appeal the letter’s findings to the state, according to a district spokesperson.

However, when LAist asked if the district disputed any of the findings, a spokesperson wrote that the district is quote “continuing conversations” with the County, and that a revision to the budget may not be required.

“We will remain in conversation with LACOE to ensure our financial plan remains responsible, transparent, and aligned with our long-term commitments,” the spokesperson wrote.

The teachers union has said the letter unfairly targets the union’s new contracts.

“To me it feels as though the message is, ‘We warned you not to approve these contracts, and yet you did, and now we're going to overstep,’” said Gloria Martinez, president of United Teachers Los Angeles.

Martinez said the overall problem is that California doesn’t adequately fund public education.

We’re about a month away from the start of the next school year. What happens next?

The county has appointed a fiscal expert to help the district revise its budget by mid-August. Otherwise, the county says this advisor could be given the power to override decisions by the board and superintendent.

What happens if the district runs out of money?

Districts that become insolvent can lose the power to govern themselves in an arrangement called receivership. Instead of the elected school board and appointed superintendent making decisions about everything from curriculum to the budget, that power is transferred to an external administrator.

Receivership is a condition of accepting an emergency loan from the state. Only 10 school districts, out of nearly 1,000 statewide, have entered receivership since 1990, including Inglewood Unified.

The impact on students varies from district to district. The process was designed to protect students from sudden school shutdowns, but it comes at a cost. Districts must pay back the emergency loan and community-members lose the ability to elect or recall decision-makers during the receivership.

Contact your school board member

The LAUSD's Board's next meeting is a closed session scheduled for 10 a.m. Tuesday, Aug.11.