Pasadena Unified faces up to $35 million in cuts to resolve looming financial crisis

Over the next month, Pasadena Unified School District leaders will decide how to cut up to $35 million from next year’s budget to resolve a fiscal crisis years in the making.

PUSD ultimately plans to reduce its budget by $83 million over the next three years.

“You are being asked to make difficult but necessary choices,” said Octavio Castelo, director of business advisory services at the Los Angeles County Office of Education. “Reductions, reorganizations and revenue strategies that may be unpopular but are essential to the district's survival.”

Castelo was one of several LACOE officials who presented to PUSD’s board last week. They concluded that without immediate action, the district of 14,000 San Gabriel Valley students will not have enough money to pay its expenses and risks takeover by an outside financial advisor.

The district in August laid out a timeline to reduce its budget and has warned of looming cuts, including layoffs, for months.

PUSD planned to eliminate more than 150 staff in February 2025, one strategy in a plan to stabilize the budget approved by the board the previous December. The district ultimately rescinded layoff notices for dozens of positions amid community pushback against cuts in the wake of the Eaton Fire.

“We were making a calculated decision based on basic humanity,” board member Yarma Velázquez said at last week’s meeting. “We wanted to buy some time for all of those families and for ... the huge sorrow that this city went through.”

What challenges does PUSD face?

Put simply, the district is spending more money than it brings in.

PUSD’s $27 million budget deficit for the 2024-25 school year is almost four times larger than the previous year, if fire-related revenue and expenses are removed from the calculation.

The district now serves 13% fewer students than it did a decade ago. At least 90 students disenrolled after the Eaton Fire, and the long-term impact of the disaster remains unclear.

Declining enrollment, a trend at many California school districts, means less money from the state because it funds schools based on the average number of kids who show up to school each day.

County officials said the influx of tens-of-millions of federal COVID-19 relief dollars may have helped mask the consequences of the district’s budget deficit.

“ The various funds that have come in have essentially buoyed or created a rising tide that allowed the district to avoid having to make some of the reductions,” said LACOE Chief Financial Officer David Hart. Now that money is gone.

Another challenge is that state funding to help schools adjust to the rising cost of living isn’t keeping up with the actual cost of utilities, salaries and other expenses.

What are the checks and balances of California school finance?

California voters elect the representatives who hire and fire school district superintendents and vote on the policy and the district’s budget.

“ We want the locally elected board to be accountable,” said Michael Fine, CEO of Fiscal Crisis and Management Assistance Team (FCMAT), the state agency created to support public schools' financial and business practices. “We want them to make their decisions that they believe are in the best interest of their community.”

Fine said the goal of the state’s system of checks and balances is to keep local leaders in charge of local schools.

“ They're most familiar with their community, their kids, their teachers, their families, their business community and civic community and so on,” Fine said. “Somebody in Sacramento, 500-and-some miles away from Pasadena is not the right party to make those kinds of decisions.”

As part of that system, California school districts are required by law to submit budgets and interim financial reports to ensure that schools have enough money for the current and two upcoming fiscal years.

“ When red flags appear, such as ongoing deficit spending, declining enrollment or unsustainable expenditure patterns, the county is required to act,” Castelo, with LACOE, said. “The aim here is to stabilize the district before the situation becomes critical.”

For example, the county can assign a school finance expert to help the district trim costs and increase revenue. However, if the district fails to make enough changes to improve the financial outlook, that finance expert can be granted the power to override the board’s decision-making.

Castelo said the county’s evaluation of the district’s most recent budget equates to a “yellow light.”

“ It's up to you to make those decisions as to whether or not you're gonna progress to the green light again or whether or not you're gonna dig further, deeper into the red light,” Castelo said. “In which [case], the county office will intervene.”

The fiscal stabilization plan adopted with the most recent budget proposes cuts in everything from special education to personnel and transportation.

If the district were to reach the point where it needed a loan from the state to continue operating, the California Department of Education would take over the district, remove the superintendent and strip the board of its power. This arrangement, called receivership, can last for more than a decade.

Fine said he expects PUSD will make the necessary changes to prevent receivership.

“What they have to do will be very, very difficult for them,” Fine said. “It'll be very painful. The community won't like it, but I can assure you it's better than crossing that line and having a third party that has no connection to the community and, in some respects, no accountability to the community coming in and making all those same decisions anyway.”