Overspent and under-enrolled: State fiscal crisis experts issue severe warning to LAUSD

Pressure has intensified on Los Angeles Unified to follow through with emergency budget cuts after a California fiscal crisis oversight team concluded that the school district is at “high risk” for insolvency — and must move quickly to avoid losing control over budget decisions.

The state’s school Fiscal Crisis and Management Assistance Team has concluded that the poor financial outlook has been brought on by increased hiring as enrollment declined, employee raises that exceeded the rate of increased state funding, sharply higher costs for educating students with disabilities, and maintaining classroom space for twice as many students as needed.

“The district has not fully addressed deficiencies” identified by the Los Angeles County Office of Education in its fiscal oversight letters, the team stated in a report presented to the school board Tuesday. “The district has not sufficiently adjusted staffing and facilities use in response to declining enrollment.”

The financial troubles are especially concerning because the Los Angeles Unified School District has failed to meet past budget reduction targets, the report concluded, and the stakes have become higher, with solutions more painful to carry out. The projected cutbacks over the next three years include more than 6,000 jobs in a school system that has been adding employees. The current workforce is about 80,000 full- and part-time employees.

District officials are not challenging the data.

“Los Angeles Unified has been transparent about significant financial challenges,” a district statement said. “The Board has already adopted a fiscal stabilization plan to address these challenges, including making difficult decisions to maintain the District’s financial health.”

After the presentation, Supt. Andrés E. Chait spoke of the importance of “fidelity” to the district’s “fiscal stabilization plan” and “certainly being nimble as conditions change, but for the most part adhering to what was put forth back in June.”

The teachers union, United Teachers Los Angeles, in a memo to school board members, presented a counter interpretation and said the state team exaggerated the crisis and was implicitly faulting justified wage increases.

“This fake independent analysis disparages the school board for rightfully addressing the needs of working people who face some of the worst housing and childcare costs in the country,” union Vice President Julie Van Winkle said.

The state’s role is to help California education agencies prevent and resolve serious financial and operating challenges.

A separate presentation noted that the county education office has “conditionally” approved the L.A. Unified spending plan for 2026-27 of $20.6 billion. Conditional approval is better than a rejection, but the message from the state and the county is fairly consistent: Making the necessary cuts will be hard and detrimental; not making them would be disastrous.

School board members asked questions about why the district had a high-risk designation, but ultimately did not challenge it. In their questions, they pursued points raised by the UTLA analysis.

They also expressed concern about the effect of the cuts.

“The board is dealing with tough decisions,” board member Nick Melvoin said. “We get squeezed either way.”

“The parents tell us that with the cuts that are coming … that’s going to hurt a lot and I want to say that aloud,” board member Karla Griego said. “How do we balance not just the numbers but the needs of our students?”

Michael Fine, the outgoing head of the state team, acknowledged the bind and credited the district for making academic progress and for caring about underpaid workers.

“I applaud your focus on a fair wage for your employees,” he added. The point “would be know what it costs — and align” by making needed budget adjustments.

Fine added that state budget standards, since they went into effect, have greatly reduced the number of school districts that became insolvent.

The union’s counter-case

The union has noted that the state agency’s process includes entirely leaving out additional state revenue that has come through annually in recent years even though it is not absolutely guaranteed.

Van Winkle called the evaluation system “rigged.”

The analysis “negatively scores you” if the district agrees to wage increases that are a higher percentage than the statewide cost-of-living increase that is included in the state budget: “So let’s just think about how anti-worker that is in a city like L.A., where our teachers can’t afford to live anywhere near where they teach.”

In an interview, Van Winkle challenged the math that resulted in an imperative to slash $3.5 billion over the next three years. She said that the format of the financial analysis almost always predicts financial disaster three years out and yet that disaster seems to never arrive.

The union does not accept the necessity of unpaid furlough days or increased healthcare costs for employees — at least not at this time. Such cuts must be negotiated with unions. If that doesn’t happen, the district will have to substitute equivalent cuts elsewhere.

In its memo to the school board, the union said the state’s own data analysis had placed the district at “moderate risk” rather than high risk. But the risk designation automatically changed to “high” when county officials made what the union characterizes as subjective conclusions about the extent of the crisis.

The union supports the school board’s decision to postpone cuts as long as possible to the back end of the three-year planning window — on the premise that many cuts could be avoided.

However, if the cuts must be made ultimately at the original targeted levels, they will be deeper because of the delays.

Data show roots of crisis

The state report lays out data in detail.

The state agency calculated that the district has classroom capacity for about 718,475 students, compared with a 2025-26 enrollment of 353,065, “representing an overall utilization rate of approximately 49.1%.” Of the district’s 738 campuses, 481 operate at or below 60% capacity.

“Facilities with substantial unused capacity continue to generate operating and maintenance costs,” the report states.

One countervailing problem is that some research suggests that it is difficult to improve a district’s finances by closing schools, in part because shuttering campuses can accelerate enrollment loss — and most state and federal funding is based on enrollment.

Another exacerbating factor is that from 2019-20 through 2024-25, enrollment and hiring moved in opposite direction.

Enrollment declined from 440,365 to 369,830 students, a decrease of about16%. Over the same period, the total of “full-time-equivalent” jobs increased from 60,344 to 64,148, or about 6.3%

The hiring spree coincided with increased pandemic relief funding — meaning that school systems were supposed to hire more staff to maintain and recover student learning. But the funding stream to keep most of these employees has ended.

Another area of rising costs is students with disabilities. The special services for these students are only partially funded by state and federal resources. The district paid $957.1 million in 2023-24 to make up the difference, but spent 56% more — $1.49 billion — in 2025-26, an increase of more than $500 million over two years.

This year’s L.A. Unified budget presumes those costs will go down.

Officials said they hope to balance the need to make cuts with preserving quality programs.

“As we move forward, our focus will remain on protecting high-quality instruction and student services, using our resources wisely and keeping those resources as close to students and the schoolhouse as possible,” the district statement said. “Any decisions we make will be guided by what is in the best interests of both current and future students.”