Crisis team: Los Angeles schools face risk of insolvency

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(The Center Square) – Urgent budget cuts are needed to keep the Los Angeles Unified School District from insolvency as enrollment falls, according to a crisis team.

And Lance Izumi of the Pasadena, Calif.-based Pacific Research Institute put it more bluntly, telling The Center Square that the nation's second-largest school district is in a "fiscal train wreck."

According to the California Fiscal Crisis and Management Assistance Team, the school district is at high risk of insolvency and will lose total control over its finances without budget cuts.

The issue stems from falling enrollment, increased staffing originally expanded through temporary pandemic relief funds, soaring special education expenses and underutilized facilities, according to the crisis team. LAUSD has been running a structural deficit since the 2024-2025 school year, with annual expenditures exceeding revenues by $1.5 billion to $2 billion.

The situation reached a boiling point after the school board approved a 14% teacher pay raise this past April to avert a strike.

Izumi, senior director of the Center for Education at the Pacific Research Institute, characterized the board’s decision on the raise as "governance malpractice."

"This fiscal train wreck - you could see it coming from a mile off," Izumi told The Center Square. "One of the big reasons why L.A. is in such bad shape right now is because they agreed to a massive union contract with the teachers that they simply couldn't afford. The board did not look at its funding sources and its potential spending cuts that it would have to do in order to afford the teacher union contract that it was about to sign."

Prior to those collective bargaining agreements, the Los Angeles County Office of Education had warned district leaders of escalating county supervision actions if deficit spending continued unchecked.

To stabilize the budget, LAUSD’s three-year plan now proposes eliminating over 6,000 positions from its roughly 80,000-person workforce.

The Center Square reached out for comment from LAUSD, which referred The Center Square to its three-year plan.

United Teachers Los Angeles did not respond to The Center Square’s request for comment. However, UTLA statements posted online show the union has forcefully disputed FCMAT’s high-risk assessment, labeling the evaluation framework anti-worker and arguing that it penalizes justified wage increases. UTLA contends the assessment exaggerates the financial crisis by ignoring potential yearly supplemental revenue from state legislators.

Fiscal experts caution against relying on speculative state bailouts to balance local books.

"Could one-time block grants or other new sources of state revenue materialize in future California budgets? Yes, but LAUSD must budget for instructional time looking forward three years based on student enrollment and attendance trends supported by factual data and established funding formulas, not based on potential future discretionary 'one-time' block grants," said Maria Luisa Palma, executive director of Oleada Inc., a nonprofit promoting parental involvement in public education.

Izumi similarly dismissed the union's expectation of state rescue funds, pointing to California’s own macroeconomic pressures.

"That money is probably not going to be coming down because the state itself is facing a structural deficit," Izumi said, referencing estimates from the nonpartisan Legislative Analyst's Office showing multi-billion-dollar projected state deficits. "If L.A. Unified is running a structural deficit and the state has a structural deficit, then there is no money coming from anybody. The union is ignoring the current fiscal status of California itself."

While LAUSD represents an extreme example of fiscal stress, Izumi warned that school board members and taxpayers across California and the country should take note of the district's trajectory.

"While Los Angeles Unified is an extreme example, that doesn't mean that other districts around California — and indeed around the country — are not operating on some of these unfortunate fiscal principles," Izumi noted. "It's really up to the districts and the school boards to look at the experience of L.A. Unified as an example of what could happen to their own districts if they decide to agree to ongoing expenses in terms of a teacher contract that they can't afford."

When asked what people in the LAUSD or any other school district should do upon learning this information, Palma’s advice was simple:

“Go to school board meetings,” said the Oleada Inc. executive director.