LAUSD’s dire finances could lead to state takeover in 3 years if parcel tax fails
District officials acknowledge they will run out of reserves by 2020-21 without dramatic cuts or new revenue
Los Angeles Unified School District will run out of money in three years unless it makes drastic cuts in spending or voters pass a hefty parcel tax on the June 4 ballot, according to the district’s most recent budget.
In the aftermath of a new contract for teachers to end a strike earlier this year, county education officials have warned they could step in to take control of the finances at the nation’s second largest school district if the forecast doesn’t improve.
The financial situation is so dire that the estimated $300 million to $500 million generated annually from the 16-cents-per-square-foot tax will not prevent the district from cutting into its reserves.
Current projections estimate the district will spend $1.5 billion more than it brings in over the next three years. After draining its reserves to stay afloat, the district expects to drop more than $700 million into the red in 2021-22.
“That’s the number we’re solving for and we have three years to solve for that,” Superintendent Austin Beutner said in an interview.
LAUSD administrators are expected to present two budgets at the end of June — one based on the success of Measure EE and the other on its failure.
Business interests opposed
The parcel tax won’t be an easy win. It requires a two-thirds majority to pass and is opposed by some of Los Angeles’ largest business interests. Even if it passes, a new legal challenge could unravel the victory.
Beutner said the district isn’t waiting for the parcel tax to make changes. His administration is applying for a waiver of the teacher-to-administrator ratio set by the state, which could save $100 million over three years. Another change will save about $50 million a year by transitioning retirees to a new Medicare plan.
Classroom cuts still on table
Still, school officials say they’ll have to start looking at cutting classroom resources if voters don’t support the tax.
“If the parcel tax does not pass, Los Angeles Unified will need to drastically reduce the plan it has to deliver more resources and services to schools and classrooms,” said Shannon Haber, a spokeswoman for the district. “Without additional funding, it is anticipated that in Fiscal Year 2021-2022 and beyond, it will be necessary to to implement cuts to Los Angeles Unified programs, schools and employees, including possible teacher and employee layoffs and increased class sizes.”
The ballot language for Measure EE promises the money will pay for attracting and retaining employees, reducing class sizes, and hiring additional nurses, counselors and librarians.
Those changes are “key to Los Angeles Unified’s vision for student achievement,” Haber said in an email.
But a recent report suggests many of those improvements are already factored into district budgets, because the additions were part of the contract that ended the United Teachers Los Angeles strike in January.
Disclosures by the district put the cost of UTLA’s new contract at $840 million by 2020-21.
‘Its a balancing act’
Beutner, who last year warned the contract would bankrupt the district, said the parcel tax covers the costs of pledges made during negotiations and funds additional services above and beyond.
“It’s a balancing act between the two, and providing the money now allows us to make more progress,” Beutner said. “We’ll continue to do the work to reduce costs and make sure the bureaucracy is as lean as possible so all the money goes to schools.”
Without new revenue, the district must scale back to avoid a state takeover.
‘Significant deficit spending’
The Los Angeles County Office of Education already has threatened to step in if the district’s next budget dips below a required 1 percent threshold for reserves. LAUSD estimates show the district will be $749 million below that $75 million threshold by 2021-22.
The county agency assigned a fiscal crisis management team to assist the district last year. And in March, LACOE criticized LAUSD’s latest budget, saying the district has failed to develop “an adequate plan to address the significant deficit spending.”
In her letter, LACOE Superintendent Debra Duardo expressed concern about the district’s “inability to consider long-term effects of collective bargaining agreements,” its failure to maintain adequate reserves and its inattention to unfunded liabilities. The district is responsible for more than $11 billion in health benefits.
Duardo attributed the district’s failing finances to a loss of revenue from declining enrollment and increased costs for pensions and special education programs. Pensions alone are projected to increase by nearly $300 million over the next two school years.
“Should the Governing Board fail to address all concerns identified in this letter, or fail to submit a 2019-2020 adopted budget that meets the minimum reserve in any fiscal year, the County Superintendent is prepared to take further action,” including possibly assigning a fiscal adviser who can overrule board members, Duardo wrote.
Opponents of Measure EE say LAUSD has mismanaged its money and, instead of confronting its structural budget problems, is instead asking taxpayers for a bailout.
Budget up despite enrollment decline
“In the last 15 years, they have 240,000 fewer students to serve. The budget has gone up every year,” said Tracy Hernandez, founding chief executive officer of the Los Angeles County Business Federation. “They do not have their fiscal house in order and they want to go in the dark of night and say the sky is falling, and they need this property tax to save the district.”
The rush to get the proposed tax on the ballot has led to confusion about what types of buildings will be affected, Hernandez said. Under the original language, the parcel tax singled out “habitable” spaces. A homeowner with a 2,000-square-foot house would expect to pay $320 more annually.
But the language was changed to “all buildings or structures” and, depending on how that is interpreted, it could make it even more costly for someone with a tool shed or a garage, she said. LAUSD’s board later clarified the tax would not affect residential or commercial parking structures.
“It’s rushed and its a bad deal for voters,” she said.
For business owners, the costs could add up to millions per year, she said. The Howard Jarvis Taxpayers Association is challenging Measure EE over the language changes. Last week, a Los Angeles County Superior Court judge said she would hear arguments two days after voters go to the polls.
Though UTLA previously accused the district of lying about its finances during negotiations, the union is supporting the parcel tax. Other high-profile supporters include Mayor Eric Garcetti and presidential candidate Pete Buttigieg, who stumped for the measure during a visit to Los Angeles last week.
A spokesperson for the union did not return a call for comment.
Teachers urged to fight for tax
In UTLA’s April 19 newsletter, the union acknowledged its strike “forced LAUSD to tap into its huge reserve.” But once the one-time money is gone, it said, the pressure begins “in the form of employee layoffs, threats to health care and retirement and cuts to student programs.”
UTLA President Alex Caputo-Pearl, in the newsletter, said 70 percent of the cost of Measure EE would come from businesses, rather than homeowners. The opposition, he said, would prefer if residents pay as much as the owner of a skyscraper.
He urged members to fight for the parcel tax with the same passion as the strike. Their battle is against underfunding, he said, citing a ranking that puts California at 44th out of 50 states in per-pupil funding. That ranking varies greatly depending on the source and whether California’s cost of living is factored in, according to a fact check by the Sacramento Bee last year.
“Passing Measure EE,” Caputo-Pearl wrote, “will let us more solidly plan for the first round of reopener bargaining, just months away away in January 2020, as we think about additional pay increases, further class-size reduction, special education, additional health and human services positions, and other resources for our students.”
Staff Writer Ariella Plachta contributed to this article.
This article was published online at Daily Breeze by Jason Henry on May 12, 2019.