For the first time, the Los Angeles Unified School District has entered a heightened-state fiscal-oversight process after county officials determined the nation’s second-largest school system may be unable to meet its financial obligations in future fiscal years.
The July 2 “Lack of Going Concern” determination marked the first time the Los Angeles County Office of Education— which reviews the solvency of school districts — has issued that finding for LAUSD under state law. While students and families are unlikely to see immediate changes, the designation begins a state-mandated oversight process in which county officials will closely monitor LAUSD’s finances and may seek stronger intervention if the district fails to correct its fiscal problems.
The determination followed a series of escalating warnings from county officials, who questioned whether Los Angeles Unified had a credible plan to meet its financial obligations while closing projected budget deficits.
County officials said the district’s own financial projections show its operating cash balance falling $231 million below zero by November 2027, a level that would leave LAUSD unable to meet payroll and other financial obligations without intervention.
Interviews with school board members, fiscal experts, union leaders and county officials, along with a review of budget documents, show the July 2 determination was the culmination of years of mounting financial pressures — including declining enrollment, the expiration of billions of dollars in one-time federal pandemic aid and rising personnel costs — compounded by financial decisions this spring that left county officials unconvinced the district had a credible path to balance its books.
“Every time someone spends more money than they have, and then makes statements that minimize the consequences of it, that’s when things start to hit the fan,” said Marguerite Roza, director of Georgetown University’s Edunomics Lab.
Roza said the district’s financial problems reflected years of overlapping pressures rather than any single decision.
“I think this is a very massive, underappreciated financial disaster for Los Angeles,” she said.
Warnings before July
The county’s July 2 determination did not emerge suddenly.
For years, Los Angeles Unified’s financial outlook had been pressured by falling enrollment, which reduces state funding, while the district continued operating a system built for hundreds of thousands more students than it now serves. Like many school districts nationwide, LAUSD also lost billions of dollars in temporary federal pandemic aid that had helped sustain staffing and programs.
This spring, county officials repeatedly warned that the district’s finances were deteriorating and questioned whether its plans to restore fiscal stability were credible.
As the school board prepared to vote on new labor agreements on June 16, LACOE separately cautioned the agreements were not affordable and would further weaken the district’s fiscal position. After the board approved the contracts, the county concluded the additional ongoing costs, combined with the district’s existing structural deficit and unimplemented spending reductions, justified the unprecedented “Lack of Going Concern” determination.
“This wasn’t just a problem this year,” Board member Tanya Ortiz Franklin said in an interview. “This has been building over time.”
Board member Ortiz Franklin, who supported the labor agreements but later voted against the board’s amended Fiscal Stabilization Plan, said district leaders understood they were making a difficult tradeoff.
The agreements raised starting-teacher salaries to about $77,000 annually, provided double-digit salary increases for teachers and administrators, and increased compensation while stabilizing work hours for tens of thousands of school support workers.
“I realized we would have fewer employees receiving those pay increases,” Ortiz Franklin said. “And that’s the layoff trade-off.”
Ortiz Franklin said she had expected the district to issue substantially more layoff notices earlier this year and viewed workforce reductions as part of the tradeoff for approving higher compensation. She said employees deserved higher wages after years of rising costs, but the district would have to make more aggressive fiscal adjustments to sustain those increases.
She said the district had not made corresponding reductions to its workforce and number of campuses to match declining enrollment.
Michael Fine, chief executive officer of the Fiscal Crisis and Management Assistance Team, which advises California school districts on fiscal oversight, said the county’s concern was not the labor agreement alone.
Rather, he said, Los Angeles Unified approved around $1.2 billion in additional financial commitments through its recent labor agreements while already projecting significant structural deficits.
“So when you add those things together, there’s obviously concern,” Fine said. “The deficit is getting larger, and the district has no immediate plans on how to deal with that.”
County officials estimated the ratified labor agreements would have about a $1.13 billion fiscal impact in 2026-27 and more than $2.5 billion over the life of the agreements.
A stabilization plan under scrutiny
On June 16, district leaders presented a three-year Fiscal Stabilization Plan intended to close projected gaps of $1.3 billion in 2027-28 and nearly $3.6 billion the following year in the district’s unrestricted General Fund, the account that pays for most day-to-day operations.
The proposal relied on a combination of additional revenue assumptions and spending reductions, including layoffs, school consolidations, furlough days and employee health care cost sharing and other savings, many of which still required future board approval or negotiations with labor unions.
District officials projected about $18.6 billion in revenue across all funds for 2026-27 against a $20.6 billion budget. Chief Financial Officer Saman Bravo-Karimi warned that without corrective action, the district would exhaust its unrestricted general fund reserves and begin posting negative balances in future years.
The board approved the plan after adopting two significant amendments. One, proposed by Board member Kelly Gonez, partially restored $50 million in funding for the Black Student Achievement Plan in 2027-28 by shifting reductions to other parts of the budget, including central office positions and the school police budget. It also directed the remaining $100 million in Student Equity Needs Index funding to high- and highest-needs schools.
A second amendment, proposed by Board member Karla Griego, authorized using $175 million from the retiree health benefits trust to preserve the Black Student Achievement Plan in 2028-29.
Griego said delaying the withdrawal until 2028-29 would give the district time to pursue additional funding while preserving the Black Student Achievement Plan.
“Your budget reflects your values and your priorities,” she said during the meeting. “And for me, that is a very important part.”
Bravo-Karimi opposed the second amendment, warning that the trust was intended to help pay the district’s long-term retiree health obligations and that drawing it would weaken the district’s financial position. He also cautioned that the amendment could deepen LACOE’s concerns because the county had already warned that several of the plan’s projected savings depended on future negotiations and other assumptions outside of the district’s direct control.
Board members Nick Melvoin and Ortiz Franklin voted against the amended plan. Ortiz Franklin said she had been preparing to support the staff’s original recommendations despite painful cuts but believed borrowing from the retiree trust weakened the district’s long-term financial position.
“It’s just not sound fiscal practice to dip into your liabilities,” she said.
Ortiz Franklin also questioned whether some of the plan’s largest savings – including campus consolidations, furloughs, employee health care contributions and future layoffs – could be realistically achieved.
“I voted against it because the way it’s written now with the board amendment, I don’t actually think we’re going to be able to make it happen,” she said.
Roza, whose research focuses on school finance, compared the retiree health trust draw to borrowing from the future.
Rather than reducing current spending, she said, the amendment would use money set aside for future retiree health costs to help balance today’s budget, leaving future leaders to replace those dollars while still confronting the district’s underlying structural deficit.
“It’s like taking a loan from next year’s cost to use for this year’s cost,” Roza said.
County officials lose confidence
Less than three weeks after the board meeting, county officials concluded Los Angeles Unified had still not demonstrated a credible path to balancing its finances over the required multiyear period.
The July 2 determination cited the district’s approval of new ongoing commitments without sufficient recurring reductions to support them. County officials also said roughly $231 million in previously planned expenditure reductions remained unexecuted or unidentified.
Asked about those reductions, Van Nguyen, a spokesperson for LACOE, said in written responses this week that the district’s own collective bargaining disclosure documents identified them as still pending and that the county’s review reached the same conclusion.
Los Angeles Unified did not address questions about the county’s criticism of its collective bargaining decisions or the unresolved reductions. Instead, the district said it had navigated significant fiscal challenges over the past year, including declining enrollment, rising operational costs and the expiration of federal pandemic aid.
“The District’s fiscal stabilization efforts have focused on identifying sustainable reductions while protecting investments that directly support students, including classroom instruction, student wellness, and essential services,” an LAUSD spokesperson said.
The district said it is continuing to work with LACOE.
“We are in conversation with the Los Angeles County Office of Education to ensure our financial plan remains responsible, transparent, and aligned with our long-term commitments, and will ensure compliance with their requirements,” the spokesperson said.
A debate over the future
Not everyone agrees with the county’s assessment.
Julie Van Winkle, vice president of United Teachers Los Angeles, the union representing LAUSD teachers, argued that California’s required three-year financial projections are inherently conservative and cannot fully account for revenue that may become available through subsequent state budgets, cost-of-living adjustments or ballot measures.
She pointed to Proposition 3, a November ballot measure that would permanently extend a tax on high-income Californians to help fund public schools, as one potential source of additional revenue.
LACOE told the Southern California News Group this week that it had already factored the enacted state budget into its July 2 determination and that doing so did not change its assessment of LAUSD’s fiscal condition. Van Winkle said the district’s financial outlook could still improve as future state funding decisions and other revenue sources materialize.
“We don’t agree with the austerity mindset that LACOE is coming out with,” she said.
Van Winkle also defended the recent labor agreements, saying educators and other school employees remained underpaid despite the raises because Los Angeles housing costs had continued to outpace wages.
She argued that even after the raises, teacher pay still had not kept pace with the region’s high cost of living.
“We almost had to go on strike just so that new teachers could earn $77,000 a year,” she said.
UTLA opposes furloughs, increased employee health care costs and unilateral school closures. Van Winkle said the union would consider conversations about consolidating programs or reusing under-enrolled campuses, but only if employees, families and surrounding communities were included in the process.
A district built for far more students
Despite those disagreements, nearly every person interviewed for this story identified declining enrollment as the district’s most fundamental long-term financial challenge.
Ortiz Franklin noted that LAUSD served more than 700,000 students about 25 years ago but projects fewer than 375,000 students in district-operated schools next year, with another roughly 110,000 attending charter schools.
“There was a big boom as we needed, back in the early 2000s, to grow the number of campuses because we were bursting at the seams,” she said. “We were on year-round calendars. We had high schools of over 5,000 students. Now those same high schools are less than 1,500 students, and it’s not the same landscape that it was when we were building schools.”
She said the question now is what to do with the district’s excess buildings and staffing.
Roza said LAUSD has been slow to adjust its staffing and physical footprint to reflect that decline.
Data compiled by Georgetown University’s Edunomics Lab support that assessment. They show LAUSD lost roughly 87,200 students between the 2018-19 and 2024-25 school years while reducing its workforce by only about 321 full-time equivalent positions.
“Their employee base is essentially flat,” Roza said. “They shrink by 1%, but enrollment has dropped 18%. Basically doing the math, you can see what is coming.”