On July 2, Los Angeles County Superintendent of Schools Debra Duardo sent the Los Angeles Unified School District a letter that should alarm every taxpayer and parent in the district.
Duardo determined that LAUSD meets the statutory criteria for a “Lack of Going Concern” designation, meaning the nation’s second largest school district may be unable to meet its financial obligations in fiscal years 2027-28 and 2028-29.
The district’s own projections show its operating cash falling $231 million into the red by November 2027, and, as Duardo observed, a district that cannot maintain a positive cash balance cannot make payroll.
The county has assigned a fiscal expert to the district and warned that further intervention will follow if LAUSD fails to restore long-term stability. The district has until mid-August to revise its $20.6 billion budget or risk an external advisor empowered to override decisions of the elected board and the superintendent.
Superintendent Andrés Chait responded with soothing words about collaboration and normal school operations, while board member Tanya Ortiz Franklin more candidly called the situation preventable. She is right.
Just weeks before the letter arrived, the board approved a budget that spends more than the district takes in and ratified new labor agreements whose costs the county specifically cited as a driver of the coming insolvency. And this was not the first warning. Oleada LAUSD Parents, through a Public Records Act request, obtained earlier LACOE letters that district executives mentioned in passing but never released.
LAUSD should not be struggling given the two megatrends it has been facing: declining enrollment and greater state funding.
District enrollment peaked at 746,831 students in 2002 and has fallen relentlessly since. More recently, enrollment dropped from 566,600 in 2012-13 to a projected 375,890 in 2026-2027, a decline of 34 percent in less than 15 years. Lower birth rates, high housing costs and families departing for charter schools and other districts all contributed, and the Legislative Analyst’s Office expects California’s school-age population to keep shrinking because of a drop in births that began nearly two decades ago.
Funding moved rapidly in the opposite direction. In 2011-12, in the aftermath of the Great Recession, the state’s Proposition 98 guarantee for schools and community colleges stood at roughly $47 billion. The enacted 2026-27 state budget places the guarantee at $128.1 billion, an increase of about 173 percent over fifteen years in which cumulative inflation ran around 45 percent. The Local Control Funding Formula, adopted in 2013 and fully implemented by 2018-19, directed extra dollars to districts like LAUSD with large populations of low-income students, English learners and foster youth.
Collapsing enrollment plus surging revenue equals extraordinary per-pupil funding. The district’s overall budget grew from $11.3 billion in 2012-13, or $19,944 per student, to $20.6 billion, or $54,785 per student today (because these per student figures include capital, dent service and other expenditures not directly related to education they are higher than per student costs normally quoted by education policy analysts). Yet all this spending is not producing good learning outcomes: In 2024-25, approximately 54 percent of tested LAUSD students did not meet or exceed the state standard in English language arts, 63 percent did not meet it in mathematics, and 73 percent did not meet it in science.
The path back to solvency requires three major policy changes.
First, LAUSD should follow through on school consolidation rather than shelving the closure models it hired Ernst & Young to develop. A district operating more than 1,000 school sites for a student body roughly 50 percent below its peak is paying for empty seats, redundant principals and underused facilities. As Michael Fine, head of the state’s Fiscal Crisis and Management Assistance Team, put it, an organization built for 500,000 students that serves only 400,000 is too large.
Second, non-teacher staff reductions should go deeper than the 657 central office positions the board eliminated in May. Over the eleven years ending in 2023-24, the district cut teachers by 22 percent but increased counselors by 69 percent and other support staff, including bus drivers and cafeteria workers, by 19 percent.
Third, the district should restructure a salary schedule that rewards longevity over effectiveness, especially now that the county has flagged the new labor agreements as a solvency threat. A new LAUSD teacher with a bachelor’s degree starts at $77,000, while the most experienced teachers with graduate credits make more than double that salary to do the same job. Compressing this gap, by restraining automatic step and longevity increases, would slow the growth in its largest cost driver.
Duardo’s letter is an important wake-up call that demands structural change. Rather than make cosmetic changes to its spending plan that might stave off a county takeover for another year, the Board should fundamentally alter the district’s course toward long-term sustainability.
Marc Joffe is a visiting fellow at California Policy Center.