The Los Angeles County Office of Education has placed the Los Angeles Unified School District under heightened fiscal oversight after determining the nation’s second-largest school district may be unable to meet its financial obligations in the 2027-28 and 2028-29 fiscal years, citing the cost of recently approved labor agreements, ongoing structural deficits and declining enrollment.
The determination was outlined in a July 2 letter from Los Angeles County Superintendent of Schools Debra Duardo’s office to the district and publicly addressed by LAUSD on Wednesday, July 8. It assigns a county fiscal expert to advise the district officials as they work to address the financial issues identified by LACOE. County officials warned the designation could lead to additional intervention if the district fails to restore its long-term financial stability.
In a statement included in a district news release Wednesday, LAUSD Superintendent Andrés E. Chait said the district is committed to working collaboratively with county officials while assuring families that schools will continue operating normally.
“This determination does not change our commitment to students, families or employees,” Chait said. “Our schools will continue to operate as normal while we work closely with LACOE to strengthen our long-term financial outlook. We welcome the opportunity to collaborate and remain focused on making thoughtful, responsible decisions that protect classroom instruction and student success.”
Under California law, a “Lack of Ongoing Concern” determination is issued when a county superintendent concludes a school district may be unable to meet its financial obligations for the current or two subsequent fiscal years. The finding triggers an elevated level of county oversight intended to help prevent fiscal insolvency.
In its seven-page letter, LACOE said LAUSD’s financial outlook deteriorated after the Board of Education approved new collective bargaining agreements on June 16 despite previous county warnings that the agreements were not financially sustainable.
County officials said the agreements, combined with existing structural deficits and continued enrollment declines, are projected to push the district below the state’s minimum reserve requirement, drive its unrestricted general fund to a negative balance of roughly $1.46 billion by 2027-28 and leave the district with insufficient operating cash to meet payroll and other obligations beginning as early as November 2027.
The county also cited approximately $231 million in previously identified spending reductions that remain unimplemented, concerns over the district’s ability to carry out its Fiscal Stabilization Plan and the Board of Education’s decision to draw $175 million from its retiree health benefits trust over the objections of the district’s chief financial officer.
As part of the increased oversight, LACOE has assigned Executive Director of Business Advisory Services Octavio Castelo to serve as fiscal expert beginning July 1, at the expense of the County Superintendent. The position is advisory, but county officials said oversight could be elevated to a fiscal adviser with authority to stay or rescind board actions if the district’s financial condition worsens.
The county also directed LAUSD to submit budget revisions within 45 days to account for the costs of the recently approved labor agreements and said the district will undergo a mandatory Fiscal Crisis and Management Assistance Team fiscal health review.
LAUSD said the district has been transparent about the financial challenges facing schools across California, including declining enrollment, the expiration of one-time pandemic relief funding, rising operating costs and increasing long-term obligations.
District officials said they have developed a multiyear Fiscal Stabilization Plan, recently reached agreements with employee unions and will continue working with county officials to strengthen the district’s long-term financial outlook.
The district said its “priorities remain unchanged”, listing protection of classroom instruction and student services, implementation of its Fiscal Stabilization Plan, collaboration with fiscal oversight agencies and ensuring the district’s long-term financial sustainability.
Asked Wednesday about the timing of the announcement, whether the district agrees with LACOE’s assessment and what the increased oversight will mean in practice, an LAUSD spokesperson said the district had no additional comment beyond its Wednesday news release.
The district’s governing board has the right under state law to appeal the county’s determination to the California Superintendent of Public Instruction within five days of receiving the notice.