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Los Angeles Unified School District leaders say they are confident they can persuade county officials that the district can avoid a projected cash shortfall and remain under local control, and are preparing for budget cuts, possible furloughs and school consolidation.  

A July 2  from the Los Angeles County Office of Education found that LAUSD met the criteria for a 鈥淟ack of Going Concern,鈥� meaning the district鈥檚 financial plan does not show it can meet its future cash obligations. County officials project Los Angeles Unified will face a $231 million cash shortfall in 2027. 

The finding, which also comes after the district failed to make sufficient cuts during the 2025-26 budget, triggered a 45-day period for LAUSD to revise its current fiscal plan for the coming school year. The county has appointed an expert to work with the district during that process. If Los Angeles Unified does not make adequate changes, a county advisor would be appointed, giving the county authority to overrule district decisions. 

Like many California districts, LAUSD鈥檚 financial challenges stem from a combination of declining enrollment, the expiration of Covid relief funding and rising operative costs. Enrollment fell 3% during the 2025-26 school year in Los Angeles, reducing state funding tied to student attendance. Still, the amount LAUSD has received from the state has increased over the past three years. 

The county鈥檚 letter also cites a series of union contracts reached this spring that will cost the district more than $2.5 billion over the term of the contracts. Union leaders have disputed the severity of the district鈥檚 financial crisis. 

Superintendent Andr茅s Chait  a press conference last week that the county office of education wants the district to prove it can implement its proposed savings, including possible furloughs, and explain its alternative cost-cutting options. 

鈥淚 just think it鈥檚 really important for board members to take very seriously the process that this state has in place to ensure that every district is fiscally solvent,鈥� said Yolie Flores, president and CEO of Families in Schools, a nonprofit focused on student success. A former LAUSD board vice president, Flores was also appointed to the district鈥檚 new revenue task force. 

District officials and independent experts say LAUSD鈥檚 fiscal challenges have been building for years and are not unexpected. They鈥檝e also warned that the district will likely need to make difficult spending cuts to restore its long-term financial stability, and that additional state funding alone is unlikely to solve its structural budget problems. 

鈥淣ow we鈥檙e in a situation where this constriction is still happening, but now the artificial floor is gone,鈥� said Stephen Aguilar, a professor of education at the University of Southern California. 鈥淪o now, we鈥檙e falling through to the basement, and we鈥檙e sort of in this emergency period.鈥� 

Painful cuts are expected  

The district鈥檚 most difficult decisions are expected to come over the next several months. Board member Tanya Ortiz Franklin said schools will receive their budget allocations for the 2027-28 academic year this fall, and the board will discuss workforce reductions needed to balance the budget.  

She also said that the district must carefully manage workforce reductions so high-needs schools aren鈥檛 disproportionately affected by staff turnover. 

The board will also need to weigh other cost-saving measures, including furlough days 鈥� a prospect Ortiz Franklin acknowledged could feel like a 鈥渟lap in the face for our labor unions鈥� 鈥� and possible changes to employee health benefit contributions.  

Ortiz Franklin also questioned whether the district could successfully save $200 million by reassessing contracts with outside vendors, as some of the items being procured cannot be made in-house. 

Looking beyond the immediate budget crisis, she said school consolidation is likely unavoidable as enrollment continues to decline, with those conversations expected to begin this fall. 

The board will meet Aug. 11 in a likely closed session meeting to start discussing its fiscal recovery plan. 

鈥淭he superintendent is clear that these are ambitious strategies, and that the board needs to not only be aware of them but also weigh in, given that we are elected to represent the voices of our communities,鈥� Ortiz Franklin said. 

鈥淎nd we want to do our best to make sure we continue to do that, and don鈥檛 have a fiscal advisor appointed, so that we lose the ability to make decisions on behalf of our community who elected us.鈥�

LAUSD鈥檚 financial situation 

Education finance experts say the findings of the county office of education are serious, but not unusual. Districts across California have faced similar fiscal challenges, and many have restored their financial footing after county intervention. 

鈥淯nfortunately,鈥� Flores said, 鈥渋t takes a threat like what L.A. Unified is now experiencing for them to make the decisions that they should be making to show that they are fiscally responsible as a board and as management.鈥� 

The board received a similar letter when Flores was on LAUSD鈥檚 school board during the height of the Great Recession.

鈥淚 just got here, and that鈥檚 all we were doing is cutting, cutting, cutting,鈥� she said. 鈥淔eeling the impact of what that would mean for our families and for children. 鈥� It was a long year.鈥� 

Michael Fine, the CEO of the Fiscal Crisis and Management Assistance Team, said the debate over whether union contracts pushed the district into its present predicament misses the larger issue. The concern, he said, is whether the board approved contracts without clearly explaining how it would pay for them. 

He said that the district should have been more transparent. In July, the parent group Oleada, Inc.,  findings from a public records request revealing a series of written warnings from LACOE to Los Angeles Unified dating back to April, months before the school board approved its fiscal stabilization plan.

鈥淚t鈥檚 when the board says, 鈥業鈥檓 going to approve these contracts, even though I don鈥檛 know how I鈥檓 going to pay the bill,鈥� that鈥檚 where the problem is,鈥� Fine said. 鈥淚t鈥檚 not with the negotiations themselves. It鈥檚 not with the deal that was made.鈥� 

Despite his criticism, Fine said he does not believe LAUSD is beyond recovery.  

鈥淚鈥檓 normally the one worrying. I鈥檓 normally the one on behalf of all district staff all night figuring out or thinking through 鈥楿h-oh, do we have a district in trouble?鈥� 鈥� Fine said. 鈥淚鈥檓 not feeling that for L.A. right now because I truly believe this is well within their ability to address.鈥� 

California unlikely to come to the rescue

For months, LAUSD and its labor unions have lobbied lawmakers in Sacramento for additional education funding. But education experts say new state funding, while helpful, is unlikely to solve the district鈥檚 underlying fiscal problems.  

Much of that advocacy 鈥� including from other districts 鈥� has focused on the $3.9 billion of Proposition 98 funds that the state has withheld, Fine said. 

Even if the state releases those funds, Fine said, LAUSD鈥檚 share is unlikely to make up for the shortfalls. And because the funding may come with restrictions, the money may not come in the form LAUSD needs. 

鈥淲e should be able to invest in our schools. However, that always has to come with the understanding that we can鈥檛 artificially raise the floor again,鈥� Aguilar said. 

鈥淏ecause then, what you鈥檙e essentially doing is you鈥檙e kicking the can down the road, and I think this time it won鈥檛 even travel as far if you kick it.鈥�

This story was originally published by EdSource.  for their daily newsletter.

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