In Partnership with The 74

Analysis: Six months later, financial warning to LA Unified unchanged

Michael Janofsky | November 9, 2015



Megan Reilly

Megan Reilly

It’s one thing when LA Unified’s Chief Financial Officer appears before the school board and warns of budgetary troubles ahead, based on current projections and obligations. That’s her job.

It’s quite another when a panel of outsiders, brought in to take a fresh look, reaches the same conclusions and expresses them in a hair-raising way that promises existential consequences if immediate change is not forthcoming.

The “Report of the Independent Financial Review Panel,” the work of nine experts called in by Superintendent Ramon Cortines, is the ultimate wake-up call for a district driving dangerously to the edge. In its essence, they say current trends are unsustainable and will lead to the end of LA Unified as configured if bold steps aren’t taken to accommodate realities that have been so far unaddressed with meaningful response.

“If the District desires to continue as a growing concern beyond FY 2019-20, capable of improving the lives of students and their families, then a combination of difficult, substantial and immediate decisions will be required,” it says. “Failure to do so could lead to the insolvency of the LAUSD, and the loss of local governance authority that comes from state takeover.”

The panel is scheduled to present its findings to the board at tomorrow’s board meeting. The overall message echoes what Megan Reilly, the district CFO, has been saying all along, that despite an improving economy, budget deficits are just a few years away.

But the 75-page report conveys an urgency that Reilly’s warnings have lacked. After all, Cortines created the panel six months ago, which means another half-year has passed without substantial changes from the board and superintendent, leaving financial threats to build.

While the panel makes clear a need for fundamental changes in how the district conducts business — from its relationships with unions to how it pays for cafeteria food — it cites as the root of looming insolvency a steady decline in enrollment, the causes of which the district has only limited control. The major factors are the growing popularity of charter schools, an outward migration of families from Los Angeles and a declining birthrate among city residents.

No real news there, but what is news is the urgency with which the panel implores the board to start recognizing the trends for the impact they’re having on the district and to respond accordingly.

For example, the report concludes that despite the loss of about 100,000 students over the last six years, representing a revenue loss of nearly $900 million, “the district had not reduced staff commensurate with the loss of enrollment and, in fact, had experienced higher salary costs because of both salary and benefit increases and increases in staff.”

The report recommends “even broader future changes”  beyond cutting the workforce. “At some point,” the authors conclude, “the number of schools will also need to be examined as the District ‘right sizes’ itself.”

This is hardly a description of a healthy, vibrant, growing district. And even if a majority of board members agree that it’s time to act on the panel’s four dozen recommendations to stave off insolvency, other outside forces will make the challenge even more difficult.

First, there is the escalating growth of charter schools within the district, with hundreds more to come if the Broad Foundation makes good on its plan to to serve half the district’s student population in charters within the next eight years. Currently, about 15 percent of district students attend charters. Independent charters siphon money away from district control.

Second, there are the continuing efforts by the district’s labor partners to increase the number of jobs and at least maintain the current level of benefits, which the report says are almost 10 percent higher than the statewide average. For months now, the teachers union, UTLA, has been warning its members that the district will try to reduce benefits during the next contract negotiating period. Counter-measures by the teachers to fight any givebacks are now underway.

Finally, the district is facing the possibility of declining revenue from the state, a result of temporary taxes scheduled to sunset between 2016 and 2018.

Well-funded charters, determined labor unions, uncertain state tax policies — these are formidable challenges for a district that has largely ignored the structural issues putting it in jeopardy.

The CFO has done her job. Now a panel of outside experts has weighed in. What happens next depends on the seven members of the elected school board, who are also trying to find themselves a new superintendent by Dec. 31. 

What an unpleasant gift they are waiting to present.

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