LAUSD has warned that it could run out of money as late as 2027 as the district enters
The Los Angeles Unified School District faces “serious” indications that it will be bankrupt by November 2027 — $231 million short of the sky and unable to pay — district analysts concluded, setting a 45-day deadline for the school board to amend its budget or face losing significant future authority over spending decisions.
The district has appointed a “financial specialist” to work with the district to eliminate the expected shortfall. If that effort fails, district officials will appoint an official with the authority to overturn school spending decisions, according to a letter sent to LA Unified.
A notice dated July 2, from the district office of education Supt. Debra Duardo to LA school board President Scott Schmerelson, said the district’s recent budget adoption “destroys confidence” in decision-making. The district blames the problem on union contracts that LA Unified officials have repeatedly warned the district cannot afford. The annual cost of union dues and labor raises is over $1 billion a year.
“They have major financial concerns that they need to address,” Duardo said in an interview Thursday. “It’s very difficult.”
The letter formally issues LAUSD a “non-exhaustive” decision, meaning the district may not be able to meet its obligations for the 2027-28 and 2028-29 school years. It’s a step the Los Angeles County Office of Education, or LACOE, takes only when the district is facing a serious funding shortfall, Duardo said.
LA Schools Supt. Andrés E. Chait suggested that there is no need for alarm.
“This determination does not change our commitment to students, families or staff,” Chait said in a statement. “Our schools will continue to operate as normal while we work closely with LACOE to strengthen our long-term financial vision. We welcome the opportunity to partner and remain focused on making thoughtful, responsible decisions that protect classroom education and student success.”
Trade unions have repeatedly downplayed the financial warnings, saying the figures do not fully reflect the increase in government funding that is likely to be available. Education advocates argue that California schools are legally entitled to billions more under state law.
State tax revenue has been at record levels, but it depends heavily on the current stock performance of artificial intelligence companies.
Duardo said that the aim is to make this region not sink until now it will need to be rescued by the government.
“What we are talking about is making sure that they don’t get into a situation where they have to borrow from the government, we will do everything possible to prevent that from happening.
If LA Unified were to require a state bailout, its school board would lose authority over the school system, with authority transferred to Duardo’s appointed administrator.
Financial expert now, supervision possible later
At this time, the region does not take the region. Instead, it moves in two phases, as mandated by state law to ensure that school districts remain financially sound.
On July 1, the district assigned a financial expert – Octavio Castelo, head of the district’s education office – to work with the district’s staff. That role is “advisory and diagnostic,” the letter says. Castelo cannot make decisions on the district budget on his own.
The second stage involves major limitations. If the district does not address the budget issue to satisfy the legal requirements, the district can assign a “fiscal advisor” to “sit and withdraw authority over the board’s actions,” such as the power to block the board’s spending. The consultant will not manage the district but can reject the board’s spending decisions.
A step further than that would be to take full advantage. That happened in 2012 in Inglewood, where the school system received an emergency loan. Duardo said he hopes LAUSD can avoid that fate.
Why the region is in trouble
The district’s biggest complaint is the high cost of labor contracts with the district union. On June 16, the school board approved new contracts that include multiple unions. District officials warned the board at the time that the deals were too expensive. The board approved them anyway.
The contracts add about $1.13 billion this school year, rising to $1.44 billion in 2027-28, the letter said. The agreements, reached to avert a strike in April, promised double-digit raises for teachers, aides, custodians and other workers.
The book also contains errors in regional planning. About $231 million in previously planned cuts were not implemented. On the same night it approved the contracts, the board breached its chief financial officer’s authority to withdraw $175 million from a fund earmarked for retiree health benefits. The district said it all “destroys confidence” in the district’s budgeting capabilities.
Registration is another problem. LA Unified, the second largest school system in the country, serves approximately 390,000 students. That’s about half the size it was in the early 2000s. As enrollment declines, so does government funding. But the district has not adjusted its workforce to match, the letter said.
This district has also undergone leadership changes at the top. Chait has been superintendent since Alberto Carvalho resigned last month amid a federal investigation.
The district’s cash balance at the end of the month is expected to be positive by $231 million in November 2027, and negative from February to May 2028. A district that cannot maintain a favorable cash balance cannot pay or pay its debts. The book says that’s “the fastest and most severe indicator of a shortage.”
Fixing the problem will be painful. The district plan already calls for unpaid days off to begin this fall; if they are not, the district said it will consider escalation to a financial advisor. Layoffs are also coming. The budget the board approved in June already includes more than 1,000 job cuts, with thousands more expected over the next three years.
What happens next
The 45-day clock puts the next decision point in mid-late August. The board meets again in August, giving time to adopt a revised budget before a consultant is called. District officials also have the option of forwarding the district’s findings to the state superintendent of public instruction within five days.
Duardo said he has spoken with Chait since the letter came out and the superintendent “understands the need for them to balance their budget and make tough decisions about how to cut back, and he’s very cooperative and very willing to work together.”
“They have reached a situation where they are very close to running out of money if they don’t take the steps they need,” said Duardo. “And I’m sure they will.”
