- đź“Ś Los Angeles County Superintendent Debra Duardo declared LAUSD a "Lack of Going Concern," meaning it may fail to meet financial obligations by fiscal years 2027-28 and 2028-29.
- đź“Ś The district projects a $231 million negative cash balance by November 2027, jeopardizing payroll and other payments.
- đź“Ś New labor agreements, costing an additional $1 billion next year, are a key driver of the crisis, outpacing state cost-of-living increases.
- đź“Ś The adopted Fiscal Stabilization Plan cuts $3.649 billion and eliminates 5,690 positions, including $900 million from the Student Equity Needs Index, unpaid furlough days, healthcare cost sharing, and termination of the retiree health trust.
- 📌 Enrollment has dropped 34% since 2012-13, while state funding surged 173% since 2011-12, yet academic outcomes remain poor—over half of students fail to meet standards in English, math, and science.
- đź“Ś Classified employees average $35,500 a year, classified as extremely low income; one third have been homeless or at high risk, and 10,000 get no district health insurance.
- đź“Ś LAUSD must revise its $20.6 billion budget by mid-August or risk an external advisor with power to override board and superintendent decisions.
What Triggered the Insolvency Warning?
On July 2, 2025, Debra Duardo, Los Angeles County Superintendent of Schools, sent a stark letter to the Los Angeles Unified School District (LAUSD). The letter, addressed to Board President Scott Schmerelson, determined that the nation’s second-largest school district meets the statutory criteria for a “Lack of Going Concern” designation, signaling potential insolvency in the coming years. The county has assigned a fiscal expert, Octavio Castelo, and warned of deeper intervention if LAUSD fails to restore long-term stability by mid-August.
In her scathing July 2 letter, Duardo specifically rebuked a "fiscal stability plan" that the school board had approved June 16 and submitted to the county. She said the county rejected the plan because it lacks details and requires "an elevated level of fiscal oversight." Duardo also faulted the school board for "mismanagement of the collective bargaining process," accusing it of approving costly contracts with the teachers’ union and other labor groups that will drive the district to financial ruin. She further noted that the district has failed to carry out earlier budget cuts it had promised to make. Duardo emphasized the severity of the situation, writing, "The financial reality before the District raises serious concerns regarding its ability to meet its financial obligations."
But the county had already warned the board on June 12, 2025, four days before it approved the labor agreements. In a letter obtained by the California Post, LACOE wrote: "The fiscal concerns detailed below are severe, and we strongly urge the Board to weigh them carefully prior to ratifying these agreements. A projected negative ending balance of this magnitude is neither a sustainable operational strategy nor permissible." The letter warned that the proposed raises, which included up to 24% for some workers and 14% for teachers depending on experience, would lead to severe budget concerns. The board had originally signaled it would agree to the raises in April as a strike loomed. Despite this warning, the board ratified the contracts on June 16, and just two weeks later LACOE issued the July 2 letter demanding a revised budget. On April 15, the county demanded a new stabilization plan, the second in 12 months; the first plan had $231 million in promised reductions that had not been carried out. Superintendent Andrés Chait responded on July 8, a day after the appeal window closed, stating the district did not appeal and that schools "will continue to operate as normal."
The Role of Union Negotiations and Strike Cancellation
The current crisis was preceded by a dramatic turn of events in April 2025. On the morning of April 14, nearly 70,000 LAUSD workers were set to walk out together for the first time in the district’s history. Teachers had authorized strike action by 94 percent; classified staff voted by 97 percent. Then UTLA and AALA settled, leaving SEIU members isolated. However, in the middle of the night before picket lines were to go up, SEIU Local 99 President Max Arias, then-UTLA President Cecily Myart-Cruz, and other union officials met behind closed doors with Democratic Mayor Karen Bass. The City Council, which includes four DSA members, passed a unanimous resolution urging settlement. At 2:00 a.m., SEIU99 announced a tentative agreement, and the strike was canceled. The very next day, April 15, the county demanded a new stabilization plan. The contracts were later ratified on June 16, clearing the way for the cuts now being imposed.
Financial Projections and Cash Crunch
The district’s own projections show operating cash falling $231 million into the red by November 2027. As Duardo noted, a district unable to maintain a positive cash balance cannot make payroll or meet other obligations. The county’s letter specifically cites new labor agreements with teachers, principals, and support staff—costing an extra $1 billion next year—as a primary driver of the projected deficit. These increases outpace state cost-of-living adjustments. The county provided detailed cost estimates: $1.13 billion this year, rising to $1.44 billion in 2027-28, calling it a "severe fiscal event." In order to avoid a threatened strike, the district in April agreed to three different contract agreements that will cost it close to $1.2 billion annually. Now, the district faces a budgetary shortfall of $231 million by next November, ballooning to a $3.5-billion deficit by June 2029.
To close the gap, the school board adopted a Fiscal Stabilization Plan on June 16 totaling $3.649 billion in cuts and eliminating 5,690 positions. The largest single item is the Student Equity Needs Index, which directs money to schools with the highest-needs students; its funding is reduced by $900 million and 4,500 positions, nearly four-fifths of all jobs eliminated. Other measures include unpaid furlough days costing $25 million each, healthcare "cost sharing" of $150 million, and complete termination of funding for the retiree health trust. The county has directed that furloughs be in effect by autumn, and that the Reductions in Force (RIF) be completed by the January 2027 board meeting to meet the March 15 layoff notice deadline. No closure list has been published. LAUSD’s own projections call for eliminating roughly 4,900 positions in the 2027-28 school year, followed by another 1,035 jobs the following year. That could mean thousands of layoffs, devastating for staff and families.
Enrollment Decline vs. Funding Surge
LAUSD enrollment peaked at 746,831 students in 2002 and has since fallen relentlessly. In 2025-26, the district enrolled 392,654 students, down from 409,108 the previous year. From 2012-13 to 2026-27, enrollment dropped 34%, from 566,600 to a projected 375,890. Lower birth rates, high housing costs, and families leaving for charter schools or other districts all contributed. 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. Meanwhile, state funding via Proposition 98 soared 173% since 2011-12, from $47 billion to $128.1 billion. Per-pupil funding rose from $19,944 to $54,785, yet academic outcomes remain dismal: 54% of students fail to meet English standards, 63% fail math, and 73% fail science.
Collapsing enrollment plus surging revenue equals extraordinary per-pupil funding.
District officials have also pointed to the end of one-time pandemic aid as an additional strain on the budget.
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, debt 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.
Economic Hardship of Classified Employees
Classified employees in LAUSD average $35,500 a year, which the state classifies as "extremely low income." By SEIU Local 99’s own account, one-third have been homeless or at high risk of it, and nearly one in four very often do not have enough to eat. Additionally, 10,000 classified workers get no district health insurance. These realities underscore the human toll of the district’s financial choices.
Local California Context: LAUSD in Los Angeles County
This crisis unfolds in Los Angeles County, home to the state’s largest school district serving nearly 400,000 students. The county Office of Education has intervened before, assigning a fiscal expert team from 2019 to 2021. The current warning follows a 2021 state law change requiring LACOE to act when a district may not meet obligations in the current or subsequent two years. LAUSD’s board approved a $20.6 billion budget just weeks before the letter, spending more than it takes in, and ratified labor agreements the county flagged as a solvency threat.
Background: A Pattern of Fiscal Warnings
This is not the first red flag. Oleada LAUSD Parents obtained earlier LACOE letters through a Public Records Act request that district executives never released. The district has already cut hundreds of administrative jobs and approved a $3.6 billion reduction plan over three years, including furloughs, layoffs, and school consolidations. However, the county demands a more specific plan, warning that failure to act could lead to an external advisor with overriding authority. School closures, program cuts and thousands of layoffs are among the looming cuts the school board has largely postponed making until July 1, 2027. Parents and employees have expressed disbelief, worry and blame for the mess, while district officials have remained mostly silent about the directives coming from the county office.
Parent Sonia Reiter, who obtained the June 12 letter, told the California Post: "My initial reaction was I was terrified because it only leads to one answer which is massive layoffs, and it’s gonna be devastating. It’s gonna be painful." She called the board’s decision "bad management." Board member Tanya Ortiz Franklin defended the approvals, saying: "The Board publicly discussed and adopted the fiscal stabilization plan (FSP) before approving the labor agreements knowing that the cuts were necessary to authorize the raises that employees well deserve." Maria Luisa Palma, executive director of the school advocacy group Oleada, said: "This isn’t a question of a small amount of money that they were off over the three year period, it’s 3.6 billion."
Conclusion: What’s Next for LAUSD?
LAUSD has until mid-August to submit a revised budget that addresses the county’s concerns. Without a credible plan, an external advisor may be appointed, potentially overriding the elected board and superintendent. The district must pursue school consolidation, deeper staff cuts beyond central office, and salary schedule reforms to curb automatic step increases. Parents, teachers, and taxpayers should watch closely as the deadline approaches—this is a pivotal moment for the future of public education in Los Angeles. The county-imposed deadline is Aug. 7, 2025. If LAUSD fails to rewrite its $20.6-billion budget, the Los Angeles County Office of Education said it will seize control of the scandal-scarred district, which just saw the departure of ex-superintendent Alberto Carvalho after the FBI raided his home. School Board member Tanya Ortiz Franklin said she understands the county’s position. “I think they’re right to be concerned,” Franklin told the Los Angeles Times. Franklin told the paper she agrees with the county’s conclusion that costly deals with labor unions are causing financial ruin, even though they were approved just this year by all seven board members. The County Office of Education isn’t buying LAUSD’s excuses and instead has instructed the board to detail specifically how it will carry out needed cuts. Otherwise, the county superintendent will appoint a trustee with authority to veto spending decisions. If the district were to become insolvent, then an appointed administrator would take all power away from Superintendent Andrés E. Chait and the school board — an action without precedent in LAUSD and an unusual event for big urban school systems. In a statement provided to The Times, LAUSD officials said missing the county’s Aug. 7 deadline wouldn’t lead to dire consequences for families. “We have discussed this matter” with the county office “and appreciate their ongoing partnership and guidance,” the district officials said.
As the new school year begins, Superintendent Andrés Chait acknowledged the significant financial challenges in his opening remarks to leaders and teachers. While admitting to budget constraints, he also pointed out that students in the district are doing better academically. LA Times education reporter Howard Blume noted that the district is looking at cuts in the coming years.
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. Compressing this gap, by restraining automatic step and longevity increases, would slow the growth in its largest cost driver.
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, debt 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.