America’s No. 2 School District Stares Into Fiscal Abyss After Years-Long Spending Spree

The Los Angeles Unified School District (LAUSD) will vote Tuesday on a spending plan for the 2025-26 school year that runs almost $3 billion deeper than its income, pushing the nation’s second-largest school district deeper into a catastrophic financial spiral.

The crisis stems from a toxic combination of collapsing enrollment — down to just 408,083 students, an 11,000-student drop in one year, according to The74, an education outlet — and unsustainable spending commitments that will exhaust all reserves by 2025-26. (RELATED: EXCLUSIVE: School District Piped Taxpayer Cash Into Clandestine Clubs Turning Kids Into LGBT Activists)

“We’re holding firm on the commitment that we did not lay off any employee this year,” LAUSD Superintendent Alberto Carvalho said in June 2024, according to LAist. “We will not lay off any employee next year, there will be no furloughs — we are adamant about protecting our essential programs for kids.”

Carvalho did not respond to a request for comment from the Daily Caller News Foundation.

Thank you @SenJohnLaird for listening to the perspectives of five of the State’s largest urban school districts on the proposed 2023-24 State budget. We urge leaders to find solutions to address revenue challenges without pursuing proposed cuts to funding we were counting on. pic.twitter.com/ywebXAiJRA

— Alberto M. Carvalho (@LAUSDSup) May 15, 2023

The spending gap — with revenue standing at $15.9 billion against $18.8 billion in planned spending — can only be covered by depleting reserves, creating an unsustainable trajectory that violates state law. California law requires large districts to maintain minimum reserves equal to 3% of general fund expenditures, meaning LAUSD must keep several hundred million dollars in reserve to remain legally compliant. Current projections show the district burning through reserves until they turn negative, automatically triggering county oversight and potential state intervention, the Los Angeles Times reported.

Board President Scott Schmerelson has warned that enrollment declines have made many of the district’s 785 schools unviable, particularly those with fewer than 100 students that can’t offer adequate programming or cost-effective operations, according to The74. Those schools would either need to be combined or closed, Schmerelson said.

The district has lost 35% of its student body since peaking at 746,831 in 2002, with losses accelerating during the pandemic and continuing despite recovery efforts.

Lower birth rates and an out-migration of young families priced out by soaring housing costs have slashed the pool of school-age children in Los Angeles, Stanford economist Thomas Dee told the Times, adding that remote work has only hastened the exodus.

Adding to fiscal pressures, LAUSD authorized $500 million in settlement bonds in 2024 to address sexual misconduct lawsuits, with about $302 million already paid out in 2023-24, according to LAist. Much of LAUSD’s $18.8 billion budget is already locked into salaries, benefits and retiree health care — including more than $330 million for post-employment medical coverage in 2024, according to the Times.

Despite enrollment losses, the district is also spending $175 million on its Black Student Achievement Plan, $4 million on new immigrant student centers and another $60 million annually to preserve centrally funded aides, the Times reported. The district also previously funded a so-called “Rainbow Club” for LGBT children as young as four. (RELATED: California School Hosts LGBTQ Club For 4-Year-Olds)

The crisis extends beyond LAUSD’s borders, with 39 California districts, including San Francisco, currently on state financial watch lists and seven facing potential insolvency, according to EdSource. But Fiscal Crisis and Management Assistance Team CEO Michael Fine noted these problems were “predictable” and should have been addressed years ago.

LAUSD did not respond to a request for comment from the DCNF.

Carvalho’s back-up “fiscal stabilization plan” proposes closing as many as ten campuses, trimming regional offices and eliminating centrally funded aides, savings worth about $1.6 billion over two years but still shy of what is needed to plug the long-term hole.

Absent a windfall or drastic austerity, LAUSD will exhaust its rainy-day reserve before today’s eighth graders graduate high school, according to the Los Angeles Times, setting the stage for a potential county or state intervention and a wave of deferred layoffs the superintendent insists he can still avoid.

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