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Fiscal realignment likely to stave off $1.6 billion LAUSD deficit in three years, CFO reports in her swan song

Mike Szymanski | March 15, 2017

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Megan Reilly wiping tears as Steve Zimmer says goodbye.

Giving her final fiscal report at LA Unified, Chief Financial Officer Megan Reilly offered some good news about the budget for the nation’s second-largest school district.

The district will be in the black at the end of this school year and next year, she reported to the school board Tuesday, and while a deficit is still predicted for 2018-19, it’s now likely to be far below the hair-raising figure her staff presented in December — as long as factors beyond their control break in their favor.

But if state and federal decisions don’t go their way, LA Unified will indeed be facing a budget deficit with a big “B” — as in billion. And instead of the $1.4 billion she warned about in December, her new calculations show that deficit could be $1.6 billion.

But her department’s fiscal realignment plan, which was approved by the school board Tuesday, will keep the district on track to avoid that future budget crisis, she said.

“We are being prudent and disciplined while looking at that future forecast,” Reilly said. “It is frowned upon to be overly optimistic for the future.”

Because of a fiscal stability plan, Reilly said this year will end with a $570 million surplus, dropping to a $179 million surplus next year. But the district will fall into the red in 2018-19, with a $395.5 million deficit.

Reilly, who leaves LA Unified this month to take a job at the Santa Clara County Office of Education, summed up that the district is taking necessary steps to address enrollment decline, to cut staff, and to ensure business efficiencies.

Part of that is a 30 percent reduction in staff from the central offices, she said. This week, 1,600 administrative staffers are to be notified that their contracts might not be renewed. Among the list of the 311 central office staff cuts include a deputy police chief, stock workers, a senior nutritionist specialist, a MiSiS manager, a culinary and events manager, and others.

Reilly said she is still concerned about the district’s need to pay into pension health benefits — a $13 billion commitment — and the uncertainty of federal funds with the new presidential administration, as well as how a dispute with the state will be resolved over accounting for monies meant for at-risk student groups.


Scott Schmerelson offers Reilly tissues during Zimmer’s tribute.

During public comments, former school board member David Tokofsky presented Reilly an outgoing gift of a box of Clif bars, showing how the chief financial officer has for the past nine years warned of the district’s dire financial future.

“Invariably the reports show the first year as positive and the third year is negative because of things like utility bills and pensions, but then that year comes and the worst-case scenario is pushed to the next year,” Tokofsky said. “It’s not a cliff, but a quest.”

It does seem like the repeating cycle in the “Groundhog Day” movie, Reilly admitted. “We are faced with these compression issues, the ongoing trend with declining enrollment and longer term structural issues and these factors keep weighing in.”

School Superintendent Michelle King said the advice from the Independent Financial Review Panel prompted her to make the staff reduction.

“This is so we don’t have to do drastic Draconian cuts and we can prepare and design over time through attrition,” King said.

Board member Ref Rodriguez said he appreciated the district staff focusing on the worst-case scenario and what is more likely, and he wanted to find out what was closer to reality. For example, he noted that some of the school administrators speaking at the board meeting on Tuesday talked about increasing enrollment. “Are we really losing 3 percent a year?” he asked. The staff said they would provide a more detailed enrollment report at a future meeting.

In an interview after the Tuesday night meeting, school board President Steve Zimmer said he felt confident in the solidness of the district’s budget and the fiscal plan.

“This strategy is sound, but I will always be arguing for better strategic investment,” Zimmer said. “My job is to make sure that we strike the right balance between sound fiscal responsibility and living within our means and addressing our long-term challenges. I have to balance that with making the right strategic investments that will increase enrollment, ensure that the most successful programs are bolstered, and that we are making smart decisions where we really make a difference in the lives of children living in poverty. An obvious place to do that is investing in early childhood education and strong early learner programs.”

Zimmer said he knew that the worst-case scenario numbers would be used to attack the district — and him — in his re-election runoff, adding, “The attacks are going to happen, no matter if it’s $1.4 or $1.6 billion or whatever the number is, I’m going to be attacked no matter what.”

Zimmer added, “There’s a very, very thin line between responsibility and fear. I budget from a place of responsibility. I don’t budget from a place of fear. All the attacks in the world aren’t going to make me budget out of fear, because that’s not the way to budget for kids.”

Although some of the labor leaders spoke against the proposed staff cuts, Zimmer said he thought King’s plan is good. “The stress is around change, and I don’t believe decentralizing is a bad thing,” Zimmer said. “I know a great amount of thought and care went into these decisions because we are aligning resources to the best possible support for equity and student achievement. I hope that we get to a final budget where we maximize the assets and are on a trajectory beyond stability and can be thriving.”

Before her last fiscal report, Zimmer presented Reilly with a bouquet of flowers and each board member said their goodbyes. Board member Scott Schmerelson handed Reilly a box of tissues as she cried and received a standing ovation.

“You always believed in children first and you pushed us to make difficult decisions,” Zimmer said. “Every decision you asked us to make always put student achievement first.”

Reilly said, “I love this organization, if it were not for personal reasons, I would be staying. The person taking this job will be the luckiest person.”

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