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LAUSD audit shows district debt outstrips assets by $4.2 billion

Mike Szymanski | January 21, 2016

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Melba Simpson conducted the audit

The latest independent audit of LA Unified shows that through the end of the last fiscal year, on June 30, the district had liabilities that surpassed assets by $4.2 billion.

The previous year showed assets over liabilities by $1.7 billion, making for a 12-month swing of $5.9 billion, according to Melba W. Simpson, of Simpson & Simpson Certified Public Accountants, the company that has done audits for the past seven years for LAUSD.

“For the first time the district has a negative net position,” Simpson told the school board’s budget committee this week. “The biggest change is that you are going in the red now.”

LA Unified’s Chief Financial Officer Megan Reilly said the big swing reflects new reporting standards put in place by the non-governmental Governmental Accounting Standards Board, which now requires the district to post pensions and longterm liabilities.

“We are having to front-load the $5.2 billion (in retiree pensions); that’s why we’re going into the red in one year,” Reilly said, explaining that the entire amount is being posted in the audit rather than in a footnote as had been done previously. In the past, there was a concern that pension obligations were not reflected properly in audits, Reilly said, adding “This change is happening in government and financial statements and put longterm and pension benefits on the books.”

The numbers will only get worse, because LAUSD’s other post-employment benefits, which are unfunded for the district, are estimated at $10.9 billion. The total is only expected to increase because of rising medical costs and longer life spans.

The district’s retirement health plan costs $800 million a year, and it was eventually going to put the district in the red, Simpson said, but the new pension accounting escalated the numbers.

The audit report was made at the Budget, Facilities and Audit Committee and four of the seven board members were in attendance. The audit is required by law for the district and cost $879,000, taking 10,000 hours to complete, Simpson said.

The audit includes depreciation on buildings owned by the district. That resulted in capital assets decreasing by $44.7 million. The district also had to repay nearly $580 million in bonds.

Board member Richard Vladovic pointed out that the capital depreciation is unfair because it doesn’t include the value of the land.

Confirming the reliability of the report, Reilly said “We have to have discussions about what the trends are saying and peel that onion back a little bit.”

Mónica Ratliff, who chairs the budget committee, said it is important to have an independent analysis of the district finances. She said she attended some of the superintendent search forum meetings and was surprised about the number of people who did not trust the district’s budget and thought money was being hidden.

“It is essential to be transparent with the public and have an independent auditor and see that everything is under standard procedure. I greatly appreciate that,” Ratliff said. “Now we need to see recommendations to handle our total liability.”


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