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Outside panel says LAUSD needs to act quickly to remain solvent

Mike Szymanski | November 6, 2015

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Screen Shot 2015-11-06 at 9.43.11 AMLA Unified is on the brink of a severe financial crisis and if officials don’t act now, the whole district could go bankrupt.

That’s the overall conclusion of a report by an outside panel asked to look at the financial situation of LAUSD. Its findings are scheduled to be presented at the regular school board meeting Tuesday. The Report of the Independent Financial Review Panel also contains strong recommendations that involve cutting staff, curtailing health benefits and finding strategies to keep more children in school.

If the district wants to survive beyond 2020, the panel said “a combination of difficult, substantial and immediate decisions will be required. Failure to do so could lead to the insolvency of the LAUSD, and the loss of local governance authority that comes from state takeover.”

The panel concluded, “This outcome would represent a total failure of the educational system for the state and for our local community and is therefore unacceptable. Our recommendations are intended to prevent the district from moving closer to the brink.”

This report represents a collaboration of professors, politicians, business leaders and education experts, appointed by district superintendent Ramon Cortines six months ago. The group confirmed a lot of what the district already knew: that LAUSD will face a budget deficit of $333 million in the 2017-2018 school year, $450 million the next year and $600 million in 2019-20 — all driven primarily by a declining enrollment and increases in pension and healthcare costs.

The report, obtained by LA School Report, said, “This expanding gap represents a serious challenge to the LAUSD’s financial stability in the near term, one that insists upon immediate action today.”

Some of those actions describe how much money could be saved by taking specific actions:

  • Upwards of $400 million by offering early retirement to senior level staff.
  • $100 million by negotiating a cap on district health care.
  • $57 million by shifting 10 percent of the cost of health care benefits to employees.
  • $45 million by increasing attendance rates to the statewide average.
  • $50 million eliminating general fund contributions for Food Services.
  • $10 million by eliminating the Teacher Pool, where displaced teachers are used as substitutes and paid a higher rate.

The panel doesn’t blame the district in any way and notes that Chief Financial Officer Megan Reilly reached similar conclusions. She said in a statement today that the findings “reflect the budget realities we face and the need to create long-term financial strategies. I am extremely proud of this work and the amazing leadership of our board and superintendent to have these important conversations boldly and in public.”

Reilly added, “Let me be very clear, I supported and continue to support access to more programs for our students, adequate funding for all students, including special-education programs and better wages for our employees”

The panel also recommended that the district consider pushing for passage of a parcel tax. The membrs found that compared with other states, California has a portion of school funding provided by state income and sales tax that is much higher than other states but the role of local property tax is much lower.

The report finds that the per-student funding level for LAUSD, the second largest district in the nation, is about $12,691. The nation’s largest school district, New York City Public Schools, provides nearly double, $23,690. In fact, LAUSD’s revenues fall $1,659 per student below the average revenue amount for the top 10 districts in the country. If LAUSD received this funding, total funding would be about $800 million more per year, the panel said.

“It is clear that the effect of California’s ranking near the bottom of the nation in per-student funding has taken its toll on LAUSD finances,” the members wrote.

One of the biggest reasons that district is suffering financial losses is the decline of enrollment. In six years, LAUSD has lost almost 100,000 students and now serves about 550,000 students. About half of the loss of students is because of enrollments in charter schools, but about half of the students are simply because of low birth rates as well as students dropping out of school or transferring to other school districts. This, of course, is all before the start of a Broad Foundation plan to move half the district’s students into charter schools within the next eight years.

MeganReilly.27.39 PMThe panel did find that even though the number of students went down, the district’s employment rolls have increased, to 64,348 in the current year from 64,116 in 2013, and said that “these staffing levels need to be reexamined.”

Among some of the specifics in the report, the panel found that if even the teaching staff had a better attendance rate, improving from the current 75 percent to a 90 percent, it could save the district $15 million a year in costs for substitutes.

The district could also save money by looking at using the Federal Affordable Care Act as the standard for retirees or consider going to a 90/10 contribution rate health benefit plan that could save $57 million.

In response to the panel’s work, Cortines said in a statement,  “The panel has provided a detailed report that outlines a framework to address the substantial long-term challenges we face as a district.”

He said he wanted the district to “hold up a mirror and ask outside experts to come in and fully review our financial situation.” Because Cortines plans to leave by the end of the year, he said, “This report comes at an important time, and I hope it will give the new superintendent a starting point for the important discussions that will take place in our district. If I were the incoming superintendent, this is exactly the type of report I would want to see.”



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