Los Angeles Unified School District (LAUSD), the nation's second-largest school district, is facing a severe financial crisis, with county officials warning it could run out of cash within two years. The Los Angeles County Office of Education has given the district 45 days to overhaul its budget, citing projections that its cash balance could fall $231 million into the red by November 2027, making it unable to meet payroll.
County Superintendent Debra Duardo issued a rare “Lack of Going Concern” determination on July 2, stating the district may not be able to meet its financial obligations during the 2027-28 and 2028-29 school years. Duardo described the situation as “very serious” and attributed the crisis largely to labor agreements approved by the school board despite affordability warnings. These contracts, ratified on June 16, are projected to add $1.13 billion in costs this school year, increasing to $1.44 billion by 2027-28 due to double-digit raises for employees.
County officials also criticized the district for failing to implement approximately $231 million in planned budget cuts. Further compounding the issue, the school board withdrew $175 million from a retiree health benefits trust fund on the same night it approved the labor contracts, a move the county stated “further erodes confidence” in LAUSD’s budgeting.
The district's financial strain is also exacerbated by years of declining enrollment. LAUSD currently serves about 390,000 students, a significant drop from the early 2000s, which has reduced state funding. County officials noted that staffing levels have not decreased proportionally.
The county's projections indicate that LAUSD's month-end cash balance will become negative in November 2027 and remain so for several subsequent months, which county officials identified as the “most immediate and severe indicator of insolvency.”
To address the crisis, the county has assigned fiscal expert Octavio Castelo to collaborate with district leaders. If LAUSD fails to rectify its financial situation, officials could appoint a fiscal adviser with the power to veto school board spending decisions. A state bailout, if necessary, could result in the elected board losing its authority entirely.
Despite the county's stern warning, Superintendent Andres E. Chait attempted to reassure stakeholders, stating, “This determination does not change our commitment to students, families or employees. Our schools will continue to operate as normal while we work closely with LACOE to strengthen our long-term financial outlook.”
However, school board member Tanya Ortiz Franklin, who opposed the district’s fiscal stabilization plan, expressed that the situation was avoidable. “This was preventable — not just in June, but months and years ago,” she said.
Employee unions have contended that the district's financial projections do not account for expected increases in state funding. Meanwhile, education advocates argue that California schools are owed substantial additional funds under state law.
Governor Gavin Newsom recently signed legislation to increase K-12 special education funding by $2.4 billion, representing a 43% rise. Despite this, county officials maintain that LAUSD must still balance its own budget.
The district's current budget includes provisions for over 1,000 job cuts, with thousands more anticipated in the next three years. Unpaid furlough days for employees could also commence as early as the fall. The school board is scheduled to re-examine the budget upon its return in August. Failure to meet the county's requirements before the 45-day deadline expires could lead to stricter financial oversight for LAUSD.