LOS ANGELES, CA – A state fiscal oversight team told the Los Angeles Unified School District Board of Education that the nation’s second-largest school district is at high risk of insolvency and could exhaust its flexible reserves within two years without major changes, according to an analysis presented Oct. 6.
The Fiscal Crisis and Management Assistance Team, known as FCMAT, presented its Fiscal Health Risk Analysis at the board’s regular meeting on Tuesday, Oct. 6, at 333 S. Beaudry Ave. The revised agenda for the meeting lists the FCMAT report under the Superintendent’s Reports.
The report cites deficit spending, declining enrollment and rising salary and special education costs. FCMAT said the district needs to cut $3.6 billion to stay afloat.
Without fully carrying out the Fiscal Stabilization Plan the board adopted in June, the report warns, the district could exhaust its rainy-day funds during the 2027-28 school year. United Teachers Los Angeles disputes that assessment.
FCMAT report dated Sept. 30
FCMAT’s reports page lists a Los Angeles Unified School District report dated Sept. 30, 2026, described as a fiscal health risk analysis. The same page lists FCMAT oversight evaluations of the Los Angeles County Office of Education dated March 9, 2026, Dec. 17, 2024, Oct. 17, 2022 and April 22, 2021.
FCMAT is a state team that reviews the finances of local education agencies. Its analysis for the district was presented to the Board of Education in open session during the Superintendent’s Reports portion of the meeting.
How the risk analysis works
According to FCMAT’s description of the Fiscal Health Risk Analysis, the team developed the tool to help evaluate a local education agency’s fiscal health and risk of insolvency in the current and two subsequent fiscal years.
The analysis is built on a series of questions. FCMAT says the greater the number of “no” answers, the higher the score, which points to a greater potential risk of insolvency or fiscal issues.
On FCMAT’s scale, a score of 40% or more indicates high risk, 25% to 39% indicates moderate risk and 24% or lower indicates low risk.
Enrollment falls while staffing rises
The report points to fewer students, more staff and higher costs as factors in the district’s financial position. Since the 2019-20 school year, enrollment at non-charter schools has fallen about 16%, while staffing has increased more than 6%.
The report also states that special education expenses rose more than $500 million over two years.
The district’s 2026-27 budget, adopted in June, is about $20.6 billion, with a General Fund of about $12 billion, according to the district’s announcement of the budget adoption. The board adopted the Fiscal Stabilization Plan alongside the budget and the Local Control and Accountability Plan.
Salaries and benefits dominate spending
FCMAT intervention specialist Jennifer Noga told the board that salaries and benefits account for 90.8% of the district’s unrestricted general fund budget for 2026-27. She also said FCMAT’s role is to identify fiscal risk, and that decisions about which programs to preserve are local ones.
FCMAT’s outgoing CEO, Michael Fine, said the district must reduce salaries and benefits. He said cutting travel by 10% or supplies by 10% would not balance the budget.
Chief financial officer says deficit persists
LAUSD Chief Financial Officer Saman Bravo-Karimi told the board that even with the Fiscal Stabilization Plan fully implemented, the district would still be spending more money than it brings in.
Superintendent Andres Chait urged the board and the district to follow the stabilization plan adopted in June.
The plan covers central office reductions, program and allocation adjustments, and operational efficiencies and school consolidation. The plan presented to the county in June cites a reduction of 5,690 full-time equivalent positions and $2.4 billion in savings over three years, according to initial reports.
Union says the analysis overstates the risk
United Teachers Los Angeles said the assessment overstates the future risk and penalizes the district for paying teachers more. The union argues the pay increases are necessary for educators to afford to live in Los Angeles.
UTLA Vice President Julie Van Winkle said the union is deeply concerned about a narrative about schools that is being imposed by people focused solely on layoffs and closures. She said FCMAT presented the most austere version of the numbers.
The union’s characterization is its own position. FCMAT’s analysis rests on the district’s financial data and the criteria in its risk tool.
Board member defends support staff
Board member Karla Griego defended the added staffing for math and reading interventionists and for on-campus mental health specialists. She said many of the positions that support students’ well-being will be gone under the cuts.
The comments tie the staffing debate to the savings the plan requires. The report’s figures show staffing up more than 6% since 2019-20 while non-charter enrollment fell about 16%.
County determination came first
The state analysis follows action by the Los Angeles County Office of Education. On July 2, Los Angeles County Superintendent of Schools Debra Duardo sent the district a letter determining that it meets the statutory criteria for a “Lack of Going Concern” designation. The determination states that the district may be unable to meet its financial obligations in 2027-28 and 2028-29.
The district responded in a statement on the county’s fiscal oversight determination, reaffirming its commitment to long-term fiscal stability. The county assigned a fiscal expert, Octavio Castelo, to work with the district on the stabilization plan.
The county also conditionally approved the district’s 2026-27 budget. The conditions include a timeline for each stabilization action and an updated cash forecast.
Furloughs and health care changes require bargaining
Some of the savings in the plan depend on labor agreements. Proposed furlough days and changes to employee health care contributions require negotiations with the unions.
District officials said that if those savings do not materialize, they would have to find equivalent cuts elsewhere. Fine’s comments to the board were directed at the largest part of the budget, compensation, rather than at smaller operating lines.
County deadline for district response was Oct. 8
The county set Oct. 8 as the deadline for the district to respond to its budget conditions. The district’s response had not been made public in the information available Thursday.
A cash insolvency was projected as early as November 2027 in the county’s analysis, with a $231 million shortfall, and the next level of county oversight would be a fiscal advisor with authority to rescind contracts approved by the board, according to initial reports.
For now, the state team has found the district at high risk of insolvency, the board has the report in hand and the stabilization plan remains the district’s stated path. The union negotiations that the plan’s furlough and health care proposals depend on have not concluded.
