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Senator: LAUSD Budget Crisis Could Take Down State Budget

Moorlach warns crippling long-term debt may doom the school district and the state

By Katy Grimes, January 17, 2019 10:51 am

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While the Los Angeles Unified School District contract negotiations with the Unified Teachers of Los Angeles labor union led to a massive strike this week, the fight over hiring more teachers and school staff in the nation’s second largest school district may likely be a moot point if LAUSD’s total $25.9 billion deficit is not dealt with.

California State Sen. John Moorlach (R-Costa Mesa) has issued many warnings about the Los Angeles Unified School District budget crisis, saying it is so big it could wipe out the California budget surplus… and perhaps the state budget.

“The main culprit in negative CAFRs is unfunded pension liabilities,” Moorlach wrote in a recent op-ed for California Globe.

The LAUSD has the largest unrestricted net deficit of any California school district, at $10.9 billion, Moorlach said. And now that the district has to report the retiree medical unfunded liability on the balance sheet means it will increase LAUSD’s deficit by another $15 billion… the amount of the state’s budget surplus, which is “a mirage,” says Steven Greenhut for R Street.org. “The budget surplus doesn’t take into account the size of California’s unfunded pension and medical liabilities for public employees.”

“LAUSD doesn’t have two nickels to rub together,’ Moorlach told LA School Report. His research ranked the district’s per-person contribution cost as one of the highest among California’s 944 public school districts.

Moorlach’s 2018 report, “Financial Soundness Rankings for California’s Public School Districts, Colleges & Universities,” found two-thirds of the 944 state school districts “bleed red ink.”

The Senator’s report found the worst school district was Los Angeles Unified at $10.9 billion in the red. Closely behind is San Diego Unified at -$1.5 billion, Fresno Unified at -$849 million, San Francisco Unified at -$770 million, Long Beach Unified at -$564 million, and Sacramento City Unified at -$540 million.

Sen. John Moorlach. (Katy Grimes for California Globe)

Moorlach’s report found only seven districts in the whole state with enrollment of 2,000 or more were in the black.

“School districts that utilize California’s Financial Crisis & Management Assistance Team (FCMAT) for emergency loans usually request amounts that are at a minimum two times, with most multiple times more, the size of their unrestricted net deficits,” Moorlach warns. “Oakland Unified’s unrestricted net deficit in 2003 was $48.7 million when it was loaned $100 million. South Monterey County Joint Union High’s unrestricted net deficit was less than $2 million when it borrowed $13 million,” he said.

“It looks like LAUSD will have an unrestricted net deficit of $25 billion!” Moorlach said. “If it comes to the state for a loan from FCMAT, where will Sacramento find $50 billion to lend it?”

While Moorlach recommended offering early retirement incentives as a cost-cutting measure, one of the demands the striking LA teachers union has is more teachers, staff and administrators. Moorlach said when a San Diego area school district board voted in December to offer early retirement incentives, the San Diego County Office of Education voted to take away the school board’s decision-making control.

“United Teachers Los Angeles has rejected the district’s proposal to shave off costs by adding two years to how long it takes new employees to become eligible for free lifetime health benefits — something other L.A. Unified unions have already accepted,” said the LA School Report.

Sen. Moorlach warns against a blanket bailout of school districts by the state. “He’d support increasing education spending if he had some assurances that unions would give ground on negotiable benefits like retiree health care,” the Sacramento Bee reported. “We can’t just give districts that have not been good stewards more money. You have to ask for something in return,” Moorlach said.

On his own blog, JOHN MOORLACH’S POSTINGS, he writes:

“Sacramento City Unified has a population of close to 350,000 and covers a significant amount of real estate in the Capital area. It is also having issues… but at least its teacher’s bargaining unit is not as out of touch as LAUSD’s and has not called a strike. But it threatened to strike in 2017. The school district board of trustees gave in and granted wage increases, but now look where that has brought them.”

“I warned that the new Governor’s first crisis may be the school districts. The drum beats on this topic continue to grow louder with each passing week.”

Gov. Gavin Newsom has not involved himself in the LAUSD strike, and has issued only one statement: “Last week, I submitted a budget to the Legislature that would make the largest ever investment in K through 12 education, help pay down billions in school district pension debt and provide substantial new funding for special education and early education,” Newsom said.

“LAUSD’s Unrestricted Net Positions per capita is three times that of the average for the entire Orange County!” Moorlach said. “That’s how massive LAUSD’s fiscal hole is… So, this CPA doesn’t know where the union demanded pay raises are going to come from.”

Katy Grimes

Katy Grimes, the Editor of the California Globe, is a long-time Investigative Journalist covering the California State Capitol, and the co-author of California's War Against Donald Trump: Who Wins? Who Loses?
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