State watchdog says LAUSD is at 'high risk' of insolvency, with a $231 million cash gap looming in 2027

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Headline graphic: High risk of insolvency, over a file photo of University High School in Los Angeles

Cover photo: File photo (University High School, an LAUSD campus, 2023) by Jengod, CC BY-SA 4.0, via Wikimedia Commons; cropped, darkened and text added by The Southbound 105.

By The Southbound 105 | Oct. 10, 2026

LOS ANGELES — The Los Angeles Unified School District is at high risk of insolvency, California's school-finance watchdog has concluded, warning that the nation's second-largest school district could run through its reserves within two school years unless it follows through on deep budget cuts.

The Fiscal Crisis and Management Assistance Team, known as FCMAT, presented its analysis to the LAUSD school board on Tuesday, Oct. 6. The state agency pointed to declining enrollment, labor contracts that pushed up spending, and rising costs for special education.

County education officials had already projected in July that the district could be about $231 million short on cash by November 2027, which would leave it unable to make payroll, the Los Angeles Times reported at the time.

How the rating works

FCMAT's 20-part Fiscal Health Risk Analysis gave LAUSD a score of 37.9%, which on its own counts as moderate risk. But the agency said the Los Angeles County Office of Education's earlier finding that the district lacked "going concern" status raised the overall rating to high. That county review is also what triggered the state evaluation.

"FCMAT's role is not to determine which programs the district should preserve, which reductions it should make or what agreements it should reach with the labor [unions]," Jennifer Noga, an intervention specialist with the agency, told the board, LAist reported. "That is 100% a local decision."

The numbers

According to the report, the district's 2026-27 budget includes about $1.75 billion in unrestricted deficit spending, which would shrink its unrestricted fund balance from about $2.51 billion to $755.9 million. Without changes, the district would run out of that money during the 2027-28 school year, falling to negative $859.3 million and then negative $3.05 billion by 2028-29.

Enrollment at district-run schools fell by 28,051 students in three years, from 381,116 in 2023-24 to 353,065 in 2025-26, while total staffing rose over the longer term, the report says. Negotiated raises exceeded the state's funded cost-of-living increase in each of the past three years. Salaries and benefits now make up 90.8% of the district's unrestricted general fund budget, above the statewide average of 86% for unified districts.

A plan on paper

On June 16, the same night it approved new labor agreements, the school board adopted an amended Fiscal Stabilization Plan that identifies about $3.6 billion in cuts and new revenue through 2028-29. If fully carried out, the plan would keep the district's reserves above the legal minimum, FCMAT said. But several key pieces had not been put in place at the time of the review, and some depend on union bargaining or future board votes.

The plan includes eliminating thousands of jobs and cutting funding for high-needs schools, LAist reported, and furlough days planned for 2027-28 must first be bargained with unions. EdSource reported that layoffs, furloughs and school consolidations are likely to be discussed.

"Los Angeles Unified has been transparent about significant financial challenges," the district said in a statement to the Times. "The Board has already adopted a fiscal stabilization plan to address these challenges, including making difficult decisions to maintain the District's financial health."

Union pushback

United Teachers Los Angeles argued that the analysis penalizes the district for paying teachers more and overstates the risk. "There are different ways to tell a story with numbers and statistics and data, and we just think that FCMAT is presenting the most austere version of that," union vice president Julie Van Winkle said, according to LAist.

What's next

The county office of education conditionally approved the district's $20.6 billion spending plan for 2026-27 and gave LAUSD until Oct. 8 to answer its conditions, including a timeline for every action in the stabilization plan and an updated cash forecast. The county will continue to monitor the district, and if LAUSD can't show it can stay solvent, it risks losing control over major spending decisions.

Sources

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