L.A. Unified at the fiscal cliff
Its deficit is growing. Its health and pension costs are coming due. Its financial outlook is grim.
Iany more prodding about the looming budget pitfalls, the Los Angeles Unified School District certainly got it this week. An analysis by the nonprofit journalism organization CALmatters showed that the cost of L.A. Unified’s employee benefits has been growing faster than its base funding for five years. And a report by an outside task force put the district’s dilemma in blunt terms:
“L.A. Unified is facing a structural budget deficit which threatens its long-term viability and its ability to deliver basic education programs. The District’s own forecasts show it will have exhausted its reserve fund balance by 2020-21, will have a budget deficit of $400 million in 2020-21, and therefore be insolvent.”
The report noted that the district’s pension contributions will rise dramatically in coming years. And for the report’s ultimate shocker, there’s this: Within 13 years, the district’s healthcare and pension costs will eat up more than half its annual budget.
The report offers no hope of rescue coming from outside. A softening economy is forecast for the state, limiting future funding increases for schools. The district was already plowing through its healthcare reserve this last academic year to pay for higher medical costs.
L.A. Unified isn’t the only district with old benefits deals coming due now. Most school districts and municipal governments in California face similar situations. But L.A. Unified has been losing enrollment as well, in part because of charter schools, and daily attendance is the basis for the state payments that are the heart of its revenue.
The former head of the task force is Austin Beutner, L.A. Unified’s new superintendent. (He also was once publisher of The Times.) In other words, he’s likely to pay serious attention to the report and was hired in part for his determination to tackle the district’s financial issues.
But the report offers no clear recommendations, just a lot of data about how L.A. Unified stacks up against several “peer districts” with similar demographics. According to the data, L.A. Unified’s salaries and health costs per teacher are higher, even when adjusted for cost of living, and the district provides less instructional time.
That information provides at least a starting place for the district to begin its own examination of where it might save money, though the peer-district information is too lacking in detail to make meaningful comparisons. Only one is in California — Oakland — and many issues that affect a district’s costs might be quite different in L.A. than in Denver, Cleveland or Palm Beach, three of the comparison districts.
Union officials object to any cuts in pay or increases in contributions toward benefits; they say the district can sit tight and count on a bailout from the state, which has always found more money for schools when needed — and they may be right.
But L.A Unified cannot run on union leaders’ faith. The district’s single biggest expense is teachers — as it should be — and if significant sums have to be trimmed, it’s unlikely that can be done without some kind of hit on teachers. The district’s class sizes already are too large; those cannot be expanded substantially to bring down costs. Instead, the pressure will be on salaries and benefits, which could make it hard for L.A. Unified to attract and retain good teachers in a seller’s market.
Teachers’ pension and health costs aren’t the only benefits affecting the district’s finances. Those for operations workers — security, cafeteria workers and the like — are disproportionately large, according to a consultants’ report that the task force relied on. In 2007, the board voted to provide full health benefits to part-time cafeteria workers at a cost of about $35 million a year, money that its superintendent at the time warned the district didn’t have.
There are reasonable ways to shave healthcare costs. The district’s own internal review suggested a modest 10% contribution by employees toward their health premiums, which are now paid by the district. No one is likely to end up happy as the district works toward fiscal sustainability; the best to hope for is a fair and collaborative process. Unfortunately, given the sentiments of union leaders, that isn’t likely to happen.