LOS ANGELES — An independent report commissioned by the Los Angeles Unified School District's superintendent predicted dire financial results for the school system if it doesn't take immediate action.
The school district currently projects a $333 million budget deficit for the 2017-2018 school year, which is on pace to nearly double to $600 million two years later.
The 75-page Independent Financial Review Panel report said if the district "desires to continue as a going concern beyond fiscal year 2019-2020," a combination of "difficult, substantial and immediate decisions will be required."
Failure to do so could lead to school district insolvency, and the loss of local governance authority that comes from state takeover, according to the report.
"I think they are in a tough position," said Carrie Hahnel, deputy director of research, policy, and practice at The Education Trust-West, noting the scheduled expiration of temporary state tax increases authorized under Proposition 30 in 2012. Much of the revenue generated by those taxes has funded K-12 education.
"They are facing a fiscal cliff with Prop. 30 expiring, healthcare costs and pensions increasing and enrollment decreasing," Hahnel said. "They are facing a perfect storm unless they rapidly adjust to declining enrollment and engage in advocacy to support renewal of the expiring taxes."
LAUSD Superintendent Ramon Cortines asked Chief Financial Officer Megan Reilly to convene the panel six months ago. It was presented to the school board Tuesday.
The board approved a balanced budget for 2015-16, according to Reilly, who said in a statement she has every expectation it will do so for the next two fiscal years.
"The findings of the Independent Review Panel reflect the budget realities we face and the need to create long-term financial strategies," Reilly said.
The panelists were nine regional and state civic leaders, including former State Treasurer Bill Lockyer; Peter Taylor, a former municipal investment banker who went on to spend five years as chief financial officer of the University of California system; Los Angeles' chief administrative officer, Miguel Santana; and former state Senate President Pro Tem Darrell Steinberg,
The report attributed the district's financial woes, in part, to declining student enrollment, expensive employee benefits, and special education services that aren't fully reimbursed by the federal government.
The school district's enrollment has fallen by roughly 100,000 students over the past six years, nearly half because students enrolled in charter schools, the report said. The second-largest school district in the country enrolls more than 600,000 students.
The panel had an extensive list of recommendations with an estimated savings of $685.2 million.
Among the suggested changes were renegotiating contracts to reduce pension and healthcare costs, offering an early retirement program for senior level staff that would save upwards of $400 million, and creating a task force to improve student attendance, which is how state funding is determined.
The report said an extension of Prop. 30 tax increases alone would not resolve the district's deteriorating financial condition.
The California Teachers Association and other civil service unions filed an initiative in late September seeking to extend part of the temporary tax package, targeting income taxes on couples that earn more than $500,000.
The panel "is not attributing the financial condition to financial mismanagement, but just the demands on the school district from declining enrollment and pension costs at a time in which they have an uncertain revenue source with Prop 30 expiring," Hahnel said.