End of Los Angeles teacher strike leaves tough budget decisions

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LOS ANGELES — With Los Angeles Unified School District teachers back in their classrooms, school officials have resumed the hard work of trying to close a structural budget deficit.

Lost in the furor over the United Teachers Los Angeles six-school-day strike was the fact that Los Angeles County Superintendent of Schools Debra Duardo had assigned a team of fiscal experts to the school district on Jan. 9, five days before the teachers went on strike.

“Forty years of underinvestment in public education cannot be solved in just one week or with just one contract,” LAUSD Superintendent Austin Beutner said. “Now that students and all educators are heading back to the classroom, we must focus our attention to properly fund our schools for the long term.”

The agreement reached Jan. 22 after the two sides pulled an all-nighter in talks provides a 6% salary increase for teachers retroactive to the beginning of the school year, reduces class sizes, adds a significant number of librarians, counselors and nurses, and maintains the fiscal solvency of the school district, according to school district officials. UTLA, which represents teachers, nurses and counselors, had originally wanted the raise retroactive to 2017-18, but agreed to the lower salary increase.

UTLA President Alex Caputo-Pearl said throughout that the strike wasn’t just about pay. The district agreed to place a cap on class sizes and reduce class sizes more significantly than it originally offered and to form a joint committee to look at charter school co-locations. California school districts are required to offer charter schools first dibs on any vacant buildings on school property.

“This is much more than a narrow labor agreement,” Caputo-Pearl said. “It gets at so much more including social justice and racial justice.”

The district also agreed to limit random searches of students.

Even before the strike, the school district was already anticipating that its $1.8 billion reserve would be depleted by the 2021-22 school year. Of the existing reserve, $500 million is earmarked for federal and state-required programs such as tutoring and intervention programs for impoverished students.

An additional $500 million is being used for the 6% pay raise, which covers all employees, not just teachers, and to pay for additional nurses, counselors and librarians. The school district had anticipated the remaining $800 million would be spent during the 2021-22 school year.

The agreement will cost the school district $403 million over four years, which is $273 million more than the $130 million cost of the district’s pre-strike offer, according to school district officials.

District officials say they have already figured out where in the budget the money will come from. It had already budgeted for the 6% salary increase, said Barbara Jones, a school district spokeswoman. A portion of the $403 million will come from assigned reserves, such as a school-site carryover from the current year, and a portion will come from an anticipated increase in state revenue, Jones said.

“We have commitments from the state and county, such as the $10 million approved by the Los Angeles County Board of Supervisors for mental health,” Jones said.

The Board of Supervisors motion also asked county health departments to identify funding sources to help the school district provide more nurses.

California Gov. Gavin Newsom’s budget proposal would increase K–12 education spending by $2.3 billion and provide $3.7 billion to help all districts deal with rising pension costs. Newsom’s pension proposal is for a one-time $3 billion contribution to the California State Teachers' Retirement System and $700 million in each of fiscal year 2019–20 and 2020–21 to reduce the rates districts are charged for their employees’ pensions.

"The settlement reached between the Los Angeles Unified School District and its teachers’ union is a manageable outcome for the district," Moody's Investors Service said in a statement. "Preliminary indications are it does not exacerbate the district’s current structural imbalance or projected deficit spending. Significantly, the union agreed to the district’s original two-year, 6% pay increase. The district agreed to additional staffing although the sustainability of these efforts depends upon future state funding levels and pension support."

The district will lose $150 million in state funding, because attendance in the 486,000-student school district fell more than 60% below normal levels for each day of the strike, according to the district. It saved $60 million from not having to pay the striking teachers.

Changes weren’t made to the retiree healthcare package for current employees, Jones said. But changes to employee eligibility will be part of any contract re-opener for the coming year, she said.

The district has told LACOE that its projected deficits are primarily due to revenue loss associated with declining enrollment, the increasing costs related to pensions, special education encroachment and facilities maintenance required minimum contributions.

Duardo congratulated the school district and United Teachers Los Angeles for reaching an agreement.

The task for her County Office of Education will now be to ensure that the district has a funding plan in place to cover the costs associated with the agreement so that it can remain fiscally solvent.

LACOE will review and provide comments on the agreement before the school board takes action, said Candi Clark, LACOE's chief financial officer. Duardo had previously told the board in her letter that LACOE would "study closely any settlement reached to ensure that any additional financial commitments are combined with appropriate reductions to achieve a balanced budget."

"In addition, while the state budget has yet to be issued, we also remain concerned about meeting ongoing expenditures with one-time revenues, so we do not view any potential one-time revenues from the state as an ongoing solution," Duardo said.

The fiscal team that LACOE appointed to help get LAUSD out of the red is headed by James Morris, who worked for decades in administrative positions at LAUSD including chief operating officer. He retired in June 2017 after seven years as superintendent of the Fremont Unified School District.

The decision to send a fiscal team in to help the school district, came after months of warnings and a continued worsening of LAUSD’s financial situation, Clark said. Since 2016, LACOE has been cautioning the district about deficit spending and declining enrollment, Clark said.

"We have been saying they need to get the situation in check," Clark said.

The county schools’ chief had asked LAUSD in November to make financial adjustments by Dec. 17 to ensure that the school district’s financial health is secure.

What changed in December when LACOE said it would send in a fiscal advisory team is that the interim budget it sent the county was "qualified," meaning it may not meet its financial obligations for the current or two subsequent fiscal years.

The school district not only failed to address its deficit situation with the budget it submitted to LACOE, but its financial situation got substantially worse from November to December, Clark said, of why they decided to send in a fiscal team.

"We are particularly concerned about the 90% drop in reserves," Clark said. "This is a serious challenge that the district is going to have to resolve."

The district's general fund projection has the reserves falling from $755 million in fiscal 2018-19 to $70.8 million by 2020-21.

A qualified budget status also means that the district cannot issue non-voter approved debt, such as certificates of participation, tax anticipation notes, revenue bonds, or any other debt instruments that do not require the approval of the voters, this year or next year unless LACOE determines that the repayment of that indebtedness is probable.

LAUSD can still issue voter-approved general obligation debt, which is paid from property taxes collected directly by the county, but not anything that is repaid by the district's general fund, Clark said.

The district said there is no plan to issue any non-voter approved debt in the next two years.

Speaking generally, Clark said that if the county had a school district on the verge of insolvency, it would be highly unlikely that the county would allow the school district to issue more debt. The main thing that the county would be looking at is the school district's ability to repay non-voter approved debt, she said.

"We wouldn’t compound the situation and let them incur more debt," Clark said. "We would work with them on improving their existing fiscal situation and try to stabilize the situation before allowing them to issue debt. That is the purpose of the county review. You don’t want the school district incurring more debt and making the situation worse."

The fiscal advisory team led by Morris has until March 18 to submit a second interim fiscal stabilization plan.

Clark declined to talk about what the next step might be if the fiscal advisory team can't help the district right its financial ship saying she is optimistic that it can be done. She added, however, that the work is collaborative and it requires that Beutner and the school board work with the team to move the district into a different trajectory.

"I can hopeful that the governing board recognizes this is a serious issue and is prepared to do what is necessary to resolve this issue," Clark said.

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