LOS ANGELES — The Los Angeles Unified School District's decision to create task forces aimed at cutting costs to avoid a projected $333 million deficit in 2017-2018 is a credit positive, according to Moody's Investors Service.
The school board created the task forces after receiving a report that forecast "significant financial trouble" if the district did not begin to implement cost-cutting measures immediately, according to a Moody's comment published last week.
The projected deficits are on pace to nearly double to $600 million by 2020.
The school district's chief financial officer convened an independent review panel six months ago to evaluate the district's financial situation. The panel presented its report to the school board on Nov. 11.
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."
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.
Those factors combined with projected loss of revenues from the scheduled expiration of the state's temporary Proposition 30 tax increases are responsible for the projected shortfalls in 2018, Moody's analyst Christian Ward wrote.
Increases in charter school enrollment and declines in birth rates have caused the district's student enrollment to plummet to 542,000 recently, a 100,000 drop in a six year period, according to recent school district figures.
The loss of 100,000 students equates to about $900 million of lost state aid revenues for the district, according to Moody's.
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 tenured high-salaried employees that would save upwards of $400 million, and creating a task force to improve student attendance, which is how state funding is determined.
"The district's costs related to salaries and benefits are elevated," Ward wrote. "More than 56% of teachers are at the maximum salary level, which is 10% higher than the state average."
Health care benefits currently eat up 27% of average daily attendance revenues and are 9.4% higher than the state average, according to the Moody's comment.