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As Teachers in Los Angeles Strike, the City鈥檚 School District Is Warned That It Could Lose Control of Its Finances If It Agrees to a New Contract That Depletes Reserves

Los Angeles Unified School District Superintendent Austin Beutner speaks during a press conference at LAUSD Headquarters in Los Angeles Jan. 9, 2019. (Francine Orr/Los Angeles Times via Getty Images)

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L.A. Unified could lose control of its finances if it signs off on a heftier contract agreement with its teachers union that drains its reserves past the mandated minimum level, County Superintendent of Schools Debra Duardo told LA School Report.

鈥淚f [L.A. Unified and UTLA] did come to an agreement that was going to put them so much more in the red, then [district officials] would have to show us 鈥 and [I鈥檓] not saying they can鈥檛 negotiate a higher rate 鈥 they just need to show us what cuts they鈥檙e going to make鈥 to meet minimum reserve requirements, she said. Otherwise, the school board and its superintendent could lose financial decision-making power, and a county-appointed adviser would have the power to invalidate any prospective labor contract.

Late Friday, United Teachers Los Angeles rejected a new offer from the district聽and refused to continue negotiations. Teachers began their strike Monday morning.

The county聽聽Wednesday that it is sending a team of fiscal experts to the district 鈥渋mmediately鈥 to help craft a new聽聽after L.A. Unified鈥檚 updated December budget showed reserve levels at 0.96 percent of its total expenditures in 2020-21. California school districts聽聽budget updates twice a year to their county office of education outlining their financial projections for three years; in these updates, minimum reserve levels must sit at 1 percent or more of the district鈥檚 total expenditures. If not, county overseers are required to step in. L.A. Unified projects its reserve for 2020-21 at聽. It needs to be at about $75 million to hit that 1 percent marker.

Duardo said the team will likely be four people, led by L.A. Unified鈥檚 former chief operating officer Jim Morris, arriving at L.A. Unified next week. She noted they will only play an advisory role and would 鈥渁bsolutely not鈥 be involved in contract negotiations with United Teachers Los Angeles.

鈥淭hey鈥檒l be in the district [full time] and sitting down with [officials], starting with reviewing their current budget, looking at their current fiscal stabilization plan, and working with them on a daily basis,鈥 Duardo said. 鈥淭hey鈥檒l be there hands-on, not just popping in and out.鈥 The new Fiscal Stabilization Plan is due to the county Office of Education by March 18.

If that report 鈥渄oesn鈥檛 meet our expectations,鈥 Duardo said 鈥 or if L.A. Unified reaches an agreement with UTLA and can鈥檛 account for a 1 percent reserve for 2020-21 鈥 鈥渨e can [decide to install a fiscal adviser] in a matter of days.鈥 Duardo refrained from expanding on what kind of cuts she would like to see to the district鈥檚 budget.

A county-appointed聽聽would have 鈥渟tay and rescind power,鈥 meaning he or she could rewrite budgets and overturn school board decisions. A fiscal adviser can also 鈥渟top [labor agreements] that are upcoming,鈥 L.A. Unified鈥檚 chief financial officer, Scott Price,聽聽LA School Report in August. 鈥淭here鈥檚 quite a bit of power that a financial adviser has.鈥

Imposing a fiscal adviser would be the county鈥檚 last step, with a state takeover being the last resort to restore the district鈥檚 financial stability.

Duardo emphasized that while it鈥檚 the county鈥檚 job to ensure districts 鈥渁re fiscally sound and healthy,鈥 a takeover isn鈥檛 the end goal. 鈥淲e鈥檙e hoping that the fiscal experts can go in there and be able to work with the district 鈥 and be able to come up with a plan that we鈥檙e satisfied with,鈥 she said. The county聽聽an adviser at neighboring Montebello Unified School District in November 2017 after a state audit found poor financial management.

The county鈥檚 timing with the announcement, however 鈥 it came the day before the initial Jan. 10 strike date 鈥 has fueled union allegations that the county is politically aligned with the district and sheltering it during the negotiations process. UTLA聽聽the district in December of writing county chief financial officer Candi Clark鈥檚 statements to L.A. Unified in August that warned of the district鈥檚 impending fiscal insolvency.

Duardo told LA School Report it 鈥渨as very upsetting for us to hear people making those types of allegations because it鈥檚 absolutely not true. 鈥e鈥檝e been working with LAUSD and had concerns with their budget for years.鈥 Nick Schweizer, California鈥檚 deputy superintendent of public instruction,聽聽at her second appearance before the L.A. Unified school board a month later, in September, backing up her warnings.

Addressing the timing of the county鈥檚 decision to step in, Duardo explained that under state education code, the county had 30 days 鈥 equating to a Jan. 14 deadline 鈥 to respond to L.A. Unified after the district聽聽its Fiscal Stabilization Plan in mid-December. She added that with strike-related news in constant flux, the particular day of the county鈥檚 announcement shouldn鈥檛 carry any weight.

鈥淚 know when things get heated sometimes people can get suspicious or get more sensitive,鈥 she said. 鈥淏ut we鈥檙e just doing what we do with every other one of our 80 districts in keeping with the timeline for ed code.鈥

UTLA rejects district offer, ends talks

The union is聽聽on Monday. It rejected a new contract offer Friday from the district and refused to continue negotiations.

鈥淲e are extremely disappointed that United Teachers Los Angeles (UTLA) has rejected Los Angeles Unified鈥檚 revised offer without proposing any counter offer,鈥 a district news release stated. 鈥淯TLA has refused to continue contract negotiations. More than 48 hours remain until Monday when UTLA plans to strike, and we implore UTLA to reconsider. A strike will harm the students, families and communities we serve, and we have a responsibility to resolve the situation without a strike.鈥

The district had presented its聽聽offer at a news conference Friday allotting $130 million to reduce class sizes and hire almost 1,200 more nurses, counselors, and librarians 鈥 up from its 聽of $105 million聽and its earlier offer of $30 million.聽The salary offer聽was unchanged, with the district proposing a 3 percent raise retroactive to 2017-18 and a 3 percent raise for this year with 鈥渘o contingencies.鈥 (Read the changes聽.)

Section of new L.A. Unified contract offer

鈥淭his represents the best we can do, recognizing that it is our obligation to provide as much resources as possible to support our students in each and every one of our schools,鈥 Superintendent Austin Beutner said Friday. He added separately, 鈥淚f they want a strike, they鈥檒l have a strike. But we鈥檙e doing everything we can to avoid it. We don鈥檛 want it.鈥

The district is 鈥渇ormally asking [Gov. Gavin Newsom] to get involved,鈥 he told reporters. 鈥淲e need him to step in, bring the parties together; keep us in a room, lock the door and throw away the key if he has to.鈥

The district鈥檚 new offer followed the release of Newsom鈥檚 proposed budget, which includes a one-time $3 billion sum toward pension relief and a $2.8 billion boost to annual K-12 spending. That proposal would add more than $40 million to L.A. Unified鈥檚 general fund, a district spokeswoman wrote in an email to LA School Report. Beutner聽聽the district is also eyeing $10 million in county funding for mental health professionals and nurses.

UTLA officials said in a news conference that L.A. Unified had unveiled its new proposal to the media before the union and that Beutner did not show up to the negotiations.

Union leadership has remained dug in on the demand for a 6.5 percent annual raise retroactive to 2016-17, largely on the grounds that L.A. Unified is simultaneously attempting to delay new employees鈥櫬犅爁or lifetime health care benefits. It鈥檚 also decried that the additional funding for staff hires is only for next year.

The county warned in its Wednesday letter that it does not 鈥渧iew any potential one-time revenues from the State as an ongoing solution.鈥 A聽聽86 percent of new spending in Newsom鈥檚 proposal are one-time investments, and the new governor has expressed wanting to invest more in expanding聽. The proposed funding also isn鈥檛 guaranteed 鈥 the budget has to be approved by the state legislature and won鈥檛 be adopted until June 鈥 and newly retired Gov. Jerry Brown reports that .

Rather than relying on Sacramento, the county in its statement Wednesday called for erasing the district鈥檚 annual deficit. L.A. Unified spends about $500 million more a year than it gets and is hemorrhaging money because of 聽student enrollment, a, growing employer pension contribution rates, and free lifetime聽聽for all employees, retirees, and dependents.

The district estimates that聽聽of L.A. Unified鈥檚 budget, which was $7.5 billion this year, will be spent on health care and pensions by 2031-32.

Moody鈥檚 Investors Service, touching on these points, wrote in a聽聽that although a strike 鈥渋s unlikely to have a significant financial impact on the district, the parties鈥 inability to reach an agreement adds to lingering credit negative challenges for LAUSD.鈥

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