Los Angeles County has declared that LAUSD may not be able to pay its bills, giving the nation's second-largest school district roughly 45 days to overhaul its budget or face a potential state-backed takeover. The crisis directly affects families in Bel Air and Holmby Hills whose children attend LAUSD schools.

In a letter dated July 2, LA County Office of Education Superintendent Debra Duardo issued a formal "Lack of Going Concern" determination to LAUSD Board President Scott Schmerelson, finding the district cannot meet its financial obligations in fiscal years 2027-28 and 2028-29. The 45-day clock runs from the district's June budget adoption, placing the deadline in early-to-mid August, when the LAUSD board resumes meeting.

What happens if LAUSD doesn't comply

The county assigned Octavio Castelo, LACOE's executive director of business advisory services, as fiscal expert effective July 1. His role is advisory and diagnostic; he cannot unilaterally make budget decisions.

But if LAUSD fails to implement furlough days by fall break (typically mid-October) in 2026, the county said it will consider upgrading Castelo's role to fiscal advisor, a position with "stay and rescind authority" over board actions. That means the power to block spending decisions the elected board approves.

A full state takeover remains the final option. Inglewood Unified lost its board authority in 2012 after taking an emergency state loan.

"What we're talking about is just making sure that they don't get into a situation where they have to take out a loan from the state, and we're going to do everything possible to make sure that that doesn't happen," Duardo told the LA Times.

What the numbers show

The county projects LAUSD's cash balance will go negative by $231 million in November 2027. The district's Unrestricted General Fund is projected to reach a negative $1.46 billion ending balance in FY 2027-28, with reserves dropping to negative 15.13 percent, far below the state-required 1 percent minimum.

LAUSD's current single-year budget is $20.6 billion against projected revenue of $18.6 billion, a gap the district planned to cover by drawing down reserves.

How it got here

The LAUSD board approved collective bargaining agreements on Tuesday, June 16, despite written warnings from Duardo that the deals were unaffordable. Those contracts cost approximately $1.13 billion in FY 2026-27, rising to $1.44 billion the following year. On the same night, the board overrode its own chief financial officer to draw $175 million from the district's retiree health benefit trust.

Meanwhile, $231 million in previously planned spending cuts remained unexecuted. Enrollment has dropped to about 390,000 students, roughly half the early-2000s level, but staffing has not been adjusted to match. The district's own budget projects thousands of additional job cuts over the next three years, on top of more than 1,000 already approved in June.

New superintendent pledges cooperation

Superintendent Andrés E. Chait, unanimously appointed on Wednesday, June 24, said the determination does not change the district's commitment to students and families and pledged cooperation with the county's review. Chait spent nearly 30 years in LAUSD, starting as a kindergarten teacher at Queen Anne Place Elementary.

The determination also triggers a mandatory state fiscal health risk analysis by FCMAT, which will contact the district to schedule its review. The LAUSD board resumes meeting in August; no specific date has been confirmed.