Dan Walters

Creative accounting solved school district’s big financial headache

Students are served breakfast at a Los Angeles school. The Los Angeles Unified School District was found to have spent money for general uses instead of helping English learners and at-risk students. An accounting change was made so the district could avoid a deficit.
Students are served breakfast at a Los Angeles school. The Los Angeles Unified School District was found to have spent money for general uses instead of helping English learners and at-risk students. An accounting change was made so the district could avoid a deficit. Associated Press file

Officials of the huge Los Angeles Unified School District woke up with a splitting financial headache one day last year.

The state Department of Education accused the district of improperly spending hundreds of millions of dollars it had received from the state to improve the learning of poor and “English learner” students.

How L.A. Unified’s headache was relieved is an eye-opening exercise in creative political accounting.

To begin at the beginning, Gov. Jerry Brown sponsored an overhaul of school finance called the Local Control Funding Formula or LCFF.

It gave school districts with large numbers of at-risk students billions of extra dollars to close the “achievement gap” between them and their more privileged classmates. But the extra money would come with few strings on the assumption that the districts would do the right thing.

Brown, never at a loss for words, called it “subsidiarity.”

The loose oversight alarmed what became known as an “equity coalition” of civil rights and education reform activists.

Without strict monitoring, they worried aloud, districts could divert LCFF money into broader purposes, such as salary hikes.

They were particularly incensed when Tom Torlakson, the union-allied state superintendent of schools, countermanded his own department’s advice and declared that the extra money could be used to raise teacher salaries.

The argument over “accountability” has been raging ever since, and the critics scored a big point in 2015 when researchers at the University of California, Berkeley, concluded that L.A. Unified had used most of its extra money for general purposes, rather than concentrating it on its very large contingent of underperforming students.

“Fiscal priority was placed on restoring adult staff positions often not directly tied to instruction, especially the dollars allocated to elementary schools,” the UC Berkeley study declared.

The study and other evidence resulted in protests by a coalition of local civil rights groups seeking better educational outcomes, including the Los Angeles Urban League and the Mexican American Legal Defense and Education Fund.

The coalition filed a lawsuit and complaint with Torlakson’s Department of Education.

The department ruled last year that L.A. Unified was violating LCFF by diverting its funds to other purposes and ordered it to change its ways and redirect nearly $500 million to the purposes they were meant to serve.

How did LAUSD respond?

The outcome was detailed in a lengthy staff report to L.A. Unified’s board last month, although it received almost no notice outside the bowels of the organization.

The district’s chief financial officer, Megan Reilly, told the board that redirecting the funds could have left the district with a $441.2 million deficit in the 2017-18 fiscal year and a $1.5 billion deficit by 2018-19 – but that was before a “realignment exercise” it conducted with the blessing of Torlakson’s department.

The district simply recategorized a number of previous expenditures as qualifying for the LCFF grants, enabling it to declare it “will enable the district’s estimated ending balance to revert back to pre-CDE decision levels.”

It turned the 2017-18 deficit into a $280 million surplus and whittled the immense 2018-19 deficit down to a manageable $252 million.

Nothing changed, in other words, except some computer codes. And L.A. Unified still has an immense achievement gap.

Subsidiarity indeed.

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