Is Los Angeles Unified too big to fail?

The term “too big to fail” entered the popular lexicon a decade ago when the federal government rescued huge banking corporations that were collapsing due to rampant greed and managerial incompetence.

The phrase might be applied today, with a question mark, to the state’s largest – and nation’s second largest – school district, Los Angeles Unified, whose leaders seem to assume that no matter how irresponsibly they act, the state will rescue them.

As CALmatters.org writer Jessica Calefati revealed in a recent article, carried on the front page of the Los Angeles Times, LA Unified may be “just two years from financial ruin” because of “massive problems barreling its way.”

LAUSD and other K-12 districts have recently seen a 50 percent increase in per-pupil financing from taxpayers, much more flexibility to spend special-purpose money, and extra aid to raise academic achievement of poor and/or English-learner students.

However, the district’s enrollment is declining, mandatory payments into employee pension systems are rising sharply to shore up their shaky finances, and LA Unified habitually overspends revenues by caving in to union demands for hefty salary increases.

As Calefati pointed out, “Board members may talk about future calamity, but they just approved a raise for 30,000 bus drivers, cafeteria workers and classroom aides. And as Los Angeles teachers watch their peers across the state win pay hikes, they feel increasingly sure that they’ll get one too.”

Meanwhile, a local coalition, led by United Way of Greater Los Angeles, released a new study alleging that LA Unified is diverting that extra state money meant for low-performing students into other purposes.

Bruce Fuller, a UC-Berkeley professor and director of the study, said in a statement, “We continue to see little fairness in how LAUSD distributes dollars to schools, ignoring whether they serve high or low shares of low-income children.”

It underscores an important point often forgotten in the hyper-political battles over finances – LA Unified is also failing its half-million students, who exhibit shamefully low levels of academic achievement.

LAUSD has a new superintendent, former businessman Austin Beutner, who’s tasked with cleaning up its financial and educational shortcomings. But what would happen were LA Unified to continue down its present path to insolvency?

It’s happened to other school districts for many of the same reasons and when it has, the state has intervened, appointing administrators with almost unlimited power to restore financial order, superseding elected school boards.

That should happen were LA Unified to approach financial collapse. And one could even argue that because of its size, the district is an inherently unmanageable morass of self-interested politics and should be broken up into more locally responsive districts.

However, if LA Unified faces the abyss, there will be immense political pressure, particularly from its powerful unions, for a state bailout. And it may already be happening.

Just days after Calefati’s article was published, LAUSD officials suddenly declared that they have squeezed their budget enough to stave off insolvency for an additional year.

A big piece of the new financial scenario is saving $105 million over three years from not having to pay a $35 million annual penalty for exceeding the state’s administrator-to-teacher ratio. Miraculously, an exemption from the penalty just for LAUSD was inserted into one of the Legislature’s 26 budget trailer bills.

Why should it get a $105 million gift from all California taxpayers? The bigger question is whether taxpayers should rescue LA Unified without changing the shortsighted policies that fueled its entirely avoidable crisis?

Is it really too big to fail and face consequences of its own actions?