The bulk of the projected $150-million deficit in the Los Angeles Unified School District's budget is attributable to miscalculations by the district, not fiscal problems beyond the school system's control, officials said Tuesday.
A routine financial review by the district earlier this month revealed that officials may have underestimated expenses by more than $110 million and overestimated revenue by more than $23 million, reopening a budget gap the school board thought it had closed last fall, when it slashed spending by more than $275 million.
In a statement Monday, Supt. Bill Anton laid the blame primarily on declining state lottery revenues, a drop in income from investments, rising health insurance expenses and lower-than-anticipated savings from previous budget cuts. Anton could not be reached for comment Tuesday.
District finance director Robert Booker said in an interview Tuesday that only $15.6 million resulted from lower-than-expected proceeds from the lottery and $7.6 million from declining interest earnings.
Most of the shortfall, Booker said, can be attributed to several problems: Officials failed to budget health benefits for up to 2,000 substitute teachers. The district is spending more than expected on teacher salaries. And projected budget surpluses have failed to materialize.
Last fall, the school board was forced to lay off teachers, cut salaries and cram more students into crowded classrooms to cope with a budget deficit. Now, officials must find new ways to make deep cuts in the $3.8-billion budget.
Under California law, the district must have a balanced budget and is not permitted to carry deficits into the coming year. This means officials must devise a plan to cover the projected $150-million deficit by Feb. 18--the midpoint of the fiscal year--or the nation's second-largest school system could risk insolvency and intervention by the state.
"My personal reaction is I'm shocked to learn that we have budget problems of this magnitude," said Booker, financial chief for the last seven years.
"But if you look at what's happening to most public agencies and private corporations, they're all having financial troubles, so some of this should not be a complete surprise."
Booker stressed that the figures are only preliminary, but they are not expected to improve before the board must present a balanced budget next month.
It is not unusual, he said, for the huge district to find itself with slight differences between its projected revenue and its expenditures at midyear. Normally, the district has enough money in reserve to cover the difference. But, he said, this is the largest shortfall in history and it comes in one of the district's leanest years.
Although several smaller districts have asked the state for bailouts, Booker said he will not recommend that the board appeal to the state for help.
"That is not an option for us," Booker said. "We'll absorb within our own resources. I feel very strongly the district is responsible for handling its own budget problems."
The fiscal officer said it is not clear yet how the deficit will be eliminated, but he did not rule out additional midyear cuts in programs or staffing at the district's 600 schools.
School officials will meet with employee union leaders today to discuss ways to cover the shortfall.
A variety of sources have suggested that the district might borrow from the $410 million set aside to pay legal and medical claims against it, and the $31 million state-mandated reserve fund for economic uncertainties. However, officials say there are restrictions on borrowing from those funds.
Meanwhile, the district has asked its accounting firm, Ernst & Young, to determine why the district's financial projections were so far off the mark.
The district has identified a shortage of about $135 million but officials say it could rise to $150 million.
About $33.5 million of the shortfall came about because the district did not save as much as expected during the year. The district typically finds itself with a surplus because, for example, some budgeted jobs remain vacant for a time or money set aside for supplies is not spent.
Booker said it is not clear why the projections were inaccurate.
The district also is expected to spend $27 million more than was budgeted for employees' health benefits, Booker said. The district eliminated 2,000 teachers last year to save money and eliminated their health benefits from the budget. But many of those teachers were rehired as substitutes--and the cost of their benefits was never restored.
Booker also said the district will wind up spending $17 million more than the $37 million set aside to pay for substitute teachers this year, but it is not clear how that miscalculation occurred.
In addition, $8 million more than was budgeted will be spent on teacher salaries--a problem that teachers union President Helen Bernstein blamed on district officials, who she said hired at least 100 teachers more than will be needed.
Booker attributed that error, in part, to inadequacies in the formula the district must rely on to estimate the number of teachers needed each year. "I think when everything is complete, the analysis probably is going to show a combination of things," he said.