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Drowning in debt from employee benefits and unwilling to reform, LAUSD looks for lifelife in Measure EE

Los Angeles Unified estimates more than half of its general fund will be needed to pay down pension and health benefit debt by 2031, leaving little for students in a district already struggling against declining enrollment and competition from charter schools.
But district officials are hopeful a remedy will come from Measure EE , the 16-cent-per-square-foot parcel tax on the June 4 ballot that promises to reduce class sizes, retain quality teachers and provide services and programs to students.
The initial draft of the ballot measure prohibited the use of the tax dollars for “funding long-term healthcare or pension liabilities.” Two days later, the final draft quietly removed that language, replacing it with “legal settlements and liabilities” instead.
During a Feb. 28 meeting, attorney Michael Strumwasser said the change allows Measure EE funds to be used toward the district’s onerous benefit costs.
“There was a desire in this current amendment to permit the funds to be used for those medical obligations,” Strumwasser said.
Spokeswoman Shannon Haber denied that is the intent, but refused to explain who requested the change and why.
“To reiterate our previous response, Los Angeles Unified has no plans to use any Measure EE proceeds to cover long-term healthcare or pension liabilities,” Haber said in a statement.
Board member Scott Schmerelson said he didn’t know why the language was altered. And he insisted the money intended for schools should not go toward debt.
“That is not my plan, that is not the plan of the oversight committee, and I will make sure that does not happen,” he said. “And should someone do something like that, the public will know immediately from me.”
LAUSD created an independent oversight committee in April to ensure the taxpayer funds are spent properly if the measure is approved. Schmerelson expects the members to be “attack dogs” that question every penny.
Opponents don’t trust district
Opponents of Measure EE aren’t buying it, however. Their ballot argument warns voters not to trust the district.
“Money from the tax won’t add resources to classrooms,” the opposition’s argument states. “It will be used to temporarily fix a budget deficit and to pay for LAUSD’s over-promised pension and health insurance costs.”
The language change between the draft and final versions of the measure signaled LAUSD’s intentions, according to Tracy Hernandez, CEO of the Los Angeles Business Federation, one of the business groups opposing Measure EE.
The district needs to tackle reforms before asking taxpayers for assistance, she said.
“They have the richest health care plan of all districts in the state and they cannot afford it,” Hernandez said. “There is no guarantee this money gets to the classrooms, that it gets to the kids.”
The Howard Jarvis Taxpayers’ Association is suing LAUSD over additional changes to the ballot measure that it says secretly expanded the scope of the parcel tax.
Benefit costs will decimate the budget
Without Measure EE, district officials acknowledge, LAUSD could become insolvent within the next three years and potentially trigger a state takeover. The district will burn through nearly all of its reserves by the 2020-21 fiscal year and end the following year more than $700 million in the hole.
Last year, because of its budget crunch, the district stopped its practice of putting aside $60 million to $125 million a year to prefund its health-care promises.
It’s unclear how LAUSD will tackle the looming threat. If the district fails, the promised health-care benefits likely would be slashed during receivership, much like occurred with Stockton’s benefit packages when the city went bankrupt in 2012.
Board lacks ‘political constitution’
Some critics fear the passage of Measure EE will remove the pressure necessary for politically unfavorable reforms to health-care benefits.
Hernandez said the school board appears to lack “the political constitution” to make tough decisions that would face fierce opposition from employee groups.
“The voters need to vote no and then the school district needs to get their house in order,” she said.
In late March, Jon Coupal of the Jarvis association penned a piece for the California Policy Center noting LAUSD officials have shunned warnings about the district’s precarious financial situation.
“Before the teachers’ strike ,” he wrote, “L.A. County was warning the district that it could be taken over due to projected financial shortfalls within a three-year period. That created pressure for budget reform. But instead of reform, LAUSD wants a massive tax increase.”
Problem worsening
LAUSD expects to spend $1.7 billion annually toward pensions and health care during the 2020-21 school year, an increase of nearly $400 million from 2016-17. Nearly a quarter of the revenues from per-pupil funding would not reach students that year.
And the problem will only get worse over time. At a board retreat in 2017, Chief Financial Officer Scott Price projected LAUSD would have to allocate half of its money annually just to cover pensions and health care in 2031. That’s before salaries and other costs are factored in.
The district’s contribution rate to the California State Teachers’ Retirement system has doubled since 2014. The contribution rate for the employees covered by the California Public Employees’ Retirement system has increased similarly in the same time period.
Gov. Gavin Newsom pledged to provide assistance to districts around the state earlier this year, though the savings would barely dent the problem in LAUSD.
At the same time, the district faces rising health-care costs as more teachers retire, all the while receiving less money because of a dramatic loss of students. Nearly 50,000 students have left the school system since 2016.
Cuts often face opposition
In 1992, the school board ceded control of the district’s health plans to the unions to prevent a strike. The Board of Education gets one vote on the decision-making Health Benefits Committee. The other votes are controlled by each bargaining unit, making it impossible to change plans without their support.
Pensions and health-care costs took up about 13% of the general fund in the 1991-92 school year, according to a presentation by Price. In 2021-22, it’ll be nearly 40 percent and steadily increasing every year.
LAUSD first eliminated employee contributions in 1969. Today, employees can choose plans from Kaiser Permanente, Health Net, Anthem Blue Cross and United Health Care. Employees and qualified retirees in LAUSD do not pay any premiums or deductibles for themselves or their family members.
LAUSD now negotiates salaries and benefits separately, and there often is fierce opposition to any reductions.
According to Haber, the district and the bargaining units did recently agree to save $50 million a year by switching retirees to a new 50 State Medicare plan, she said. The district’s unfunded liability will drop to $11 billion as a result.
“We will continue to work collaboratively to identify future savings on behalf of Los Angeles Unified students and families,” Haber said.
Lifetime benefits ‘not negotiable’
Schmerelson, the board member and a former teacher, said the employees’ lifetime benefits are “not negotiable” from his perspective.
“They’ve given up raises and even paid back furlough days in order to maintain lifetime benefits,” he said.
Before 1984, employees needed only five consecutive years of service to be eligible for lifetime benefits. Now, new employees’ ages and years of service must add up to 87 to qualify.
Schmerelson acknowledges the current model is not sustainable. He would like to see Los Angeles County, the city of Los Angeles and LAUSD band together to push for lower costs collectively.
In the past, cuts pitched by the district were shut down by the bargaining units.
Other districts not so generous
LAUSD could save $460 million by restricting full insurance funding to the employee or retiree, instead of the whole family. Another plan — which could save $169 million — involved switching all of employees to the lowest cost plan. Employees would have to pay the difference only if they wanted another plan.
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By comparison, school employees in Chicago contribute 2-5% of their salary depending on the plan. In New York, the school system covers only a basic plan with additional premiums for upgrades.
Parents organization Speak UP has pushed for reforms to LAUSD’s health-care plans and also supports Measure EE. The district is underfunded and needs the money, said Jenny Hontz, a spokeswoman for the group.
“That’s why we’re working so hard to pass Measure EE. But there are also reasonable reforms that could save hundreds of millions a year and allow us to lower class sizes and pay teachers more,” Hontz said.
“We applaud the unions for recently making one such change to the tune of $50 million a year in savings, and we hope to see more efforts to balance the needs of retirees with our hard-working teachers and the kids in their classrooms.”

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