LA, Florida Schools Face Budget Pressures

Today, we're looking at two school systems who are facing heightened financial pressures. One on each coast. The Los Angeles Unified School District has a high fiscal solvency risk level as its enrollment continues to decline. Meanwhile, you look at Florida and that state's public schools are borrowing to pay their bills at the highest level on record. Here now, with all the details are Bloomberg money reporters Claire Ballantyne and Erin Hudson. So, um, Claire, let me start with you, because the La Union Free School District, I believe, is considered the biggest school district in the country. What's the financial situation there right now? Yeah. So some of the pressures that they're facing are pretty emblematic of what's happening across the country. So one of the big overarching issues is just that the number of school age kids is shrinking due to the birth rate dropping. So there are just less students to fill classrooms, which really impacts how much funding they can get because it's often on a per pupil basis. Um, in LA, also you have other factors going on. You have um, because of some of the immigration raids here, people keeping their kids home. Also seeing some people leave the area for a lower cost of living. All of that is contributing to these decreases in enrollment. You also had an LA. They recently had a negotiation with their unions and they avoided a strike. But they did approve wage increases, which further puts pressure on their budgets. Okay. And I made a mistake. The LA Unified School District is the second largest after New York City, which I should have known. Um, Erin, let's talk about what's happening in Florida, because Claire was talking about how, um, people are leaving California. The cost of living is really high. A lot of the places that people are going to is Florida. So you would think that the public school system in Florida would be getting an influx of students. Is that the case? So no, unfortunately, uh, Florida schools are seeing enrollment declines. Um, there's been a statewide decline starting in 2023. And so for a fast growing state like Florida, um, that is an adjustment and is a change of landscape. And that's partly what we are seeing when we see the short term borrowing hitting a record this year. Mhm. Um, some of that borrowing on a district level is is somewhat routine district's use as a cash flow management tool, because in Florida a lot of the school funding comes from local property tax and tax bills are due between November and March. So there's a delay. And that is part of just the structure in Florida. But when we look at the landscape of a lot of the same challenges that are facing LA, um, enrollment declines, affordability issues, um, that landscape, those challenges, that's what's causing concern for experts suggesting there's some underlying credit stress there. Okay. So the Florida schools are using the proceeds just, you know, to operate as they normally would, but they're also issuing what's called tax anticipation notes. What are those. Yeah. So these are short term notes. And they use it to cover operational expenses. Um, and they are a common tool in the municipal bond world. Um, and there are school districts in Florida that routinely issue tax anticipation notes. Um, but what is unique this year is just the momentum. Uh, this is a record that we haven't seen from school districts, 1.4 billion issued. The the prior record was in 2020. Um, and so zooming out to see that challenge landscape, that's really, um, what experts are worried about. Um, so, Claire, when you were talking about the financial situation at the L.A. Unified School District, these are very structural issues. It probably is not going to get resolved anytime soon. What are experts saying the district needs to do to address its financial problems? Yeah. So one of the most common things that experts say is that what will need to happen is schools closing, um, and teachers or other staff, people being laid off, both of which are really difficult to do. Um, politically and also just, you know, uh, in terms of doing that to, to students and parents, but that is kind of what will have to happen. Um, so far, LAUSD has avoided some big, um, school closures like we've seen in, uh, in Cleveland. Um, but that's probably going to come down, down the line, or at least, uh, consolidations and probably, you know, staff if not teacher layoffs as well.