More than any other school district in the state¹, Los Angeles Unified has been growing its accumulated general fund balance (aka “reserve”) for the last ten years, reaching a record $6.4 billion at the end of FY 24 (61% of expenses that year). Meanwhile, programs that serve the neediest and most marginalized students have had budgets frozen  or are unable to fully spend allocated budgets due to staffing shortages.² 

Which begs the question: why isn’t LAUSD spending today’s dollars on today’s kids? One answer lies in what the district tells its bond holders about its finances, and what the credit rating agencies in turn say about the reserves.  

On April 4^th, 2025, LAUSD superintendent Alberto Carvalho posted on Instagram celebrating the major credit rating agencies recent confirmation of investment-grade ratings on LAUSDs General Obligation (GO) bonds:  

“For the third consecutive year, Los Angeles Unified has reinforced its financial stability,” the post quotes Carvalho as saying, “earning top ratings from leading agencies.” And Carvalho is correct: since 2020, LAUSD has not received any credit downgrades from the rating agencies and has been upgraded by three credit rating agencies since 2022. What the Instagram post does not mention, however, is the specific factors underlying these assessments. What seems to interest the agencies the most, namely, is LAUSD’s commitment to austerity. 

Who are these ‘rating agencies’? Why should we care? 

Credit rating agencies are hired to provide an independent analysis and assessment of the creditworthiness of a bond issuer (like LAUSD), so that investors can make decisions about whether to buy school construction bonds and become investors in the district’s debt. LAUSD enjoys status as one of the largest municipal bond issuers in the country, bigger than many cities and states. The district pays the rating agencies fees to rate its bonds before they are issued.³ The primary question potential investors seek to answer, and that credit ratings and reports are supposed to address is: will the debt be repaid (on time)?  

So, will the debt be repaid? 

Yes—but the question is, from which funds? 

The primary type of debt that school districts in California issue is property tax-based financing approved by voters on a ballot measure. This is important because the dollars available to schools for paying off this specific type of debt are walled off from other spending—LAUSD cannot spend these property tax levies on anything other than the bonds, even if they are out of money for operations. There is a bond fund, separate from the general fund, that receives these property tax revenues.  

One might assume, therefore, the focus of the credit rating reports would be on the stability of those property tax revenues, such as historical trends in assessed property values, economic and population trends, risks to property values, etc. (One also might assume that good schools with equitable class sizes, clean drinking water, well-functioning HVAC, etc. contribute to property values. But we digress…) 

But what does all this bond stuff have to do with reserves?  

It is important to note the centrality of the district’s general fund reserve levels in all these credit rating reports. Nearly all emphasize the level of LAUSDs general fund reserves and the district’s success in maintaining reserves: 

Fitch assumes that the district will take the necessary steps to align revenues with expenditures and maintain unrestricted general fund reserves (the sum of assigned unassigned and committed fund balance) at or above 17.5% of spending.⁴ 

Moody’s made a similar comment: 

We expect that the district will constrain expenditure growth as necessary to reduce reliance on one-time revenue and accommodate state funding reductions.⁵ 

Each rating report lists factors that could lead to upgrades or downgrades of an issuer’s credit rating, and the reserve percentage is chief among them. For Moody’s, a maintained reserve over 30% of spending would warrant an upgrade, while a drop below 17% is downgrade territory. For Fitch, those numbers are 25% and 17.5%.  

LAUSD appears to be more than willing to comply with these recommendations. Unrestricted general fund reserves have been well above Fitch and Moody’s downgrade threshold since 2016: 

Wait, what do credit rating agencies know about running schools?! 

Adding insult to injury, the rating agency targets are far above those used by the California Department of Education to determine a school district’s fiscal health. Given LAUSD’s enormous size as a school district, the state only requires the district to carry 1% of total spending in an unrestricted reserve balance. The district’s own policy calls for an additional 5% reserve on top of the statutory 1%.   

Furthermore, in 2014, the California state legislature passed a law capping district unassigned and assigned reserves at 10% of all spending when economic conditions permit the state budget to carry its own reserve for education spending. When this cap was activated during the 2022-23 and 2023-24 school years, LAUSD moved billions of dollars into the “committed” portion of the reserve (still unrestricted) to evade the cap. (The district recently unwound those commitments, after the cap was lifted.)  

You may have assumed the explosive growth of the reserve level at LAUSD was largely due to the influx of extra federal funding in the four school years post-COVID. The data reveal, however, that LAUSD has been growing its reserve levels dramatically since long before ESSER funds arrived.  

The reserves guidelines imposed by the rating agencies have no basis in state education policy. Neither does the district’s adherence to those guidelines, with its record high levels of reserves close to double the statewide average percentage below. We can see the effect of this type of credit analysis happening across the state: 

Thanks a lot, Prop 13 

We sound like a broken record, but as per state law in California, each school district GO bond is paid by a special property tax levy. Each set of school construction projects that need bond financing must go before the voters who then approve a property tax to be levied within the school district to support specific construction projects. This means the question of whether the bondholders get repaid depends entirely on the stability of assessed property values, not the per pupil state budget (LCFF funding formula) for K-12 schools that goes into the General Fund. Assessed property values in California are not volatile like market values, thanks in part to Prop. 13. 

The credit rating reports, ironically, do make note of this fact, if only as an aside. From Fitch: 

The ‘AAA’ GO bond rating is based on a dedicated tax analysis and an analysis of legal opinions… that the tax revenues levied to repay the bonds would be considered “pledged special revenues” in the event of a district bankruptcy. This allows the bonds to be rated up to five notches above the district’s ‘AA-‘ IDR. (emphasis added) 

And from Moody’s: 

The Aa2 rating on the district’s GOULT bonds is one notch higher than the district’s issuer rating. The one notch distinction reflects California school district GO bond security features that include the physical separation through a “lockbox” for pledged property tax collections and a security interest created by statue. (emphasis added) 

School district general fund accumulated balance is not used to repay GO bonds, and it never will be. This makes school districts unique among issuers of GO bonds. When a city, for example, issues a GO Bond, it is backed by the full faith and credit of the municipality, meaning that in the case of a default the municipality would pay back the bonds out of the general fund—even if the city pledged a specific tax revenue for repayment. If a school district becomes insolvent the state takes over, by contrast, and property tax revenues pledged for bond payments would still flow into the county treasury and can only be used to pay bondholders.  

As of June 2023, the assessed property values in LAUSD totaled nearly $900 billion. The biggest property taxpayers in LAUSD are large profitable firms, as is to be expected in a city like Los Angeles, full of fantastic wealth held in the form of property. 

No One Benefits from District Hoarding 

A basic tenet of finance, under the time value of money, is that a dollar tomorrow is worth less than a dollar today. In other words, billions spent on classrooms today is worth far more than the vague promise that somewhere down the line those dollars might get spent on classrooms in the future if the funding situation becomes dire enough. This principle is why investors require interest payments—compensation for giving up the use of today’s dollars in the promise of receiving more dollars in the future. Kids today need that money (well, kids needed it yesterday too) and it is being withheld in accordance with a financial logic that might apply to a business, or a city even, but not a school district. 

Note: The primary reason UTLA endorsed Measure US is because our members agree that school buildings need significant investments to make them safe and healthy learning environments, and to save on utility bills. (Plus, defeasing the COPs was the right thing to do—more on that later.) We want those capital improvements to be funded in a way that does not compete with funding for instruction and other critical programs. Public schools should be fully funded.) 

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1. See chart from CTA showing percent reserves over last 5 years  ↩︎
2. LPAC report for 2024-25 shows $1.3 billion in SENI dollars unspent due to “staffing shortages.” ↩︎
3. Since 2019, LAUSD has paid about $17 million to outside lawyers, advisors, and credit rating agencies for services related to issuing bond debt. A handful of big banks got another $17 million in the form of an “underwriters discount” for finding investors to buy the bonds. Overall, this is a tiny percent of the value of the bonds issued, but if you are in the business of municipal bonds (lawyers, advisors, credit analysts), LAUSD is a big customer. ↩︎
4. Divya Bali et. al., “Fitch Rates LAUSD, CA GO bonds, Ser A-1, A-2, and B and GO refunding bonds, Ser A ‘AAA,’ Fitch Ratings, April 4, 2025.  ↩︎
5. Helen Cregger and Eric Hoffmann, “Rating Action: Moodys Assigns Aa2 to Los Angeles USD, CA’s Election of 2024 GO bonds and 2025 refunding bonds; outlook stable,” Moody’s Ratings, April 3, 2025. ↩︎
6. CTA data ↩︎