Fitch Ratings and Moody's Ratings have both revised their outlooks for the Los Angeles Unified School District (LAUSD) to negative. This comes ahead of the district's plans to issue $1.09 billion in new money and refunding general obligation bonds. Fitch maintained its AA-minus issuer default rating but indicated a risk of weaker financial resilience due to growing fiscal pressures and the need for stabilization measures. Moody's affirmed its Aa3 issuer rating but cited an expectation that reserves will materially decline starting in fiscal 2026 without significant spending reductions or additional recurring revenue.
Fitch noted that despite LAUSD's historical budget management, rising labor costs pose increasing challenges, although Fitch senior director Karen Ribble highlighted the district's ability to implement a $1.4 billion savings plan and its strong budget management. Moody's revised outlook also considers the impact of recently announced union contract agreements, which are expected to contribute to declining reserves. Both agencies acknowledged declining enrollment, which has fallen to approximately 389,000 students from over 746,000 in 2002-2003, impacting state funding.
In contrast to Fitch and Moody's, KBRA affirmed its AAA rating and stable outlook for LAUSD's general obligation bonds. KBRA cited the "exceptionally strong security structure" and the consistent performance of the property tax base as mitigating factors. Fitch director Divya Bali clarified that the revised outlook was not solely due to recent labor agreements but rather a trend of rising labor costs, coupled with a constrained state funding framework and declining enrollment exacerbated by immigration enforcement. Mitigants mentioned include the ability to control staffing through attrition and program consolidation, such as dual-language immersion programs.
