The Los Angeles Unified School District may soon have to redirect how it spends hundreds of millions of dollars in order to directly benefit the English learners, foster youth and low-income students for whom the state funding was earmarked.
This summer, the school district appealed state officials' determination that it was not following the terms of a new state funding plan meant to direct more money to students who are costly and difficult to teach.
On Friday, state education officials upheld the original decision, saying "LAUSD must revise its calculation" of how it accounted for $450 million in spending.
The Community Coalition of South Los Angeles and other groups asserted that the nation's second-largest school system was using this earmarked money for its general program for all students or to cover other costs, including offsetting an ongoing budget crisis.
"You need to show that the funding you are providing … was principally directed toward those students," said Victor Leung, an attorney with the American Civil Liberties Union, which was involved in the litigation. "It can't just be some sort of blanket program that impacted a lot of those students, which is essentially what LAUSD's interpretation was, which was rejected."
The state gave the district until the 2017-18 school year to reallocate or justify the disputed expenses.
Advocates are hoping to see changes earlier, even though they were pleased that the district's appeal was denied.
On Monday, L.A. Unified attorney Greg McNair said the district is still evaluating the state's position but does not believe it needs to change how it manages its budget.
The money in question, he said, already is being used in ways that help the students for whom it was intended.
L.A. schools Chief Financial Officer Megan Reilly has said complying with the state's decision could result in larger class sizes and widespread layoffs.
Under the rules of the recently adopted school-funding formula, districts can use some of the new funds they get for other purposes if they can show that they already are spending extra money to help students who are learning English, come from low-income families or are foster children.
Los Angeles Unified receives an additional $1.1 billion annually for those high-needs groups. The district freed up $450 million of that pot for general use, arguing that schools spend that amount on disabled students who also are in the three categories.
The Community Coalition and other critics called this logic improper, saying that the programs have to specifically help high-needs students.
The coalition, with the help of the ACLU, sued the district last year and filed a complaint with the state Department of Education. The lawsuit is on hold, awaiting the district's next steps, Leung said.
The state could allow the district to retain some of the funding if officials can show how particular special education programs are benefiting English learners, foster youth and low-income students.
The district spends about $1.4 billion on special education annually. Rising pension costs and decreasing enrollment in the district make finding that money a challenge.
"This test case has huge implications statewide," said UC Berkeley education professor Bruce Fuller. "If L.A. won on this point, every district in this state could then start to move money away from the designated kids" to other costs like teacher salaries or pensions.
Times staff writer Howard Blume contributed to this report.
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