As LAUSD teachers prepare to strike, one central question: Where’s the money?

The message has been clear for months from the president of the Los Angeles teachers union: Not only does the L.A. Unified School District have no deficit, it has a huge reserve, more than large enough to meet the union’s demands for higher wages, smaller classes and schools staffed every day with the supportive services they need.

That’s partly true: The district hasn’t recently had deficits, but Alex Caputo-Pearl is ignoring future projections.

L.A. schools Supt. Austin Beutner has seemed just as certain when he declares the district on the brink of insolvency.

That could be true, but if it is, why is the district able to offer any pay raises?

In the intense dispute between Los Angeles Unified and United Teachers Los Angeles, hyperbole, passion and spin have often trumped fairness, moderation and neutrality.

That’s been especially the case in the tense immediate run-up to a teachers’ strike that is set to begin Monday in the nation’s second-largest school system. After the district made a new offer Friday, which the union quickly rejected, no further negotiations were scheduled for the weekend. Meanwhile, 31,000 union members readied to walk picket lines as the district scrambled to keep schools open with substitutes, reassigned office workers and skeletal staff.

For the teachers, this strike is about more than money. They are concerned about the direction of education and their place in it. But money remains central: What can the district afford to do? And, within those parameters, what are district leaders willing to do?

It hasn’t helped that the dispute has gotten personal, with the union attacking Beutner’s motives and Beutner taking actions that have angered union leaders. Each side has made questionable assertions and offered misleading interpretations of what the other side has said.

Deficit or surplus?

The union says the district can afford to pay for much more. It points to last year’s ending reserve of nearly $2 billion, the largest in district history. The school system points to projections that show potential insolvency in three years.

Both sides have data to back them up.

The union is correct in that, for the better part of a decade, school district officials have talked of an approaching “fiscal cliff� about three years out that has never been reached. In fact, the district’s ending balance has increased over the last several years. That would not be possible if the district was spending more than it was taking in.

But the district is not lying about sobering projections, whether or not they come to pass.

Potential future problems come from several sources.

One is sharply increasing required payments into the California State Teachers’ Retirement System, which pays for the pensions of retired teachers across the state. These accelerated payments — to keep the fund solvent — are causing a financial strain on all school systems. Without some form of relief, school systems soon will be paying into this fund about 1 of every 4 dollars they receive.

Gov. Gavin Newsom’s budget may provide short-term relief because it takes some burden off school systems on pension payments. L.A. Unified has not yet been able to calculate how this assistance could alter the gloomy budget forecasts.

L.A. Unified also faces rapidly rising costs for retiree health benefits. Such benefits are a rare perk, and accountants recently scored them over time at a cost of about $250,000 per employee. Unfortunately, the school system has not set aside money to pay for the benefits.

This problem will gradually subside on its own because the qualification rules for “lifetime benefits,� as they are called, have become extremely stringent. But for the next 10 to 15 years, these expenses could hobble L.A. Unified’s ability to cover some services to students and to pay its current employees competitive wages.

The district also has had trouble cutting spending as its financial base — enrollment — has shrunk. This drop in students has been caused by population trends and the growth of charter schools, which, like restaurants, can open without considering the limits of the customer base — in this case, students.

In spite of these factors, the reserves left over at the end of the year have grown larger in recent times, finally reaching nearly $2 billion, the figure highlighted by Caputo-Pearl.

Analysts have cited three reasons.

First, state tax revenue has come in higher than projected. That was the case again this year. Score one point for the union.

Second, new money from a revised state funding formula also came in faster than anticipated. The goal is to provide extra help for “targeted� students: those from low-income families, those learning English and those in the foster-care system. L.A. Unified has lots of these students.

And lastly, the district has indeed been putting money aside, but is that “hoarding,� as the union calls it?

Thrifty or tightfisted?

A large portion of the money in the reserve is set aside for future employee salary increases that the district has already offered or agreed to, including $175 million to non-teaching employees and $303 million to cover the 6% raise currently being offered to teachers. If teachers get more than 6%, many other employees also will qualify for more under a “me, too� clause in their contracts.

The largest chunk — $680 million — is being held back because the district has concluded that, starting this year or next, it will spend much more than it takes in. If that’s the case, this money would be used to delay — but not prevent — the district from going bankrupt.

Union leaders say the district could spend this money now and don’t believe the projections of future deficit spending.

The district’s analysis, however, has been endorsed by outside experts as well as the Los Angeles County Office of Education, which has the legal responsibility for tracking the financial health of L.A. County school systems.

The union challenges the independence of these outside analyses. That challenge would have more credence if the union could offer an independent analysis that reaches different conclusions. It hasn’t.

Still, the record of the county education office has been imperfect in spotting problems and preventing districts from getting into financial trouble.

The county analysis also will probably be conservative because that’s the prudent course from an accounting standpoint. That means the county is unlikely to accept an optimistic prediction of future state funding until that money is in the bank. It’s also not going to factor in the possibility that legislators could provide more money — or that state or local voters could approve pending ballot initiatives that would increase taxes to better fund schools. Such tax measures will be appearing on ballots in 2020.

Some conservatism might be called for.

The state has enjoyed about a decade of economic growth. Many economists say that in such situations, a recession — which would shrink state revenue for a time — is almost inevitable.

Score one for the district.

Budgets within budgets

And yet these outside financial reviews don’t typically look at all the budgets within the school system’s budget. The district could, in fact, stash money in smaller accounts that are never reviewed by analysts. Such actions are an almost natural outgrowth of collective bargaining. No employer wants to show all its cards — and thus lose leverage in negotiations. L.A. Unified has absolutely hidden money in the past that it eventually applied to salary negotiations, according to former district officials.

Even within the district’s publicly posted numbers, there is wiggle room beneath the surface. For example, the district lists $284 million as “discretionary funds spent by principals at school sites.� Each line item in this category is a story of its own. Some of this spending would seem essential even to UTLA; some would be of debatable importance, even to L.A. Unified.

Whatever the case, this discretionary money mostly pays for staffing — and it’s possible that, if money is moved around, some union members could lose work so that other union members could get more work or perhaps higher pay.

Also, one key desire of the union is to win teachers and parents more authority at schools. If schools lose their discretionary funds, such involvement could be severely undermined.

That being said, additional money for a union settlement will probably come from this fund.

More available money can be found in the $303 million that is “committed to students most in need, as required by law.�

This line item refers to money that the district has committed to spend on behalf of those students specially targeted for help by the state: those from low-income families, those learning English and those in the foster care system.

Here, the district hopes to pull off a two-for-one. It hopes to use some of this money to satisfy the union’s demands while also still serving these students. It could do so by hiring more teachers — and lowering the size of classes — in schools that serve the most needy students. This approach was in use in the revised contract proposals L.A. Unified made last week.

Advocates for these students are worried about this strategy. They fear the needs of students could become secondary to the imperatives of a contract settlement.

All about money?

Beutner says the union’s demands would cost $3 billion. That’s debatable, partly because the union has not responded to the district with specifics on how much smaller it is asking for classes to be. The union’s position, so far, is to demand the elimination of a contract clause that gives the district broad authority over class sizes.

Many teachers would gladly accept smaller raises in exchange for better working conditions and better learning environment for students.

But most issues come back to money.

Everyone wants smaller class sizes — teachers, parents, students. But meaningful class-size reduction is one of the most expensive reforms in education. It’s rarely been done anywhere — except in pricey private schools that often pay teachers small salaries.

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