LA School System Kicks Off School Year With Municipal Bond Sale

The nation’s second-largest K-12 district is kicking off the new school year with a municipal bond offering while it contends with attacks from hackers, a dwindling student body and soaring labor costs.

(Bloomberg) — The nation’s second-largest K-12 district is kicking off the new school year with a municipal bond offering while it contends with attacks from hackers, a dwindling student body and soaring labor costs. 

The Los Angeles Unified School District, which begins the school year Monday, plans to borrow about $384 million to tackle cyberattacks, school safety and climate change, according to the bond offering prospectus. The series of bonds carries a sustainability label. 

“The district is constantly facing a variety of persistent and evolving cybersecurity threats,” said the prospectus, which details previous incidents, including a ransomware attack last year that exposed some student data. 

With more than 400,000 students, the Los Angeles school system trails only New York City in enrollment. The district sprawls over 710 square miles — or more than twice the land mass of New York City — encompassing most of the city and pieces of the rest of Los Angeles County.

More than $166 million, the biggest chunk of the bond proceeds, will go to cybersecurity, while $146 million will fund security, including video surveillance systems, at its more than 1,200 campuses, bond documents say. 

“The reality is that many of our students encounter violence, unacceptable violence, at various levels on a near-constant basis,” superintendent Alberto Carvalho said in opening school-year remarks earlier this month, adding that gun violence is at “epic proportions.” 

In 2021, the board of education for LAUSD approved a 35% cut in school police staff after activists pushed for redeployment of money for other services. This year to address safety issues, the district introduced a new school-safety program and an app to anonymously report incidents.

The latest bond offering follows one in November when LAUSD issued $500 million of general obligation debt. A bond due in 2047 from that series with a 5.25% coupon last traded at a yield of about 3.8% or roughly 15 basis points over the benchmark, data compiled by Bloomberg show.

The new series of bonds, which are backed by lease payments and rated A2 by Moody’s and A- by Fitch, is expected to be priced on Aug. 17. Some of the proceeds, approximately $81 million, will be used to purchase 180 electric buses and upgrade its bus yards for EV charging, according to the prospectus, while a small portion of the bond sale will go to improving student enrollment. 

Like other major school districts, Los Angeles is grappling with an outflow of families who are moving to less expensive areas and a high portion of students living in poverty, according to Fitch Ratings director Divya Bali.

Bali said LAUSD has worked to stabilize enrollment, going door-to-door to reduce absenteeism and “reaching out to parents of newborns in maternity wards” with gifts of onesies to tell them about the state’s transitional kindergarten program that offers a second year of learning for children with birthdays in the latter part of the year. 

The district, which is also having a difficult time retaining teachers, is also facing higher labor expenses, with growing pension and benefit costs. After a three-day strike by support staff in March, the district and teachers recently agreed to a new contract that includes a 21% wage increase through 2025. 

The resolution of the teachers’ contract is a welcome development, said Dora Lee, director of research at Belle Haven Investments, which holds LAUSD debt. “Labor contracts have always been a major issue for the district, so the fact that they have an agreement in place through 2025 offers some near-term stability,” she said.  

Even with higher labor costs, Los Angeles has “a strong track record of aligning revenues and expenses, and managing to their situation,” Bali said. “We expect that to continue to be the case going forward.”

–With assistance from Brad Skillman.

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