L.A. Building Program Faces Possible $2.5 Billion Shortfall

Escalating costs and loss of state aid could drive price tag up.

Managers of the Los Angeles school district’s massive program to build 160 new schools and expand and repair hundreds of existing campuses are forecasting a possible funding shortfall as high as $2.5 billion, just as the multiyear project approaches its halfway point.

Escalating construction costs, along with a steady decline in enrollment that means a loss of state aid, could drive the price tag for the entire building program beyond its $19.2 billion budget, said Guy Mehula, the chief facilities executive for the Los Angeles Unified School District. The facilities project is the largest ever undertaken by a U.S. public school system.

“We have seen bid increases go up as much as 167 percent,” Mr. Mehula said. “There is insufficient capacity in the contractor market in Southern California, and that is...