California began 2025 in a stronger fiscal position than it has in recent years, but challenges remain for school districts across the state.
Gov. Gavin Newsom’s proposed budget for 2025-26, which was released last week, outlines modest increases for K-12 schools and community colleges. The spending plan includes a small cost-of-living adjustment, new investments in literacy and math, and the rollout of a master plan for career education.
However, declining enrollment, rising inflation, labor shortages and the expiration of COVID-19 relief funds continue to put financial pressure on districts. Many of those relief dollars were tied to staff, creating significant funding gaps, and the governor has further warned that global economic instability, stock market volatility and federal administration changes could affect state revenues.
It’s important to note that the governor’s proposal is just a starting point for budget discussions. The Legislature will hold hearings and refine the plan over the coming months, with updates expected in May and a final budget in June.
The state’s finances can feel like a rollercoaster at times, with revenues soaring to great heights only to plummet unexpectedly. Amid these ups and downs, the Orange County Department of Education provides steady fiscal support and guidance to local districts, especially during uncertain times.
Let’s take a look at some common questions and answers about the state budget.
How are California school districts funded?
California schools rely on Proposition 98, a constitutional guarantee that allocates a fixed percentage — it’s generally about 40 percent — of state revenues to K-14 education.
For 2025-26, Proposition 98 funding is projected at $118.9 billion, slightly less than the previous year. This translates to an average per-pupil funding amount of $18,918 from Proposition 98 sources, with additional federal and state funds bringing the statewide average to $24,764 per student. However, individual district per-pupil funding can vary significantly from these averages.
California uses a model called the Local Control Funding Formula to distribute funds to districts, channeling more dollars toward students with higher needs, such as English learners, foster youth and students from low-income families.
Why are some districts in Orange County facing budget cuts?
Although state funding remains stable, several local factors are creating financial challenges for districts.
Declining enrollment, driven by high housing costs and lower birth rates, means fewer dollars coming in because school funding is tied to attendance. Rising inflation and labor shortages are further straining budgets as districts compete for qualified staff and contend with higher operational costs.
Additionally, the expiration of federal COVID-19 relief funds in September 2024 has left many districts scrambling to cover programs and staff previously supported by these dollars.
These financial impacts vary by district, reflecting their unique circumstances and budgeting decisions. Remember that each district must plan for the upcoming fiscal year and two subsequent years, so adjustments made today are often done with an eye on the future.
What role does OCDE play in helping districts manage their finances?
OCDE plays a pretty important role in helping districts navigate fiscal and operational challenges.
As part of its oversight responsibilities under Assembly Bill 1200, OCDE reviews district fiscal documents and budget submissions to ensure solvency and alignment with educational priorities. Every Orange County district budget must be approved by OCDE, and this approval can be unconditional or conditional.
A conditional approval may occur when issues are identified in the district’s Local Control and Accountability Plan. The LCAP is a required report that ties budget decisions to educational goals, such as improving outcomes for English learners, low-income students and foster youth.
What new investments are being made in education at the state level?
The governor’s plan includes a cost-of-living adjustment of 2.43 percent that would provide $2.5 billion for K-12 schools and community colleges, helping districts offset some of their rising costs. Universal transitional kindergarten continues to be a major focus, with funding for expanded eligibility and smaller class sizes, reducing the average student-to-adult ratio to 10:1.
Expanded learning programs would see additional support, increasing access to after-school and summer opportunities for underserved students. Investments in literacy and math coaching would strengthen teaching practices in high-poverty schools, while the state’s Master Plan for Career Education is intended to help align educational opportunities with workforce needs.
What happens next with California’s budget?
Again, the governor’s proposal is the first step in the state’s annual budget process. Over the coming months, the Legislature will hold hearings to review and refine the plan. The May Revision will reveal updated revenue projections and adjustments, with a final budget due by June 15.
If districts anticipate making budget reductions or staffing changes, March 15 becomes an important deadline. By this date, districts must issue preliminary layoff notices to certificated and classified employees, such as teachers, counselors and support staff. To maintain flexibility, districts may issue more notices than are ultimately necessary.
OCDE works closely with districts during this period, helping them navigate legal requirements and make informed decisions that align with their budgets and Local Control and Accountability Plans. Through tailored guidance and oversight, OCDE supports districts in addressing their challenges and pursuing local priorities, all while keeping students at the center of their decision-making.