In January, Gov. Gavin Newsom unveiled his budget proposal for the next fiscal year, addressing a projected $37 billion shortfall.
That might not be the worst of it. With tax collections coming in lower than expected, a recent report from the nonpartisan Legislative Analyst’s Office says the deficit could be as high as $73 billion for the current year and two subsequent years.
The governor’s plan, which serves as a starting point for negotiations, calls for spending cuts, drawing down reserves, generating new revenue, internal borrowing and the deferring of certain payments to close the gap. While vowing to protect his educational priorities, Newsom’s budget also estimates a much smaller cost-of-living adjustment, or COLA, than in previous years.
Meanwhile, school districts are already grappling with a number of fiscal challenges like inflation, the expiration of COVID-19 funding and declining enrollment, particularly in areas like Orange County, where birth rates have dropped and soaring housing costs have made it difficult for many families to buy a home.
The net result is that many school districts and charter schools will have to make tough decisions to balance three-year budgets while preserving high-quality instructional programs.
With less than five months to go before a spending plan must be approved by the California Legislature, let’s look at some commonly asked questions about the state budget and its impact on schools.
Let’s start with the basics. How are schools funded in California?
You may have heard about Proposition 98, which was approved by voters in 1988 to guarantee a minimum level of funding for the state’s K-12 schools and community colleges. Generally speaking, this formula sets aside around 40 percent of California’s general fund budget, meaning education gets more money when the state’s economy is strong and potentially less during downturns.
It gets a little complicated here, but there are also three “tests” that change the math based on tax revenue growth, enrollment changes and other factors. But the overarching idea is that Proposition 98 provides a funding floor for public education that’s based on the total state revenue coming in.
Why are state revenues down this year?
State revenues are down because less money was collected from personal income, sales and corporate taxes. Together, these form the backbone of California’s budget.
The main culprit is said to be capital gains taxes from higher income earners, which are lagging significantly. Meanwhile, the extent of the problem wasn’t immediately apparent to those who track revenue, because a tax payment deadline was extended last year to help those impacted by natural disasters, masking how much revenue the state was actually missing.
How do the governor and Legislative Analyst’s Office plan on closing the funding gap?
Gov. Newsom wants to rely on a number of strategies to close the gap, which, again, is somewhere between $37 billion and $73 billion over three years. His plan includes tapping into the state’s reserves — that’s essentially a savings account that was created for times like this — along with reducing expenditures and borrowing internally. He also wants to delay and defer some payments until things improve.
The Legislative Analyst’s Office, or LAO, suggests pursuing alternative savings and immediate solutions to avoid future deficits. The office advocates for using reserve funds to cover the 2022-23 shortfall and urges the Legislature to reject one-time spending increases and review unallocated funds for possible reductions. In addition, the LAO suggests zeroing out cost-of-living adjustments and most other ongoing spending increases.
The LAO says it would prioritize core school programs and promote budget stability. The governor emphasizes his continued support for specific educational initiatives, including the community schools program, universal school meals, expanded learning opportunities and the ongoing rollout of universal transitional kindergarten.
Does that mean there won’t be cuts in Orange County?
Unfortunately, no. While competing state proposals aim to shield education from major reductions, under the best circumstances a smaller cost-of-living adjustment would still give school districts and charter schools less additional funding than in previous years — even as they’re dealing with inflation pressures and other rising operational costs like pensions, and increasing health and welfare benefits premiums.
Chronic absenteeism and declining enrollment are also very real challenges, because they reduce the amount of funding for districts and charter schools. And when we talk about declining enrollment, we’re often talking about declining populations as a whole. Orange County, for example, has seen its population decline in recent years as a result of rising home prices and falling birth rates.
All of these conditions translate into fewer dollars coming in for school districts, which are mandated to submit three-year budgets covering the upcoming fiscal year and the two years that follow.
Districts, charter schools and county offices of education are also required by law to issue what are known as March 15 notices to let certificated and classified staff know if the possibility exists that their jobs will be eliminated before the start of the next school year.
If every school district gets the same cost-of-living increase, does that mean they will make similar changes to their budgets?
It’s true that every school district in California gets the same COLA increase from the state to help with rising costs, but there are many additional factors to consider. For starters, the state’s Local Control Funding Formula — or LCFF for short — was designed to channel more money to students with the greatest needs, such as English learners, foster youth and those from low-income families. So districts get different amounts of LCFF funding.
In addition, schools and districts in places where absenteeism is up or where enrollment has declined more significantly might be facing bigger shortfalls because funding is tied to average daily attendance, or ADA. In a couple school districts where property tax revenue exceeds the amount of funding they would get through the state’s formula — these are called basic aid districts — schools get to keep those extra dollars. But that doesn’t apply to the vast majority of local districts.
The bottom line is that even with a uniform cost-of-living increase, each district will need to make its own decisions based on its unique circumstances, the specific needs of its students, and what the community wants. And that means budget adjustments will look different from one district to another.
What are the next steps in the budget adoption process?
The release of the governor’s spending plan in January is only the beginning of a five-month budget development journey. During this time, the Legislature holds hearings to discuss each part of the state budget.
The next big milestone is the “May Revision,” when the governor will update his plan based on the latest economic data and tax revenue information. This adjustment in May ensures that the budget accurately reflects the state’s current financial situation.
From there, the California Legislature — that includes the Assembly and the Senate — will engage in negotiations to finalize the budget, which must be adopted by June 15. Once approved by the Legislature, the budget goes back to the governor for his signature. And then new legislative bills will follow with additional details.
School districts and county offices of education will be closely watching these developments and making adjustments of their own, because they have to adopt their budgets by no later than June 30. That’s one day before the start of the new fiscal year on July 1.
How can community members get involved and stay informed about school budget decisions?
Local families and community partners play a significant role in the development of school budgets through their participation and feedback. Attending school board meetings and public hearings are great ways to stay updated, share perspectives and ensure funding and policy decisions are transparent.
You can also check out your school district’s website or sign up for newsletters and email lists that will share this type of information. Education foundations and PTAs present additional opportunities to be involved with local decision-making.
Finally, every district must annually update its Local Control and Accountability Plan, or LCAP, which spells out funding priorities. Built into this process is a requirement to gather input from students, staff, parents and community partners. Think of the LCAP as a structured way to add your voice.
Active engagement in these processes helps districts and charter schools invest resources in ways that reflect the needs, values and priorities of their communities.