Quick look: The Governor’s budget proposal for 2026-27 seeks an increase in education funding based on higher-than-anticipated state revenue. At the same time, the plan acknowledges long-term fiscal challenges on the horizon and focuses on sustaining existing education priorities rather than creating new ones.
California Gov. Gavin Newsom’s newly released spending plan for 2026-27 includes an increase in education funding driven by stronger-than-anticipated state tax collections, even as it flags significant structural budget challenges in the years ahead.
Serving as a starting point for budget negotiations, the proposal announced on Friday, Jan. 9 reflects a surge in General Fund revenues over a three-year span, largely tied to higher personal income tax receipts and stock market gains.
At the same time, large deficits are projected beginning in 2027-28. That could create challenges for school districts, which will need to balance near-term investments with long-term fiscal stability.
Under the proposal, Proposition 98 funding for schools and community colleges would increase by approximately $21.7 billion across the three-year budget window of 2024-25 through 2026-27, compared with assumptions from last year’s budget. For TK-12 education alone, the total funding from all sources would reach $149.1 billion, which would be a record for per-pupil funding.
The budget also includes a 2.41 percent cost-of-living adjustment to the Local Control Funding Formula and other education programs, helping schools address rising operating costs.
Conditions subject to change
Proposition 98 is the voter-approved constitutional formula that sets the minimum amount of state funding for K-12 schools and community colleges. In simple terms, when state funding rises, so does funding for schools.
“This budget underscores how closely school funding is tied to the state’s broader economic conditions,” said Orange County Superintendent of Schools Dr. Stefan Bean. “When revenues are strong, education funding benefits as well. At the same time, the longer-term projections are an important reminder that fiscal conditions can shift, and that sustaining services over time requires careful planning and flexibility.”
It’s worth noting that the governor’s proposal is based on significantly higher revenue estimates than those released in November by the state’s nonpartisan Legislative Analyst’s Office.
According to the Department of Finance, the governor’s revenue forecast is approximately $28.8 billion higher than the LAO’s earlier projection, resulting in a higher estimated level of Proposition 98 funding for schools and community colleges.
The LAO is expected to release updated analysis of the Governor’s January budget proposal in the coming weeks.
Fiscal warning signs ahead
Citing uncertainty in revenue projections, Newsom is proposing to delay fully funding the Proposition 98 minimum guarantee, deferring $5.6 billion in education funding from 2025-26 to a future year. This follows a similar approach in last year’s enacted budget, which created a $1.9 billion deferred obligation for 2024-25 that the governor now proposes to repay under the current plan.
Meanwhile, even if the budget is balanced for 2026-27, fiscal projections show a roughly $22 billion deficit in 2027-28, with additional shortfalls anticipated in the years that follow. State officials point to revenue volatility, rising program costs and economic uncertainty — particularly in sectors tied to capital gains — as key risks moving forward.
Rather than taking on new large-scale programs then, the governor’s latest plan focuses on sustaining existing commitments, including $1 billion in ongoing funding for community schools, which integrate academic supports, health and mental health services and family engagement.
The proposed budget also includes a $509 million ongoing increase for special education to address long-standing disparities in base funding. According to the spending plan, special education enrollment and costs are rising, even as total K–12 enrollment statewide has declined by more than 380,000 students in recent years.
Pressures on local districts
Across California, many school districts and county offices of education are grappling with declining enrollment alongside inflationary pressures, including higher costs for employee benefits, transportation, utilities and special education services.
Several pieces of Newsom’s proposal — including cost-of-living adjustments and flexible, one-time funding — are intended to help districts manage these overlapping challenges.
To further support local needs, Newsom included a $2.8 billion one-time discretionary block grant to help districts address priorities such as literacy and math instruction, educator recruitment and retention, transitional kindergarten professional learning, and expanded career pathways and dual enrollment.
The budget proposal also allocates money for the final installment of Learning Recovery Emergency Block Grant funding, capping a multi-year investment aimed at addressing the academic impacts of the COVID-19 pandemic.
Although the administration has outlined a proposal to realign state education governance, the January budget doesn’t say much about that and instead focuses on funding levels. Any structural changes are expected to be addressed through separate legislation.
Next steps in the process
The governor’s January budget proposal is considered the first step in California’s lengthy budgeting process.
Next up, legislative hearings will take place through the spring, followed by the May Revision, which will update revenue assumptions and adjust proposals. The Legislature is constitutionally bound to pass a balanced budget by June 15, with final enactment by June 30. After that, a number of trailer bills are passed to round out many of the details.
“As the budget process continues, our role is to help districts and our own programs understand what’s proposed, what may change, and how it could affect planning at both the local and county levels,” Dr. Bean said.
“Ultimately, this work is about ensuring schools have the resources and clarity they need to support students and keep them on strong paths toward learning, opportunity and long-term success.”