The Legislative Analyst’s Office (LAO) recently projected that there will be higher revenues in 2025-26 for TK-12 schools and community colleges in California than what Gov. Gavin Newsom and legislators had predicted. This increase in funding will also help pay off a significant portion of the state’s debt to education and allow for a rainy day fund to be replenished. However, a seldom-used constitutional provision will prevent schools and community colleges from receiving billions of dollars in funding that they would have otherwise received.
The LAO’s forecast is the first indication of the funding schools and community colleges can expect when Newsom releases his budget early next year. While there is a projected $1.5 billion increase in funding for 2025-26, schools and community colleges can also anticipate a cost-of-living adjustment of 2.46% for programs like the Local Control Funding Formula. Additionally, there will be $2.8 billion in new uncommitted spending, with a suggestion from the LAO to use a portion of that to address deferred payments to schools.
Despite a slowing economy and higher unemployment rates, the Proposition 98 funding level is expected to increase to $118.3 billion in 2024-25, with none of the increase going directly to school districts and community colleges. The LAO recommends depositing this increase into the Proposition 98 reserve account to build up reserves for future needs.
The increase in tax receipts from capital gains income will play a significant role in funding the rainy day fund, with much of the revenue coming from stock options. By the end of 2024-25, there should be enough money to pay off a significant portion of the debt owed to schools and community colleges from previous years.
The LAO also projects a decrease in student attendance in TK-12 schools due to a smaller school-age population resulting from lower birth rates. However, attendance is expected to increase slightly in the coming years due to the expansion of transitional kindergarten for 4-year-olds.
Overall, the forecast for school funding in 2025-26 shows a modest increase in funding, along with a focus on paying off debts and building up reserves for future needs. The complex nature of Proposition 98 funding and the rarely invoked “spike” protection clause add additional layers of complexity to the budget forecast. It will be up to Newsom and the Legislature to navigate these challenges and allocate the new funding effectively to meet the needs of schools and community colleges in California.
