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  • Legislative Analyst’s Office forecasts $19 billion state budget deficit for schools and community colleges

    Legislative Analyst’s Office forecasts $19 billion state budget deficit for schools and community colleges


    California State Capitol

    Credit: Christopher Schodt for EdSource

    Schools and community colleges likely will face a $19 billion, three-year state funding deficit, the Legislative Analyst’s Office reported Thursday. The funding for TK-12 this year is $108 billion.

    The LAO’s annual projection is a forecast of what to expect from Gov. Gavin Newsom’s first pass next month on the 2024-25 state budget. It reflects a decline in funding in Proposition 98, the 35-year-old constitutional amendment that determines the portion of the state’s general fund that must go to schools and community colleges. Complicating the picture is that about half of the education deficit covers money that schools and community colleges spent in 2022-23.

    The overall projected state general fund budget deficit of $68 billion could also jeopardize 5% annual increases for the University of California and California State University systems that Gov. Gavin Newsom had agreed to, as well as children’s services not covered by Proposition 98.

    The projected shortfall is the largest financial challenge schools and community colleges will face since the Great Recession budget of 2009. However, the LAO said that schools are better positioned now because of an education rainy-day fund that the Legislature was required to sock away in the record-high revenue years of the past half-decade.  

    Edgar Zazueta, executive director of the Association of California School Administrators, cautioned that state leaders must avoid the sort of harsh cuts made during the Great Recession. They included forcing districts to borrow billions of dollars with the expectation they would be repaid later.

    “Fortunately, we have tools, including the Proposition 98 reserve, that we can leverage to protect Proposition 98 funding levels,” he said. “Even during fiscal times like these, public education must be prioritized and protected. We must continue to build on our state’s great momentum and investments that have been made these past few years.”

    The LAO report lays out several options to balance school spending, some of them jarring for schools and community colleges.

    One option is for the Legislature to preserve TK-14 funding approved last June and find the full $68 billion in cuts in the general fund. That would spare schools, but other programs for children outside of Proposition 98 funding would more likely be hit, including support and subsidized costs for child care.

    The opposite approach — the most painful to schools and community colleges and politically risky for legislators — would be to revise the 2022-23 and the current 2023-24 Proposition 98 funding downward to meet the minimum required by law. That would slash funding by $9 billion from 2022-23 and $6.3 billion for the current year, with a ripple effect of lowering the minimum guarantee for 2024-25 by $3.5 billion.

    The Legislature could ease the burden by draining the $8.1 billion rainy day fund. That would still leave about $10 billion in cuts. Billions of dollars in one-time funding, whether unspent so far this year, or allotted by the Legislature for the next several years, could be targets. These could include $1 billion as yet unallocated for developing community schools or money set aside for learning recovery and for after-school extended learning time. It could be politically unpopular for legislators to make significant school cuts in an election year. And they would have to approve a resolution that there is a fiscal emergency to reduce the Proposition 98 appropriation.

    The third alternative is somewhere in the middle — cuts to K-14 and cuts from other general fund programs.

    The Legislature had an inkling that economic conditions were worsening but no hard numbers when they passed the 2023-24 budget in June: The deadline for paying state and federal income taxes had been extended from April 15 to Oct. 16. So they didn’t know the impact on state revenues in 2022-23 and 2023-24 from slowing home sales, a drop in new startups in Silicon Valley, and from declining income of the top 1% of earners, who contribute 50% of the personal income tax receipts.

    The LAO’s forecast for state revenues for the general fund shows a big drop in 2022-23, a flat line in 2023-24 and a slight uptick in the next fiscal year. But the gray area shows the possibility of an additional decline or a quick recovery.
    Source: The Legislative Analyst’s Office.

    The LAO cautioned that economic conditions are volatile, and revenues will remain unpredictable. A graph of its revenue outlook shows slow growth in 2024-25, with a large gray penumbra of uncertainty above and below that line.

    Kevin Gordon, president of Capitol Advisors Group, an education consulting company based in Sacramento, said he was pleased that the LAO listed several options and did not recommend resetting funding to meet the Proposition 98 minimum, with “devastating cuts.”

    “The numbers are worrisome, but the approaches laid out are significant efforts to demonstrate how lawmakers might work to protect basic investment in education funding,” he said.





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  • Legislative analyst projects bigger funding drop for schools, community colleges

    Legislative analyst projects bigger funding drop for schools, community colleges


    Credit: Alison Yin / EdSource

    The Legislative Analyst’s Office is warning superintendents and school boards working on their next year’s budget that more storm clouds are on the fiscal horizon. 

    In a Feb. 15 report, the LAO forecast that further erosion of state revenues will likely reduce state funding for TK-12 by an additional $7.7 billion — $5.2 billion in 2023-24 and $2.7 billion in 2025-26. That would be on top of the $13.7 billion shaving that Gov. Gavin Newsom announced in his proposed budget for the current budget cycle that he released just a month ago. 

    When he presented the proposed state budget in January, Newsom built in a small cost-of-living increase and vowed to preserve funding commitments for schools and community colleges, but the deteriorating revenue estimates may force him to reconsider that promise when he revises the budget in May. 

    The California Department of Finance, which disagrees with the LAO’s financial projections for this year and next, won’t revise its budget forecast until the May revision. However, its report on January revenues, also released in mid-February, confirmed that revenues were heading in the wrong direction. Receipts from the personal income tax, the largest source of state revenue, were down $5 billion — 25% — from the $20.4 billion that the state had forecast. For the full fiscal year that started July 1, total state revenues are down $5.9 billion from a forecast of $121.5 billion.  

    About 40% of the revenues to the state’s general fund is directed to schools and community colleges through a 4-decade-old formula, Proposition 98.

    The single biggest fiscal challenge facing Newsom and the Legislature is how to resolve a massive shortfall in Proposition 98 funding for 2022-23. Newsom and the Legislature were mostly in the dark when they passed that state budget based on a revenue estimate in June 2022. Because of storms and floods the previous winter, the U.S. Treasury delayed the tax filing date for 2022 from April 15 to Nov. 16. Thus, officials lacked reliable data, and it turned out they were way off. The shortfall for Proposition 98 was $12 billion. 

    Because school districts have already spent that money, Newsom is proposing to hold them and community colleges harmless without counting the overfunding as part of the Proposition 98 minimum guarantee. In a trailer bill that his administration released, he calls for a one-time $9 billion supplemental payment that, due to the unique, delayed tax deadline, would be paid from the general fund, not out of current or future funding for Proposition 98. It would be repaid over five years, starting in 2025-26. 

    Opposition of the Legislative Analysts’s Office

    The LAO is skeptical of the legality and wisdom of pushing off the solution for the 2022-23 deficit into the future; it’s recommending the Legislature reject the ideas and instead use the $9 billion cushion in the Proposition 98 reserve account to cover the shortfall. 

    “The Governor’s proposed funding maneuver is bad fiscal policy, sets a problematic precedent, and creates a binding obligation on the state that will worsen future deficits and require more difficult decisions,” it said in a report issued last week. 

    It recommends balancing the budget by cutting billions of uncommitted dollars for new programs, the largest of which is $2.8 billion for creating more community schools; eliminating the $1 billion cost-of-living adjustment for the Local Control Funding Formula; cutting $500 million for low-emissions school buses and reducing costs and restructuring other programs. One is the Expanded Learning and Opportunities Program, which provides free after-school activities for low-income students. 

    Newsom would use $5 billion of the Proposition 98 rainy-day fund to cover the budget shortfall this year and next while paying for the 1% cost-of-living adjustment next year. That would leave $4 billion in the reserve to cover at least part of a bigger deficit that the LAO is predicting.

    Lurking in the background is the option of deferrals — issuing IOUs for funding that would be repaid in subsequent years. That tactic was used extensively after the Great Recession when state revenues plunged. It requires that districts and charter schools borrow short-term to cover the delay in state funding.

    School advocates clearly prefer Newsom’s approach and are critical of the LAO’s recommendations, although they aren’t ready to suggest further cuts if revenues remain slow.

    “We don’t want to start negotiating with ourselves over which programs to cut, but need to be prepared for a challenging budget if revenues do not rebound in the second half of this fiscal year,” Kevin Gordon, president of Capitol Advisors Group, an education consultancy, wrote in a letter to his clients last week.

    Edgar Zazueta, executive director of the Association of California School Administrators, criticized the LAO and called on Newsom and legislators to protect their investments in schools. 

    “The LAO’s recommendations in response to the fiscal picture are potentially devastating to schools and especially students,” he said. “The programs that could be impacted are good for students, and we’ll be urging the Legislature and governor to do everything to protect California students.”





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  • Legislative Analyst’s Office criticizes Newsom’s education budget for risky funding practices

    Legislative Analyst’s Office criticizes Newsom’s education budget for risky funding practices


    Sen. John Laird, D-Santa Cruz, right, listens as Ken Kapphahn of the Legislative Analyst’s Office critiques Gov. Gavin Newsom’s proposed education budget at a hearing on May 22.

    Credit: State Senate Media Archive

    Top Takeaways
    • A drop in project state revenue projections from January to May, while avoiding cuts, would compound a dilemma.
    • Newsom also would increase funding for early literacy and after-school programs.
    • Key legislators share concern about draining the rainy day fund and deferring payments.

    The Legislative Analyst’s Office is criticizing Gov. Gavin Newsom’s spending plan for next year for schools and community colleges. It says the May revision of the 2025-26 state budget would create new debt, rely on one-time funding to pay for ongoing operations, and drain the education rainy day fund to pay for new programs and enlarge existing ones.

    The Legislature should reject the financially unsound practices, which would “put the state and districts behind the eight ball” if state revenues fall short of projections, Ken Kapphahn, senior fiscal and policy analyst for the LAO, told the Legislature’s budget committees on May 22. 

    The LAO provides the Legislature with nonpartisan analysis and advice on fiscal and policy issues.

    In his budget for 2025-26, Newsom would protect TK-12 and community colleges from a $4.4 billion drop in projected state revenue between his January and revised May budgets and add $2 billion in spending to the administration’s priorities, which include:

    • Qualifying more students for coverage of summer and after-school learning through the Expanded Learning Opportunities Program ($526 million).
    • Hiring more math and literacy coaches and training teachers in literacy instruction ($745 million). The money would reflect legislation that the Legislature is expected to pass requiring textbooks and instruction practices to incorporate phonics and foundational skills.
    • Reducing the student-to-staff ratio in transitional kindergarten from 12 to 1 to 10 to 1 ($517 million).
    • Paying stipends for student teachers ($100 million).

    The biggest budget challenge is that the projected Proposition 98 guarantee for 2025-26 — the minimum portion of the state’s General Fund that must be spent on TK-12 and community colleges — fell $4.4 billion — from $118.9 billion in the initial budget in January to $114.5 billion in May — because of revised revenue forecasts for California that project a drop in stock market earnings and uncertain impacts from President Donald Trump’s economic policies.

    Newsom’s May budget would include some cuts and savings from, for example, lower projected enrollment in transitional kindergarten. It would also withdraw or reduce nearly $400 million in community college funding for updating data systems and investing in Newsom’s Master Plan for Career Education (see Page 28 of his budget summary).

    But he’d primarily rely on financial tactics that the LAO cited as fiscally risky and unwise:

    • Committing $1.6 billion in one-time funding for ongoing funding, a strategy that could leave the state short of funding starting a year from now;
    • Depleting the Prop. 98 rainy day fund by $1.5 billion;
    • Issuing a $2.3 billion IOU by pushing back paying $1.8 billion for TK-12 and $532 million for community colleges from June 2026 to the next fiscal year in 2026-27. This deferral, though only for several weeks, creates a debt that must be repaid. Paying it off will eat into state revenue for districts and community colleges in the subsequent year. 

    Issuing deferrals and digging into the state’s reserves have been done before during recessions and financial emergencies, but should be viewed as “a tool of last resort,” not as solutions to difficult spending choices, Kapphahn said. 

    “The state historically has tried to contain spending during tight times to protect funding for core programs,” its critique said. “May Revision would task districts with hiring staff and expanding local programs based on funding levels that the state might be unable to sustain.”

    Neither LAO nor Newsom is predicting a financial recession, but both project weakened state revenues over the next two years.

    The LAO’s option

    The LAO put forward an alternative budget that it claims would meet the revised, lower Prop. 98 minimum funding guarantee for 2025-26, including a required 2.3% cost-of-living adjustment for community colleges and schools. It would avoid deferrals, reduce $1.6 billion in ongoing spending, and reject many of Newsom’s one-time spending proposals, including literacy training and materials. 

    Instead, consistent with local control, it would increase an existing discretionary block grant to let districts choose how to spend much less new money.

    Negotiations in the coming weeks between Newsom and legislative leaders will determine what’s in the final budget. However, two Democratic leaders who chair budget committees overseeing education in the Assembly and Senate said they shared the LAO’s skepticism. 

    Sen. John Laird, D-Santa Cruz, said he felt uncomfortable recommending increased funding for individual programs that “set us on for being in trouble next year.”

    “If we do all this, and the projections are accurate,” he said at the May 22 hearing, “there will not be enough money to pay off deferrals and make the COLA. The decision to put us in that position we are making now, potentially creating a bad situation for next year.”

    Assemblymember David Alvarez, D-San Diego, who chairs the Assembly Budget Subcommittee on Education Finance, said he too is concerned that the proposed budget would deplete the last $1.5 billion of the rainy day fund, which was $8.4 billion only two years ago.

    At the same time, he agrees with Newsom’s new spending on literacy instruction and funding for stipends for student teachers. And he would add in money for ethnic studies that Newsom didn’t include. Without the funding, the mandate for a semester-long ethnic studies course that the Legislature required, starting in 2025-26, cannot take effect.

    Alvarez didn’t suggest budget cuts to make room for ethnic studies.





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  • Legislative deal on reading instruction reached in the nick of time

    Legislative deal on reading instruction reached in the nick of time


    Credit: Allison Shelley / American Education

    KEY TAKEAWAYS
    • The new bill will offer state-approved training and textbooks to all TK-5th-grade teachers.
    • State-sanctioned training will be voluntary, part of the compromise.
    • A shift toward in evidence-based strategies, including phonics, moves away from local control.

    Assembly Speaker Robert Rivas has nudged parties at odds on how early literacy should be taught to agree to legislation that could significantly advance reading proficiency in California.

    After weeks of intense talks following months of stalled negotiations, a new bill that Rivas, D-Salinas, will co-author will have a hearing April 30, the deadline for an initial committee vote on new bills. Assembly Bill 1454 will call for providing potentially all transitional kindergarten through fifth-grade teachers with training and textbooks that stress what’s known as structured literacy, starting with phonics in the early grades. (The bill, which will be co-authored by Rivas, Blanca Rubio, D-Baldwin Park, and Al Muratsuchi, D-Torrance, had not yet been published as of Wednesday; it will soon replace the current AB 1854, an unrelated bill.)

    The bill won’t end the resistance of critics who argue that structured literacy, with an emphasis on foundational skills, is too narrow and can set back the progress of English learners who need more vocabulary and oral language strategies.

    But passage of the bill would move California toward a consistent statewide approach to reading instruction. The legislation will also follow the lead of other states whose adoption of evidence-based strategies, known as the science of reading, have contributed to wide gains in proficiency on both state tests and the National Assessment of Educational Progress or NAEP in the early grades.

    By contrast, on the 2024 National Assessment of Educational Progress, the 41 percentage point gap in proficiency between economically and non-economically disadvantaged students in California was among the widest in the nation, and growing. Only 8% of Black and 23% of Hispanic fourth graders in California were proficient in reading, compared with 56% of white and 67% of Asian students.

    Until now, California had avoided controversy by ceding control over reading instruction to local schools. The state did not collect information from districts on the reading strategies they used and the textbooks they purchased. Newly credentialed elementary grade teachers who were trained in the science of reading could be hired by districts using textbooks that conflicted with what they had just learned in credentialing programs.

    “This legislation is essential, important progress, and it reflects agreement and robust consensus on ways to provide educators the evidence-based tools they need to support California’s diverse students,” said Rivas in a statement. “We must make sure every child, no matter their background, has the opportunity to become a confident and thriving reader.”

    Also supporting the compromise is Californians Together, a nonprofit organization that advocates for English learners and biliteracy programs. It had opposed the original bill, Assembly Bill 1121, authored by Rubio. But in the statement that Rivas released, Hernandez said, “We appreciate Speaker Rivas’s leadership in bringing this legislation forward, and we remain committed to ensuring that any new literacy policy fully supports English learners.”

    A year ago, amid opposition from the California Teachers Association, the California Association for Bilingual Education (CABE), and Californians Together,  Rivas pulled Rubio’s bill and asked critics and supporters to come back in 2025 with a compromise. When that failed to happen, Rivas got involved and directly pressed for a deal. The opponents met with Rubio and advocacy nonprofits  EdVoice and Families In Schools,  Decoding Dyslexia CA and the California NAACP, the organizations co-sponsoring AB 1121.

    Rubio, who had expressed frustration with the opponents, thanked Rivas for his leadership and called AB 1454 “a significant step toward addressing very real concerns with our student outcomes while supplying teachers with the tools to ensure success in their roles.”

    CTA has not yet decided its position on the new bill, said CTA President David Goldberg, while noting that it “is in a far better place thanks to the leadership of Speaker Rivas and the coalition of educators working on behalf of students to ensure a viable and responsible approach to a truly important issue.”

    Jeffrey Freitas, the president of the smaller California Federation of Teachers, meanwhile, gave the new bill a full endorsement. “CFT members have been calling for more robust and improved literacy training and support to better meet the needs of our students,” he said. “We urge Governor Newsom and the Legislature to fully fund this important legislation, so that California teachers can immediately access the training.”

    What’s in the bill

    Although AB 1454 had not yet been released as of Wednesday morning, a 13-page analysis by staff of the Assembly Education Committee for the hearing had been posted.

    The main elements of Rubio’s bill, calling for a state-vetted choice of teacher training, along with materials aligned with instruction that the State Board of Education will approve, are in AB 1454. However, one key difference is that the teacher instruction, mandated under AB 1121, will be voluntary.

    “It is no longer required, but we feel good about it,” said Marshall Tuck, CEO of EdVoice. “We believe districts will want to take advantage of it and get the professional development they need.”

    Also, language was added that satisfied Californians Together. There is more emphasis on aligning training with the California English Language Arts/English Language Development framework, Hernandez said, and the bill will explicitly call out “linguistically and culturally responsive” strategies. It will also highlight dual language instruction. “That’s a step in the right direction,” Hernandez said.  

    The bill will require the California Department of Education to consult with a range of groups, presumably including the English learner community and advocates for dyslexics, who strongly support phonics-based instruction.

    According to the Assembly analysis, the bill will require:

    • CDE to identify effective professional development in TK to grade 5 by Sept. 1, 2026 and for districts receiving funding for training to report to the state how many teachers received the training by 2029.
    • the State Board of Education to update its list of acceptable English language arts and English language development instructional materials;  
    • the Commission on Teacher Credentialing to update school administrator standards to include training on how to support effective literacy instruction. Muratsuchi, who chairs the Assembly Education Committee, had proposed this idea in his own literacy bill this year. He also participated in the negotiations.

    Funding for the training and materials is unresolved, for now. Gov. Newsom proposed $250 million for literacy instruction in his initial 2025-26 budget. Money is expected to be tight, but Rivas, as speaker, will be at the table with Newsom for final budget talks in June.





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