If California has record revenue, why do school districts say they need more money?

Gov. Gavin Newsom has proposed record levels of public funding for K-12 schools, but in several Southern California school districts declining enrollment and rising costs may still lead to cuts next school year.

The budget proposal allocates $125.5 billion, the highest-ever level, according to Newsom. That’s $20,427 per student.

“There's an increase in per pupil funding, but I wouldn't be fooled into thinking that those numbers indicate that schools really have more money to work with than in previous years,” said California School Boards Association spokesperson Troy Flint. The organization represents almost 1,000 districts and county offices of education statewide.

That’s because declining enrollment combined with rising teacher salaries, un-funded state mandates and other increased costs are squeezing local school districts.

Keep up with LAist.

If you're enjoying this article, you'll love our daily newsletter, The LA Report. Each weekday, catch up on the 5 most pressing stories to start your morning in 3 minutes or less.

Subscribe

LAist spoke to Flint and several other school finance experts to understand the financial challenges California districts face as they create their spending plans for next school year.

How does the state fund school districts?

The majority of the state’s general fund comes from personal income, sales tax and corporation tax revenue.

“That's great when the economy is good and state revenues are growing, and it's trickier when the economy is bad and state revenues are small,” said USC education professor Lawrence Picus.

California law guarantees TK-12 schools and community colleges a minimum level of funding each year, usually about 40% of the state’s general fund. (Property tax is a local revenue source, and considered to be less volatile but with limited growth.)

The state provides a base amount of money multiplied by each student and there is additional funding for every low-income, English-language learner, unhoused or foster youth student in the district. This system is called the Local Control Funding Formula.

How does enrollment affect school funding?

Since California sets funding rates per student, it needs a way to count those students. This is average daily attendance — how many students show up for class each day.

Currently, fewer students are enrolling at schools throughout the state, particularly in areas with high costs of living like Los Angeles. Students who are enrolled are also missing more school compared to before the pandemic.

“The intuitive response is, ‘well, if you have declining enrollment, you have fewer students, you should need less money,’” Flint said. “But in practice it doesn't really work that way.”

That’s because a district may lose a few students from each class across several schools each year, which may not justify laying off staff or closing a campus.

California education law blunts the immediate impact of declining enrollment by calculating funding based on the highest of three attendance counts: current year, prior year, or the average of the three most recent years, but over time fewer students means a smaller multiplier for state funding.

Increasing costs

Michael Fine is CEO of Fiscal Crisis and Management Assistance Team (FCMAT), the California agency that supports public schools' financial and business practices. He estimated schools are experiencing an estimated 5-6% cost increase every year.

The sources of that increase can include an increase in sexual assault claims (and the ensuing legal costs), utilities and insurance costs.

California provides money toward these increased costs through the Cost of Living Adjustment (COLA). This year’s proposed COLA is a 2.41% increase, less than half the estimated increase districts are experiencing, Fine said.

“At the state, they can say we are fully funding our commitment to TK through 12 education,” Fine said. “But at the local level, it feels like things are constrained. It feels like a pinch or actually a reduction.”

Another factor is the push to increase educators’ salaries in light of California’s high cost of living.

This year unions representing teachers at 32 school districts, including Los Angeles Unified, are negotiating contracts under a unified platform called “We Can’t Wait.” The campaign has already led to one strike and negotiations have stalled in more than a dozen districts, including LAUSD.

Federal, state budget uncertainty

This year’s state revenue projection is higher than expected, in part because of high salaries tied to artificial intelligence, but there’s no guarantee the funding will last.

Alix Gallagher studies school finance at Policy Analysis for California (PACE) and said that because revenue is unpredictable, lawmakers often opt to fund short-term initiatives rather than make long-term commitments.

“Whatever positive effects we're seeing [from short-term funding] are not the types of positive effects we might see if our funding was more stable,” Gallagher said.

For example, this year there is $1 billion for community schools, $757 million to support learning recovery related to the COVID-19 pandemic and $22.9 million for schools damaged by the January 2025 wildfires in L.A. County.

The budget also includes a one-time $2.8 billion grant that can be used for a variety of purposes from filling in the funding gap left by declining enrollment to supporting teacher training.

“Many districts will use that to mitigate some of their struggles,” Fine said. “All it does is buy time.”

The federal government also provides some money for education, but it’s also unclear how that funding will change in the second year of the Trump Administration’s second term.

In 2025, there were cuts to migrant education, mental health, and some internet access programs, although the courts ordered the administration to restore funding to several programs including teacher-training and afterschool programs.

What’s next for California school funding?

Newsom will present a revised spending plan in May and California lawmakers have until June 15 to pass the state’s budget.

In the meantime, local school districts will begin crafting their own budgets based on the governor’s proposal.

Fine said district administrators and elected school boards will have to manage the financial consequences of declines in enrollment over time.

“They make the hard decisions, their boards make the difficult, hard decisions to make, cuts to services and programs,” Fine said.

How can I monitor my school district’s financial health?

School budget proposals should be presented at public meetings, often the school board, where elected leaders can ask questions and the public can weigh in.

Districts may also create a working group, often called a budget advisory committee, of staff, families, community members and students to come up with a plan to address the district's financial challenges.

One indicator of your school district’s financial health are interim reports due in December and March to the County Offices of Education. These reports show how and whether the district can meet its financial obligations for the current and two following years and are labeled:

• Positive, the district can meet its obligations
• Qualified, the district may not be able to meet its obligations
• Negative, the district cannot meet its obligations without changes

Two of Orange County’s 32 districts filed qualified reports in December— Cypress and Saddleback Valley Unified. LAist has also requested this information from the Los Angeles County Office of Education and will update this article when we hear back.