After three fairly sunny fiscal years, the forecast for California K-12 funding shows clouds moving in.
Districts that relied on millions in federal stimulus funding and elevated state revenue to buoy operations are starting to feel financial strain. Some are now grappling with budget deficits as they adjust to the end of ESSER funding, minimal increases in state funding, falling student enrollment, and rising costs.
While California’s 2023-24 budget did include a slight increase in districts’ main source of state funding — made possible by the use of a now-depleted rainy-day fund — many districts are still experiencing painful budget shortfalls, exacerbated by larger bills for costs like personnel and insurance.
The conditions aren’t dismal now, district leaders and observers say, but they are pointing to potential trouble ahead, especially if the county’s economy sinks into a recession in the coming years.
“The days of the really strong growth we saw the previous couple years are behind us, and districts need to plan for a tighter fiscal environment — not just this coming year, but the next several years,” said Kenneth Kapphahn, principal fiscal and policy analyst at the California Legislative Analysts Office, a nonpartisan agency that advises the state legislature.
“It seems pretty clear at this point that enrollment is not going to come back to where it was pre-pandemic. That means most districts need to adapt to running an operation that serves a smaller number of students.”
The state government and school districts across California are, however, continuing to invest in a number of priorities. Those include programs in extended learning time, professional development to help educators adopt new state standards in math, support for transitional kindergarten, new arts programs, and transportation.
School systems are looking for ways to pay for those programs, while also cutting back on and shifting other purchasing priorities, resulting in a complex balancing act.
But as the largest K-12 market in the country, with 1,019 districts serving 5.8 million students, California has always drawn particular attention from the nation’s education companies, particularly when changes in policy, budgets, and classroom practice take hold.
One District Eyes Changes to SEL and Curriculum Adoption
In the Sweetwater Union High School District, which serves more than 34,000 students in grades 7-12, the structural deficit is set to hit between $35 million to $45 million, out of a general fund budget of about $480 million, in the next two years if the district doesn’t take any action.
California’s K-12 Market: Key Takeaways
District budgets under strain: Many school systems are in a difficult place financially as the state keeps funding for K-12 districts relatively flat. Many school systems are trying to find ways to scale back programs and personnel.
Money for PD, extended learning time: California state officials have devoted funding for extended learning time, which provides out-of-class enrichment to students at Title I schools, as well as funding for professional development.
Arts funding rolling out: Districts are starting to deploy Prop 28 arts funding, which will provide $906 million to districts in the 2024-25 school year. While the bulk of the money must go toward salaries and benefits, it’s likely the second largest chunk will be used to purchase new instructional materials.
Enrollment declines undermine schools. Decreases in enrollment and attendance are hurting K-12 districts, as state funding is tied to average daily attendance. Many K-12 systems are seeking ways to boost engagement to get students back in the classroom.
Rainy day funds running dry. Both the state and districts dug into their reserves to support schools during the current fiscal year, but now that their rainy day funds are drying up, they are looking for ways to cut costs in the coming years – which is likely to include staff cuts
Superintendent Moisés Aguirre said the district, located south of San Diego on the Mexico-United States border, is trying to find ways to bring that figure down drastically by rethinking its financial decisions and closely reviewing purchases.
While California allocated a relatively flat 1.07 percent cost of living adjustment to its Proposition 98 funding — the main source of K-12 state aid — Sweetwater is one of the many districts in the state that have seen a continued decrease in enrollment and a resulting blow to its budget. The state calculates district funding levels based on average daily attendance and declines in the student count have financial consequences.
“At our high point, we had about 40,000 students, and right now we’re just a smidge over 34,000,” he said. That loss, he said, is the equivalent to the enrollment of two of its high schools.
The district has not yet had to close a school, he said, partly because of the boost from federal stimulus funding. Now that ESSER money is expiring, with all allocations required to be made by late September, district leaders are considering consolidating programs.
Aguirre said the district is also looking at all vacant positions to evaluate whether or not they should be filled, and lengthening curriculum adoption cycles.
The hardest decisions involve scaling back programs funded through federal stimulus aid. Those include a summer academy for incoming students, and social-emotional and mental-health programs — which have been beneficial.
“We’re going to have to go back to more of the basics, like credit recovery,” Aguirre said. That’s difficult because the Sweetwater system has seen how many programs “can really support our students.”
About 30 to 40 percent of the district’s total ESSER funding went to purchase devices, he said. Now the system has to find the money to refresh and replace those devices. One option is working it into a proposed bond, he said, as the district included language in its most recent proposal to allow for technology purchases.
Aguirre said the system is also actively pursuing state grant opportunities to fund a number of programs, including support for community schools, which offer wraparound health and social services; and for the creation of an early-middle college — a second school located on a college campus where students can take both high school and college courses for minimal cost.
Opportunities in Extended Learning, the Arts
In the 2024-25 budget, California’s K-12 districts received $101.1 billion in funding, a 6.9 percent increase from the $94.6 billion schools received in the prior fiscal year, although the bulk of that gain is due to accounting shifts across fiscal years.
The state’s funding formula for schools saw a 1 percent cost-of-living adjustment, the figure that is most often cited in reference to state K-12 funding.
EdWeek Market Brief regularly publishes analyses of important state markets — those that matter to education companies either because of their size or because their policies signal a shift in district demands reflective of the nation as a whole. The stories examine changes in policy and purchasing priorities in those states. Recent stories have looked at the markets in California, Florida, Illinois, Indiana, North Carolina, New York, and Pennsylvania.
While programmatic spending, which funds specific state K-12 initiatives, saw relatively minor increases, California state officials have continued to invest in K-12 programs through one-time and ongoing funding.
The state’s Extended Learning Opportunities Program, which offers out-of-class enrichment to students at Title I schools, received flat funding at $4 billion in this year’s budget, said Patti Herrera, vice president of School Services of California, which advises local education agencies in the state on financial and policy issues.
One challenge for school districts with ELOP funding, she said, is that its distribution mechanism means some K-12 systems see wildly varying funding amounts from year-to-year, making it difficult to sustain the program.
School systems that serve the highest concentrations of low-income students in the state, or Rate 1 schools, are guaranteed to receive a specific level of ELOP funding every year, Herrera said. But the rest of the districts, called Rate 2, are allocated funds based on the money that’s available after funding the guarantees to Rate 1 districts. Rate 2 systems may have $2 billion to split, or they may have $1.5 billion.
“That’s a big difference,” she said, adding those districts may need to dig into their own reserves to keep providing the same services.
Districts and schools are also now receiving funds from Prop 28, the law that voters approved in 2022 that directs 1 percent of the state’s K-12 funding toward arts education. The funding is designed to grow automatically over time alongside general economic growth, said Kapphahn.
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In the Clovis Unified School District, a nearly 43,000 student district in the Fresno area, Prop 28 brought in about $6 million for the district, said Michael Johnston, associate superintendent of administrative services. The district has been slow to spend the dollars as it waited for additional guidance from the state on how it could be allocated.
The law required the funds to be spent only on new arts expenditures and that 80 percent had to be directed toward salaries and benefits. Since the district didn’t make large cuts to arts education prior to Prop 28, it’s still assessing the best way to spend those funds while meeting state rules.
The question is “how do we make sure we make the most of these dollars, knowing what we have in place already?” said Johnston.
While the term “arts” may suggest the funds are limited to visual or performing arts, Johnston said the language is broad enough to cover things like computer coding classes, and the district is considering those options.
Herrera anticipates that after salaries and benefits, the highest percentage of Prop 28 dollars will likely go to instructional materials to support new and expanded programs.
New Math Framework in Focus
Since the state recently adopted a new framework for math instruction and resources — after lengthy, heated, years-long debates over it — it is now gearing up for a statewide adoption of resources that align to the framework in 2025.
Districts are preparing by investing in professional development for math educators, Kapphahn said.
The state set aside $20 million in one-time funds for the state’s 58 county offices of education to train educators in delivering math instruction that’s consistent with the new framework.
The state has also set aside $25 million in ongoing funding to support a new literacy screening initiative aimed at catching students’ reading difficulties as early as possible.
That funding will be provided directly to districts, Kapphahn said, but will represent a “small bump” in funding.
Student Counts and State Aid
The largest problem facing K-12 funding on the whole comes down to simple math: There are far fewer students attending public schools now than before the pandemic.
The “vast majority” of the state’s school districts are dealing with declining enrollment and, by extension, lower total daily attendance, said Herrera.
Statewide, the number of transitional kindergarten through grade 12students enrolled in California public schools dropped 5 percent from 2019 to 2022, representing a loss of 310,000 students, said Kapphahn, of the state’s legislative analysts office. It’s the fifth-largest percentage drop in the country during that time period.
The enrollment decline began in 2014, driven by a decline in births across California, and has accelerated in recent years as students left the state during the pandemic. There has been a small bump in the number of students choosing non-public options like private schools and homeschooling, he said.
Another compounding factor is that districts have also had some leeway from the state when it comes to cushioning the blow of lower enrollments and attendance rates — flexibility that is set to end.
During the pandemic, the state funded most districts based on their pre-pandemic attendance levels — even if their actual attendance dropped — as part of a “hold harmless” provision.
The state began phasing that provision out in the 2023-24 school year by using three-year averages of attendance.
Even a 1 percent drop in attendance rates can translate to a loss of millions in funding, said Johnston, of Clovis Unified.
The district was at a 96 percent attendance levels, pre-COVID, and is back at nearly 95 percent.
“That’s obviously a concern, because when you’re looking at the dollars we get from the state, about $500 million, a 1 percent hit on that is a $5 million reduction,” he said.
While many factors undermining student enrollment are outside of the Clovis Unified’s control, the district has ramped up efforts to improve attendance, and ultimately reduce the financial impact.
The state’s recent, slight increase to district cost-of-living adjustments was possible only because it tapped into a rainy day fund that was established in the wake of the Great Recession to shore up K-12 budgets.
Just like the state’s using rainy day funds, we’re using reserve dollars to manage out situation going forward.
The state built up the rainy day fund to more than $8.5 billion with strong tax revenues. California officials were legally required to tap into the fund this year when they faced a budget deficit, and the state largely drained the money as a result.
“We won’t have that same tool available the next time we go through an economic downturn,” said Kapphahn.
Local Reserves Running Dry
As K-12 districts in the state come up against increasing financial pressures, some are protected by their own reserves they built up during the pandemic. During that period, many districts spent their federal stimulus aid on time-restricted purchases, which helped them put aside local funding.
“We always advise school districts to spend the most restrictive dollars first,” Herrera said.
While many districts are tapping into those reserves this year, that money isn’t likely to last long.
“Just like the state’s using rainy day funds, we’re using reserve dollars to manage our situation going forward,” said Johnston. “What we want to do is have a very level budget that’s not reacting constantly to the changes from the state budget.”
At the moment, California’s K-12 system overall is in a “state of stasis,” Herrera said, maintaining program and purchasing power at current levels, but at the local level, “districts are feeling like they’re in a recession already,” she said.
“We’re telling [districts] that they need to start right-sizing,” Herrera said. That means looking for cuts across their budgets, she said, and the biggest area of district spending is personnel.
Staffing Cuts an Option?
The financial pressure on K-12 districts in California may leave school systems no choice but to impose staffing cuts.
The California Teachers Association, which represents more than 310,000 educators in the state, fought back this year when districts sent out 2,000 notices in May of potential layoffs.
The union pointed to large general fund reserves districts built up in the last three years as reasons they should not impose staffing reductions. Many districts eventually backed away from those plans, said David Goldberg, CTA president.
Some of the positions included in the Los Angeles Unified’s May notices included campus aides, class size reduction teachers, library aides, art and music teachers, and nurses, according to a CTA publication.
Another wave of layoffs notices could have come last month but the CTA, the governor, and legislature came to a deal that suspended districts’ ability to make those reductions.
“It’s a very important victory for stability for schools,” Goldberg said. “These kids have a finite amount of years in schools, and it impacts them when their classes balloon to huge numbers.”
