A day after Gov. Gavin Newsom provided his State of the State address to a joint session of the State Legislature, which included several significant sneak peeks of major educational proposals that are a part of his overall proposed budget, the Department of Finance presented the Governor’s proposed budget for the coming 2026–27 fiscal year on Jan. 9. Notably, the release of the Governor’s January Budget Proposal creates a juxtaposition between the positive legacy-setting narrative presented in his State of the State address with the fiscal realities of the State Budget. On one hand, the Governor highlighted various financial investments the state has made in transformational educational programs. On the other, the budget includes another manipulation of Proposition 98 that foretells serious concerns about how the state may continue to approach public education funding.
CSBA President Dr. Debra Schade’s response to the Governor’s January Budget Proposal can be read here.
Overall State Budget and the state’s economic outlook
In presenting the State Budget, Department of Finance Director Joe Stephenshaw cited a $2.9 billion shortfall, but stated the budget is largely balanced, continues investments in existing programs and builds on the state’s long-term resilience. However, he also emphasized that the budget does not come without risks. Factors including stock market volatility and declines, uncertainty about federal budget and policy changes and national economic developments — such as inflationary costs and the federal government’s on-again, off-again approach to tariffs — could upend the state’s approach to a balanced budget.
Described as a workload budget that does not introduce new initiatives and focuses on funding existing programs (including increased costs for those programs), the overall budget is projected at $348.9 billion, with overall estimated reserves of $23 billion. The projected $23 billion in reserves break down into three categories:
- $14.4 billion for the state’s general fund reserve
- $4.5 billion for the state’s newly created Special Fund for Economic Uncertainties
- $4.1 billion for the Prop 98 rainy day fund
State education governance
In a surprise announcement included in the Governor’s State of the State address, Gov. Newsom proposed shifting the statutory oversight responsibilities of the California Department of Education (CDE) from the state superintendent of public instruction (SSPI) to the State Board of Education (SBE). Citing numerous reports over the years, including the state’s Master Plan for Education, that assert the state’s educational system remains fragmented, the Governor is arguing that now is the time to improve the state’s public education governance structure.
Details are needed as to the scope and breadth of the proposal, which are expected to be announced when the Department of Finance releases its budget trailer bill language in early February.
Read CSBA’s response to the Governor’s proposal to place the CDE under the SBE here.
Public education funding and Proposition 98
The Prop 98 funding level across the budget window is calculated to be $123.8 billion in 2024–25, $121.4 billion in 2025–26 and $125.5 billion in 2026–27. In total, this represents significantly more funding ($21.7 billion) for education than was projected when the 2025–26 budget was adopted in June 2025. All years are Test 1 years, meaning that Prop 98 accounts for roughly 40 percent of every dollar in state General Fund revenues, which is in addition to local property tax revenues. Stephenshaw highlighted that Prop 98 funding has increased by over 60 percent since 2018–19.
While the Governor proposes repaying the $1.9 billion that was withheld from Prop 98 in 2023–24 in last year’s budget, he unfortunately also proposed to withhold $5.6 billion from 2025–26, the third manipulation of Prop 98 in as many years. This has the effect of reducing actual funding in 2025–26 from $121.4 billion to $115.9 billion. Once again, the Governor cites persistent uncertainty in revenue projects as the justification for this manipulation.
Prop 98 rainy day fund and maintenance factor — local reserve caps triggered
The revised state revenues that buoy Prop 98 in the Governor’s Budget Proposal also trigger changes in previously projected maintenance factor payments and rainy day fund deposits. Specifically, the $8.3 billion maintenance factor obligation, which was created as a result of a suspension of the Prop 98 Guarantee in 2023–24, is now repaid by $7.8 billion, a significant increase from the $5.5 billion repayment that was previously projected.
The rainy day fund swings from a projected $0 balance to a $4.1 billion balance, which is projected to trigger district reserve caps in 2025–26 and 2026–27, limiting the amount of money certain LEAs can legally keep in reserve.
Local Control Funding Formula cost-of-living adjustment
The state calculates that the annual cost-of-living adjustment (COLA) is 2.41 percent. This COLA applies to both the Local Control Funding Formula (LCFF), as well as specified categorical programs funded outside of LCFF, which include:
- State Preschool (which was omitted last year)
- Special Education
- Child Nutrition
- Foster Youth Services Coordinating Program
- Mandates Block Grant
- Adults in Correctional Facilities Program
- Charter School Facility Grant Program
- American Indian Education Centers
- American Indian Early Childhood Education Program
In response to CSBA’s budget advocacy and the advocacy of other statewide educational organizations, the budget also includes the retirement of the remaining $1.9 billion in LCFF deferrals, which was included in last year’s budget act.
Small school districts
In another win for CSBA advocacy, the proposed budget includes an increase of 20 percent in Necessary Small School funding rates. CSBA has continually pushed for increased funding for small school districts, especially those with necessary small schools, due to increasing costs and economies of scale impacts on these districts.
County offices of education
In a win for joint advocacy by CSBA and the California County Superintendents, the budget includes an additional $13.3 million for a total of $131.9 million in universal and targeted assistance funding for county offices of education (COEs). This will be used to support COEs in their work providing assistance to eligible local educational agencies (LEAs) through the Statewide System of Support.
COEs will also receive the same LCFF COLA.
Block grants
The Governor is proposing a second Student Support and Professional Development Discretionary Block Grant at $2.8 billion. This appears to be substantially similar to the Discretionary Block Grant that was included in last year’s budget, which provided $1.7 billion, with the exception that the new grant includes professional development for transitional kindergarten (TK) teachers and site administrators related to developmentally appropriate TK instruction.
Similarly, the Governor also proposes to fully restore previously reduced Learning Recovery Emergency Block Grant funding by providing the final $757.3 million.
Special education
Special education funding will receive the estimated 2.41 percent COLA. The budget proposal also includes an effort to equalize special education rates across the state, such that all LEAs will receive the same rate per pupil. This will increase special education funding by $509 million.
Teacher preparation
Also included is a proposed increase of $250 million in one-time Prop 98 funding for the state’s educator residency programs. The money is proposed to be spread out over the next four years through the 2029–30 fiscal year. It would include support for teachers and school counselors participating in the program. The current amount of funding, estimated to be $620 million over the past five years, is expected to be fully spent by the end of the current 2025–26 fiscal year.
Charter school accountability
The budget includes a proposal that would require charter school authorizers to continue to use verified data in charter school renewal proceedings through June 30, 2028. It also includes new requirements for charter schools intended to prevent hundreds of millions of dollars of fraud involving charter school operators in the state.
Additional details are needed, which will come out when the administration’s proposed budget trailer bill language is released in early February.
Literacy
State support for the ongoing, required literacy screenings to identify student reading difficulties, including dyslexia, would continue with a proposal for a one-time allocation of $40 million from Prop 98.
Community schools
Building upon the prior $4.1 billion in one-time Prop 98 funds the state has appropriated for this program, the budget proposes an additional $1 billion in ongoing Prop 98 funds for the California Community Schools Partnership Program (a separate funding stream from the federal community schools grant program). The funding is intended to expand the model to other school sites where there are large concentrations of English learners, foster care youth and students from low-income families.
Discrimination prevention
Consistent with the enactment of Assembly Bill 715 and Senate Bill 48 from 2025, the administration proposes $6.4 million from the General Fund over two years to establish an Office for Civil Rights within the Government Operations Agency to house five new discrimination-prevention coordinator positions. The coordinators will help support LEAs by providing discrimination prevention-related resources and assistance.
The budget proposal would also provide approximately $1.3 million and create new positions at CDE to help the department carry out its new responsibilities under the legislation.
Career technical education
Utilizing $100 million in funding from the proposed second Student Support and Discretionary Block Grant, the budget proposes this funding be used to expand dual enrollment/credit opportunities to increase high school student access to college and career pathways.
Expanded Learning Opportunities Program (ELO-P)
Added to the budget is an additional $62.4 million in ongoing Prop 98 general funds for ELO-P to increase per-pupil funding for Tier 2 LEAs to $1,800. This increases overall ongoing funding for ELO-P to $4.7 billion in Prop 98 general funds.
Other notable funding proposals
- School facilities: Allocates $1.5 billion in Proposition 2 school facility bond funds for 2026–27 construction projects.
- Home-to-school transportation: The budget proposes additional funding to schools, both $322 million one-time and $239.2 million ongoing, to reflect higher costs in the program. This program reimburses schools for 60 percent of their eligible transportation costs.
- The administration signaled a proposal to be included in the May Revise to help LEAs to implement new Holocaust and genocide education requirements. Grants, funded with a one-time $10 million from Prop 98 will be made available to LEAs for professional development, instructional materials and other related costs.
- Kitchen infrastructure and training: $100 million in one-time Prop 98 general funds are proposed to provide specialized kitchen equipment, cover infrastructure costs and training and supports for nutritional services staff to help prepare fresh meals with local ingredients.
Los Angeles County wildfire recovery: In an effort to continue supporting recovery from the Palisades and Eaton wildfires from January 2025, the budget includes $22.9 million in one-time Prop 98 general funds to support impacted LEAs.
What’s next?
CSBA will host a webinar providing a deeper dive into the Governor’s January Budget Proposal and its impact on school districts and county offices of education on Monday, Jan. 12, at 11 a.m.
In this 90-minute webinar, CSBA staff will break down the budget with special attention paid to the local governance implications and review how the Governor’s proposal addresses key CSBA budget priorities, including protecting Prop 98, investing in the LCFF, staff recruitment and retention, and implementation of transitional kindergarten, among other priorities. This also includes the need for a state-level operations and support plan that transforms fragmented initiatives and short-term fixes into a coherent, aligned and accountable
All eyes will now turn to the Legislature, where they will commence hearings on the proposed budget in earnest. Much of the detail regarding the Governor’s Budget Proposal will be included in budget trailer bills, which should be available Feb. 1. By May 15, Gov. Newsom will release his May Budget Revise, and negotiations between his administration and the Legislature will be ongoing until the June 15 deadline for the Legislature to pass the budget bill. The Governor will then have until July 1 to sign the bill.
CSBA will continue to provide updates and opportunities for advocacy as the budget cycle continues.state education system that genuinely supports local leaders in closing the achievement gap and delivers positive outcomes for California students.
