On Jan. 10, California’s Department of Finance Director Joe Stephenshaw formally presented the Governor’s January Budget Proposal. A continuance of Gov. Gavin Newsom’s sneak peek presentation of his proposed budget on Jan. 6, the theme for the 2025–26 budget proposal is one of caution and vigilance. Citing the state’s revenue volatility, which is in part due to its reliance on the top 1 percent of income earners and capital gains revenues, the proposed budget is balanced and comes with a modest surplus of $363 million. This is attributed to early budgetary actions the state took in April and in the adoption of the 2024–25 state budget last June, which helped to reduce the operational deficit.
“At first glance, the Governor’s 2025–26 Budget Proposal appears to refrain from making major direct program cuts to TK-12 public schools and allocates more resources toward the implementation of transitional kindergarten. It also promises to fully fund the cost-of-living adjustment (COLA) as required by law. But before we offer unqualified praise, we’ll need to evaluate the actual language contained in the education budget trailer bill to be released in February — especially since the budget summary contains provisions that seem to open the door for shortchanging Proposition 98 under certain conditions,” said CSBA CEO & Executive Director Vernon M. Billy.
“Districts and county offices of education are pushing against financial headwinds as they strive to accelerate academic performance, particularly for struggling student groups — a job that’s made harder when the state captures discretionary one-time Prop 98 dollars and allocates them as categorical funding,” Billy continued. “Greater discretionary funding by the state that can be used to close the achievement gap is essential. Schools can’t make the needed progress in this area without the flexibility to make decisions at the local level that meet the needs of their unique student populations.”
State General Fund
As proposed, the overall state budget is $322.2 billion, which includes all federal, state and special funding. The General Fund share of the budget is estimated at $228.9 billion with an available reserve amount of $16.9 billion, which includes $1.5 billion for the Prop 98 Rainy Day Reserve. As a result, according to Stephenshaw, “there is no need for budget solutions beyond what was included in the current year budget.”
However, he also acknowledged that the state’s ongoing baseline costs are anticipated to increase in the outyears, exceeding the state’s revenue projections. This is reflective of overall concerns that the state’s year-over-year operational deficit continues to influence the state budget. The state will have a clearer picture in May, when it updates its budget figures based upon actual state income tax revenues.
General Fund Reserve reform
The Governor will be pursuing reforms to the state’s reserve requirements. Specifically, Gov. Newsom is proposing to double the size of the state’s reserve cap from 10 percent to 20 percent and clarify that deposits in the Rainy Day Fund are not counted as expenditures toward the state’s spending limit. This goal will require a statewide ballot initiative.
Proposition 98
Prop 98 is poised to increase to $119.2 billion in the current year and $118.9 billion in 2025–26. Over the three-year budget period spanning 2023–24, 2024–25 and 2025–26, it is estimated that the Prop 98 Guarantee will increase by $7.5 billion. Importantly, Prop 98 was suspended in the 2023–24 fiscal year by approximately $8.3 billion, which has been revised to $7.9 billion, resulting in only $98.5 billion for education. This created a “maintenance factor,” i.e. debt, that will be repaid over time. An increased repayment of $5.6 billion was made in the current year, lowering the remaining balance to $2.9 billion. There is no scheduled repayment proposed for the 2025–26 fiscal year.
Regarding the current year, the Governor is proposing funding the guarantee $1.6 billion below the projected amount of $119.2 billion, lowering the possible total guarantee to $117.6 billion due to “inherent risk in revenue projections” that “is intended to mitigate the risk of potentially appropriating more resources to the [Prop 98] Guarantee than are ultimately available in the final calculation for 2024–25.” The stated intent is to repay Prop 98 in order to make it whole when the state is required to reconcile the final 2024–25 Prop 98 amount in 2026.
In welcome news, the guarantee will again receive additional ongoing funding, i.e. rebenching, for the fourth and final time by $900 million to reflect the implementation of universal transitional kindergarten (UTK) to a total of $2.4 billion. This is a win for CSBA, as it has advocated for the continued growth in the Prop 98 Guarantee to reflect the commensurate increase in UTK enrollment.
Lastly, unlike the 2023–24 budget year, where Prop 98 was in a Test 2 year, it is anticipated that it will be in Test 1 for the 2024–25 and 2025–26 budget years. Generally considered to approximately be a 40 percent share of the state’s General Fund, with the UTK rebenching, Test 1 will increase from 39.2 percent to 39.6 percent of the General Fund.
Cost-of-living adjustment
As the Governor previously shared, the COLA is projected to be 2.43 percent. This will be applied to both Local Control Funding Formula (LCFF) funds and to specified categorical programs, including special education, nutrition and the mandates block grant.
Local Control Funding Formula
The LCFF will receive the 2.43 percent COLA, which results in an approximate increase of $2.5 billion in funding. In a win for CSBA advocacy, the Governor proposes eliminating the remaining $246.6 million deferral that was included as part of the 2024–25 budget package from 2024–25 to 2025–26.
Prop 98 reserve
The Prop 98 Rainy Day Fund balance is also estimated to grow from $1.1 billion to $1.5 billion. This reflects two mandatory deposits, one in 2024–25 and the other in 2025–26. Importantly, the total balance remains below the threshold that triggers a cap on school district reserves.
Other significant proposals
County offices of education
- Provides $12.2 million in ongoing Prop 98 General Fund to account for changes in average daily attendance (ADA).
- Provides a 2.43 percent COLA.
Universal transitional kindergarten
- In addition to the provision of $900 million for the last year of the four-year implementation of UTK, which expands eligibility for children born between Sept. 2 and June 2, the budget provides an additional $1.5 billion in ongoing Prop 98 General Fund to further lower the adult-to-teacher ratio from 12:1 to 10:1.
- An additional $516.7 million in ongoing Prop 98 General Fund for adding one additional certificated or classified staff to every TK classroom.
Special education
- There were no specific proposals on special education, however, it will receive the 2.43 percent COLA
Expanded Learning Opportunities Program (ELO-P)
- Increases the number of local educational agencies that must offer summer and before- and after-school instruction to students supported by the ELO-P, by expanding the program to LEAs serving grades TK-6 with an unduplicated pupil percentage of 55 percent or more, which would replace the original threshold of 75 percent unduplicated students.
- Allocates an additional $435 million to fund this expansion, bringing total ELO-P funding to $4.4 billion.
Career technical education
- Expands the authorized uses of funding available through the Student Support and Discretionary Block Grant to allow expenditures related to dual enrollment and career pathway programs.
- Examines the feasibility of shifting to a single consolidated application for LEAs offering TK-12 career technical education programs.
- Provides an additional $3 million in support to the Cradle-to-Career Data System, the state’s data and research clearinghouse on education, economic and health outcomes.
Literacy
- $500 million in one-time Prop 98 General Fund to support mathematics and literacy coaches. These funds will build upon earlier investments of $500 million toward the Literacy Coaches and Reading Specialists Grant Program, which targets specialists training and hiring efforts in high-poverty schools to help students with the greatest need.
- Support additional literacy screenings with $40 million in one-time Prop 98 General Funds.
- Includes $5 million annually through the 2029–30 fiscal year to create a literacy network within the Statewide System of Support to make information available to LEAs on state-developed literacy resources and related best practices to address persistent challenges in this area.
- Professional development for teachers on the English Language Arts/English Language Development Framework and Literacy Roadmap will be supported, among other programs, through a $1.8 billion one-time Prop 98 allocation to a discretionary block grant.
- Support for use of English language proficiency screeners to support multilingual learners in TK ($10 million in one-time Prop 98 dollars).
Teacher recruitment and retention
- $30 million in one-time Prop 98 General Funds to extend the Golden State Teacher Grant Program by one more year.
- $150 million in one-time Prop 98 General Funds to fund a new Teacher Recruitment Incentive Grant Program.
- $100 million in one-time Prop 98 General Funds to extend the timeline of the existing National Board Certification Incentive Program.
Curriculum
- Proposal to evaluate, streamline and improve the process for developing and adopting curriculum standards, frameworks and instructional materials.
- Professional development for teachers on the Mathematics Framework (through the discretionary block grant).
- The proposal does not include funding to trigger the provision in existing law requiring an LEA to offer at least a one-semester ethnic studies course to students beginning in 2025-26 school year.
Nutrition
- The proposal provides an additional $106.3 million in ongoing Prop 98 funding to fully fund universal school meals. This is on top of the $1.8 billion provided in 2024–25. California schools have served over a million meals to students in TK-12.
- The proposed budget will also provide $150 million in one-time Prop 98 funding for specialized kitchen equipment and training to support schools in providing freshly prepared meals.
- A proposed $24.9 million in one-time General Fund (not Prop 98-related) funding for the Farm to School initiatives through the state Department of Food and Agriculture. The program services about 49 percent of all school children in the state’s highest-need communities. The funding will be used to support the California Farm to School Incubator Grant Program, which is currently oversubscribed and continues to increase in demand, Farm to School Network regional events and trainings and for the Climate Smart Technical Assistance program for producers.
Significant uncertainties remain
There are a number of significant uncertainties that will continue to influence whether the Governor’s January Budget Proposal will be realized. They include:
- What impacts the incoming federal administration will have on education programs and funding.
- The volatile nature of the state’s revenue structure, which can result in vast upswings and downswings in General Fund revenues.
- The impacts of natural disasters on state revenues and student enrollment, including the fires in Los Angeles and Ventura counties.
What’s next?
All eyes will now turn to the Legislature, where members will commence hearings on the proposed budget. Much of the detail regarding the Governor’s Budget Proposal will be in budget trailer bills, which should be available Feb. 1.
By May 15, Gov. Newsom will release his May Budget Revision, 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.
CSBA will continue to provide updates and opportunities for advocacy as the budget cycle continues.