On May 14, Gov. Gavin Newsom released the May revision to his January Budget Proposal, the last before he is termed out of office. A common theme throughout his presentation was the juxtaposition of the State of California’s budget and economic growth compared to the volatility and funding impacts presented by the current federal administration.
The May Revise proposes a balanced budget for the next two fiscal years, 2026–27 and 2027–28, does not include significant ongoing funding or new programs, and makes additional deposits into both the state’s General Fund reserve and Proposition 98 reserve. Notably, revenues — largely driven by higher-than-expected increases in personal income and capital gains attributed to the rapid growth of artificial intelligence — are $16.5 billion higher than projected in January. The Governor also highlighted that state revenues are $53.6 billion higher than what was projected by the state’s nonpartisan Legislative Analyst’s Office (LAO) in November 2025.
The May Revise contains welcome provisions that will benefit public schools, including a 4.31 percent cost-of-living adjustment (COLA) for the Local Control Funding Formula (LCFF) and a $2.4 billion ongoing increase for special education. Unfortunately, the Governor’s proposal masks an underfunding of the Prop 98 school funding guarantee and relies on the prolific use of one-time money to inflate funding levels in the short term without providing the stability and predictability schools need to plan effectively for student support.
In response to the Governor’s May Revise, CSBA President Dr. Debra Schade issued the following statement:
The administration’s generosity in some areas is undercut by its inclusion of funding for one-time projects and one-size-fits-all mandates instead of investing those resources in base funding that allows school districts and county offices of education to allocate the money in ways that best meet the needs of local students.
By manipulating some of the Prop 98 funding due for TK-14 schools for the third year in a row, the administration is viewing Prop 98 as a discretionary pot of money that can be used to satisfy other parts of the state budget without following the readily available, and constitutionally embedded process within Prop 98 to temporarily reduce the minimum guarantee.
The administration must abandon its decision to sidestep the requirements of voter-approved Prop 98 and replace its ad hoc system of education governance with one based on an operations and support plan with clear goals, benchmarks, evaluation and reporting requirements indicating how the state will better support — not dictate to — local educational agencies.
Overall state budget
As presented in the May Revise, the overall state budget is $349.9 billion, which includes federal funding and special funds. The state’s General Fund, which drives Prop 98 funding, is $246.6 billion. Recognizing that the state continues to rely on a highly volatile revenue structure, where more than 50 percent of the state’s personal income taxes are driven by its top 1 percent of income earners, the Governor maintained his call for the state to increase the Proposition 2 General Fund reserve cap from 10 percent to 20 percent.
Although the May Revise proposes a balanced state budget over the next two fiscal years, it does not address the out-year ongoing operational budget deficits that remain. According to the LAO’s November 2025 fiscal outlook, beginning in 2027–28, structural deficits are estimated “to grow to about $35 billion annually due to spending growth continuing to outstrip revenue growth.”
Public education funding and Prop 98
Due to the increase in state revenues and growth in capital gains revenues, the May Revise includes increases in Prop 98 funding. However, it also retains the Governor’s proposed withholding.
Over the three-year budget period spanning from 2024–25 to 2027–28, Prop 98 is estimated at:
- $124.9 billion for 2024–25
- $125.1 billion for 2025–26
- $127.1 billion for 2026–27
Prop 98 withholding remains
Most troubling, and counter to the collective advocacy of CSBA and others opposing the withholding, the Governor is doubling down, again, on his proposal to hold back Prop 98 funding. Proposed to be $5.6 billion in the January Budget, it has been reduced to $3.9 billion, however, any withholding of funding is unacceptable. The $3.9 billion is estimated to equate to $635 per student.
Repayment of Prop 98 maintenance factor and the Prop 98 reserve
The state’s improving revenue picture also triggers a higher maintenance factor repayment in 2024–25 of $8.3 billion, as compared to $7.8 billion in the January proposal. This will fully retire the maintenance factor established when Prop 98 was suspended in 2023–24.
Due to the growth in personal incomes, especially the influence of capital gains revenues, the Prop 98 reserve, also referred to as the rainy day fund, is proposed to finish the 2026–27 fiscal year with a balance of $10.3 billion.
Notably, of the amount above, $1.6 billion is proposed as a discretionary deposit. Ultimately, this means that the state will hit the 3 percent Prop 98 reserve threshold that will trigger local reserve caps. Under Proposition 2 requirements, when the state’s Prop 98 rainy day fund equals 3 percent of overall Prop 98 funds, the local 10 percent reserve cap is triggered. Small school districts (average daily attendance, or ADA, of less than 2,500) and community-funded districts are exempt from the local reserve cap.
Local Control Funding Formula
As set by statute, the COLA for the 2026–27 fiscal year is estimated to be 2.87 percent. However, the Governor is proposing to increase the LCFF COLA by 1.44 percent to create a “super COLA” of 4.31 percent, amounting to an increase of $906 million for a total of $2.2 billion in additional LCFF funding.
Note that the super COLA is also intended to cover the proposal to require LEAs to provide 14 weeks of paid pregnancy disability leave for all employees. More details further below.
Categorical programs statutorily required to receive the COLA will receive the base 2.87 percent COLA, excluding preschool, which will receive a modified COLA of 2.01 percent. The statutory programs receiving the 2.87 percent COLA include
- 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
County offices of education
In addition to the proposed increase of $13.3 million for a total of $131.9 million in universal and targeted assistance funding for county offices of education (COEs) in the January Budget, the May Revise includes $48.3 million to help cover changes in ADA. This includes the proposed super COLA of 4.31 percent.
CSBA continues to support the proposed increase in funding to support COEs’ role in providing universal and targeted assistance funding.
Small school districts
Retained in the budget is the proposal from January to provide $30.7 million to increase Necessary Small School funding rates by 20 percent. It reflects a continued effort by CSBA and others to push for increased funding for small school districts, which is especially necessary due to the impact of increasing costs and economies of scale on these districts.
Special education
In surprise news, the May Revise includes a substantial increase in state support for special education. In the January Budget, the Governor proposed a $509 million increase in base special education funding. This will rise by $1.9 billion to $2.4 billion, a 43 percent increase. Also included are the following proposals:
- $25 million one-time increase for Inclusive College Technical Assistance Centers to inclusive postsecondary education communities
- $16.2 million ongoing increase in federal special education (Individuals with Disabilities Education Act) funds to support the Golden State Teacher Grant Program (GSTGP); Grant awards for prospective special education teachers of up to $20,000
- $1.6 million one-time federal Title II funds to continue the GSTGP and grant awards of $10,000 per prospective teacher
Two block grants
- Student Support and Professional Development (SSPD) Block Grant: Also seeing an increase in funding is the SSPD Block Grant — a fully discretionary block grant to help LEAs address growing operational costs. This is the second such block grant in as many years and would be separate from a similarly titled block grant last year. Proposed at $2.8 billion in January, it has been increased by $2.2 billion to $5 billion and will go out on an ADA basis.
- Learning Recovery Emergency (LRE) Block Grant: The proposed restoration of $757.3 million in prior cuts to the LRE Block Grant remains. As opposed to the SSPD Block Grant, the LRE Block Grant is not fully discretionary and receipt of funds will continue in the grant’s requirements.
Paid pregnancy disability leave
Added to the May Revise is a proposal to require LEAs and community colleges to provide employees with 14 weeks of paid pregnancy disability leave. This is similar to last year’s Assembly Bill 65 (D-Aguiar-Curry), which CSBA opposed due to its costs. Estimated to present an annual statewide cost of $218 million, it was noted in the May Revise that the super COLA would be required to be used to fund these costs. Specifically, according to the Department of Finance, funding from the super COLA must be first be directed to cover costs associated with this leave.
Curriculum and instruction
- Literacy instruction and literacy screenings: Furthering state efforts to address student literacy, the May Revise includes the following funding proposals:
- A one-time increase of $428.8 million to extend the existing literacy instruction and support through June 30, 2031, for all Literacy Coaches and Reading Specialists Grant Program grantees. This proposal would extend the program by as much as four years for some recipients.
- $11.2 million is proposed to support the literacy coaches through the Literacy Coaches and Reading Specialists Educator Training Competitive Grant.
- $5 million in ongoing Prop 98 General Fund dollars to the Sacramento County Office of Education and the Dyslexia Center at the University of California, San Francisco is proposed to provide the Multitudes screening tool statewide at no cost to LEAs. The proposal would also expand the number of languages supported by the screening tool.
- The Mathematics Professional Learning Partnership: One-time support in the amount of $60 million General Fund to extend its work of supporting educator training and mathematics coaching to more LEAs beyond its current expiration date of June 30, 2029.
Community Schools Grant Program
In addition to the proposed $1 billion in ongoing Prop 98 funds, the Governor is adding $485 million through the redirection of funding from the existing California Community Schools Partnership Program. The $485 million would be broken down as follows:
- $401 million in one-time grants to support planning and implementation
- $50 million to expand existing work to redesign middle and high schools
- $15 million for the State Transformational Assistance Center to support new community schools and additional $13 million to assist community school recipients
- $6 million to support collaboration between COEs and community partners
Teacher preparation and professional development
Using $60 million in one-time Prop 98 General Funds to help “accelerate the state’s progress in addressing teacher shortages,” the May Revise proposes the funding be allocated as follows:
- $30 million for the Statewide Teacher Residency Technical Assistance Center, extending through 2034
- $15 million to expand and enhance offerings through the 21st Century California School Leadership Academy program for school leaders
Behavioral health
On the health side of the budget, the state is proposing $316 million in Proposition 1 funding to improve behavioral health services across the state. This includes $174.8 million to the California Department of Public Health to support prevention and early-intervention mental health programs, $131.1 million to the Department of Health Care Access and Information to help train and expand the behavioral health workforce, and $10 million to the Commission for Behavioral Health for oversight, planning and implementation work related to Proposition 1.
Other notable proposals
- $2.8 million in additional ongoing Prop 98 General Fund to fully fund the Universal School Meals program.
- $30 million in one-time Prop 98 general funds to supplement existing McKinney-Vento Children and Youth grants to expand access to the program.
- $265.6 million and $344.4 million in 2025-26 and 2026-27 general funds, respectively, for LEAs due to decreased offsetting property taxes.
- Additional support for Holocaust and genocide education in the amount of $10 million in one-time Prop 98 General Fund dollars to increase access to related professional development and resources under the Holocaust and Genocide Education Grant Program.
What’s next?
CSBA will host a webinar providing deeper insight into the May Revise on Monday, May 19, at 11 a.m.
Join CSBA’s Governmental Relations staff and CSBA CEO & Executive Director Vernon M. Billy for this breakdown of the May Revise with special attention paid to the local governance implications and how the Governor’s proposal addresses key CSBA budget priorities, including protecting Prop 98, investing in LCFF, special education and others.
Register for CSBA’s May Revise webinar »
All eyes will now turn to the Legislature, where budget deliberations will occur through hearings. The Legislature has until June 15 to pass a balanced budget, and the Governor has until June 30 to sign the budget act into law.
CSBA is also co-sponsoring a series of in-person Budget Perspectives Workshops in partnership with Capitol Advisors that will focus on a detailed breakdown of the May Revise. Workshops will be held at COEs across the state from May 22 to June 9. Register to attend a local workshop here.
