Current Challenges in California’s K–12 Education Finance

California has increased K–12 funding considerably during the past decade and now ranks among the higher spending states on education, although accounting for the state’s greater labor costs brings its spending much closer to the national average. The Local Control Funding Formula (LCFF) also makes California’s school finance system one of the nation’s most progressive. Yet student performance remains mixed, and a growing number of districts face fiscal pressures. These conditions raise questions about both how much California spends and whether its finance system supports stable, effective investments in teaching and learning.

The structure of California’s finance system contributes to this instability. Proposition 13 shifted much of the responsibility for school funding from local property taxes to the state General Fund, which relies heavily on volatile personal income tax revenue. Proposition 98 protects a minimum funding level but does not tie funding to the resources schools need to meet state goals. When revenues rise unexpectedly, policymakers often favor one-time or short-term categorical programs over sustained increases in flexible funding. This approach limits the state’s long-term commitments but complicates planning for districts, whose largest expenses are ongoing.

California schools have lost students over the past 2 decades, with nearly two thirds of districts experiencing enrollment declines. Because LCFF funding depends largely on average daily attendance, many districts lose revenue as enrollment falls, even though their costs do not decline at the same rate.

District costs are also rising unevenly. Inflation-adjusted teacher salary schedules have remained relatively flat, even as housing and other costs of living have increased. Meanwhile, districts spend more on special education, pensions, health care, and retiree health benefits. These obligations consume resources that districts might otherwise use for current salaries, instructional improvement, or other priorities.

To address these challenges, California needs to answer three central questions:

• How much should California spend per pupil?
• How could funding become more predictable and more focused on a limited set of sustained, long-term priorities?
• How could educator compensation be reexamined to benefit educators and protect district finances?

Policy Analysis for California Education (PACE) will convene researchers, policymakers, and practitioners to develop evidence-based options for addressing these questions and will share recommendations in a subsequent report.