Assembly Budget Subcommittee No. 3 on Education Finance, Tuesday, February 10, 2026
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Assembly Budget Subcommittee No. 3 on Education Finance California State Assembly
Follow its sittingsSpeaker 2
So this estimate will be reassessed at the May revision and updated if necessary based on revised prop 98 factors. Pursuant to existing law, any under appropriation would either be paid in full at certification in 2027 or according to a payment plan. Similar to the settle up amount that was included in last year's budget act, this proposal is intended as a proactive measure to manage the budget to help avoid the over appropriation of prop 98 when 2526 becomes the past year next year. So finally, moving to 2627, the guarantee increases by about 10,900,000,000.0 for a total guarantee level of 125,500,000,000.0. So all three years in the budget window are in test one.
Additionally, the transitional kindergarten and LA Fire property tax free benches are revised down in 2425 and 2526. This is based on revised estimates of, transitional kindergarten average daily attendance, and LA County property tax losses. Then finally, in recognition of, their enrollment based cost growing at a relatively higher rates, community colleges are funded about $391,000,000 above the split in, twenty four twenty five. And that concludes my remarks. Happy to take questions at the appropriate time.
Speaker 3
Thank you. Thank you, and good morning, chair of numbers. Ken Kupan with the analyst office. We have a report that covers our comments on this issue, and most of that analysis is on page 17 in the appendix. My comments today are going to revolve around risk, where it comes from, and what the state might do to manage it and protect the state budget and school programs.
I think the Department of Finance gave you a good overview of the major moving pieces. The most important number is the 21,700,000,000.0 increase in the guarantee relative to June. That's mainly reflecting, much higher general fund revenue estimates, and it's certainly true that state tax collections have been strong since June. But most of those gains have been linked to strong to a strong stock market, a big boom among tech companies with large investments in artificial intelligence, and those gains are starting to appear more and more tenuous. We're seeing several signs suggesting that the stock market might be approaching a peak.
If the stock market does drop significantly, revenue losses almost certainly would be measured in the tens of billions, and that's significant for schools because under this test one formula, the drop in the proposition 98 guarantee would be about 40¢ for each dollar of lower revenue. The revenue estimates in the governor's budget don't really account for that possibility, and the risk is that the school spending proposals that are before you, build on estimates of the guarantee that could erode very quickly. One way to lessen that risk would be to adopt lower revenue estimates that account for some of those risks. That approach would mean carrying back some of the spending proposals in the governor's budget, but it would give you a school spending level that is something that the state could more likely sustain over time. If you do adopt the governor's revenue estimates, it becomes all the more important to mitigate risk in other ways, and the governor's budget does have some prudent features that would help in that regard.
One of those is, the proposition 98 reserve deposits. You'll hear about that in the next panel. Another important feature is paying off some past commitments. That's reflected in in the deferral pay downs and the learning recovery block grant proposal. Again, you'll hear about those later.
And then third, the governor's budget doesn't commit all of the new, funding in the budget to ongoing programs. It sets aside about 4,000,000,000 in '26, 27 funds for onetime activities, and that gives the state a buffer because of the proposition 98 guarantee declines in the future. The state can absorb that drop without having to touch ongoing programs. If you do adopt the governor's revenue estimates, we'd recommend using these hearings to start thinking about, what proposals could be delayed or reduced, or rejected if one of these more negative scenarios starts to materialize and the state needs to make reductions. Shifting gears to the settle up, proposal.
So just a brief review of the nomenclature here. That 5,600,000,000.0 is really the gap between, the revised estimate of the proposition 98 guarantee in 2526, and the level of funding that's proposed in the budget. We call that settle up because the state will eventually need to settle up and fund that higher requirement. Usually, the state appropriates that funding as soon as it recognizes a higher estimate of the guarantee, although occasionally, it delays that payment, including in the proposal that's before you. There are a couple different types of risk, in play here.
I think the governor's main concern is the short term forecasting risk, and this is associated with a very specific chain of events. So the risk is that, first, the state increases school spending, this year based on those higher estimates. But then after June, the state realizes that revenues came in lower than it thought, and the proposition 98 guarantee drops. The state won't actually have its final calculation for this fiscal year until May 2027. And the state also can't reduce spending to that lower level because of a law that prohibits reductions after the year ends.
And you're probably wondering, well, how could the state even reduce spending in the first place if the year is over? But prior to this law, the state would often make accounting adjustments. And so what that typically meant was taking some of that spending that was above the minimum in the previous year and counting it towards the following year's proposition 98 obligations. Those were spending reductions, but they didn't require districts to return any payments the state had made previously. Since those reductions aren't possible anymore, the state could end up with a spending level that's significantly above the guarantee when it does its final calculations in May 2027.
Now that's not intrinsically bad, but it is a problem when the budget is only barely balanced right now and spending much more than the minimum requirement could throw it out of balance. So I think the idea of the governor's proposal is the state would simply wait, make its final calculation in May 2027. The final amount owed might be more than 5,600,000,000.0. It might be less, and the governor's, state won't make the payment until it knows the exact amount. So there is a reasonable concern there, and the governor's proposal would address that concern.
But I think the major downside is that this makes future state budget deficits, worse. The state looking at large deficits in the next couple years, 35,000,000,000 annually under our estimates, 20 to 25,000,000,000 annually under the Department of Finance's estimates. This proposal shifts 5,600,000,000.0 in cost to those future years, giving the state temporary fiscal relief this year, but making those future deficits even worse. So we'd recommend an alternative. This has four components.
The first would be to fully set aside enough funding to fully cover the estimates of the guarantee this year, so that means an additional 5,600,000,000.0 relative to the governor's budget. Of that 5,600,000,000.0, we'd recommend depositing at least 2,900,000,000.0 into the proposition 98 reserve, along with, trailer language that reduces the deposit if revenues decline. That approach gives the state a buffer. Similar to the governor's proposal, it's a way to reduce costs if revenues fall short. Third, we'd recommend using the other 2,700,000,000.0 to build additional protection for schools in other ways that could be a larger reserve deposit, That could be an advanced payment that preemptively covers some costs in 2728 along the lines of what we recommended in November, or it could potentially involve setting aside some funding to help cover future pension costs.
Any of those things would help build an additional layer of resiliency for school budgets. And then fourth and finally, our alternative means adopting more solutions, 5,600,000,000.0 more, for the nonproposition 98 side of the budget. We'd recommend doing that as part of a broader plan to shrink the state structural deficit. That is going to mean spending reductions, potentially could be combined with revenue increases depending on your preferences. Those decisions, are likely to be difficult, but the state will need to make them eventually, and starting now makes them easier to implement.
And then lastly, in stepping back from the very specifics of the settle up proposal, we'd recommend you consider appealing the law that prohibits prior year spending reductions. This law was originally adopted in 02/1920, to provide greater certainty around the calculation of the guarantee and the allocation of school funding, but in practice, it seems to have had the opposite effect. It was one of the motivations for the very complicated funding maneuver the state had to adopt a couple years ago. It was one of the motivations for last year's settle up delay. The governor's budget alludes to it again as part of the rationale for the 5,600,000,000.0, and these are all examples of actions that create more uncertainty about when and how the state is going to allocate proposition 98 funding.
One compromise approach you could explore would be to amend the law so it continues to prohibit any kind of prior year reductions that require districts to return previous payments while still allowing the state to make reductions through accounting adjustments. That would help the state avoid inadvertently exceeding the guarantee, which is the governor's concern without, using the settle up delay, as a way to do that. With that, that concludes my comments. Until the next panel.
Speaker 1
Thank you both. We'll take some questions from committee members. I think I'll just start by noting probably, the the word of the day is volatility and the uncertainty that it's created for everyone from budgets in Sacramento to the, budgets that are decided by our local school districts. And so, I think it it's it's the theme of the day. It'll probably be the theme of the hearings that I said at the very beginning because the last thing we want is to project, one thing and then have different expectations either when May revise comes or, later on in the in the in the actual budget year when the numbers, come in and they show something different.
And so, I appreciate the the history on the 1920, law that came into to place. I think we do wanna hold harmless our districts as much as possible. So I think this is a this is, like, a difficult challenge for us, but I think it's a, we could we could do this probably in a more sophisticated way to provide some of that certainty to our local districts. And that's what I hope this conversation, becomes. So, speaking of volatility, the current year setup amount is significantly larger than we did last year.
And is that from both of your standpoint because you anticipate more volatility than the previous year? Or why is that number larger from finances perspective?
Speaker 2
Yeah. I think right. I think, obviously, you know, we were messaging the same thing, the same uncertainty last year, that is kinda continuing, into the year. I think also sort of just going back to to my overview, you know, the the the large kinda increases in the guarantee. I I I think that, you know, sort of also sets up, right, potential, you know, larger swings as we kinda move towards the spring, you know, and and and continue to to, you know, update the the prop 98 calculations.
Speaker 1
So so just to, I think, to be clear, it it sounds like there's a concern of more volatility is present.
Speaker 2
know, it's you know, we're looking at significant uncertainty, you know, that we wanna, you know, continue tracking into spring.
Speaker 1
Would it be fair to categorize the 5,600,000,000.0 given that it's 40¢ to the dollar under the current test of prop 98? That the uncertainty that you are potentially anticipating 5.6%, 40¢ a dollar is roughly around, let's say, billion dollars potentially of uncertainty as a total amount of revenue?
Speaker 2
I I guess I'm not I'm not sure. I would I don't know if I could do the calculation in my head right on the spot, but, you know,
Speaker 2
Yeah. I mean, that you know, I think that that would be, I guess, roughly, you know, if you're you're projecting that
Speaker 2
40%, but, you know, I think this is this is our measure of that uncertainty within the guarantee.
Speaker 1
And and the question to the LAO's point, and you could comment on that as well, but I the question this one's to the still department of finance. Why not, as suggested by the LAO, put the 5,600,000,000.0 in a in a in the PSSA in a way to have that available if need needed or distributed as you have said will be determined next year?
Speaker 2
Yeah. So, I mean, I think, you know, I think anything with a subtle up, we'll just come back to emphasizing the the sort of main intent, which is avoiding that over appropriation. Right? There's the, you know, the risk or if we are over appropriated, when this becomes a past year, right, that will be funding that we do have to find, on, you know, the non 98 side of the budget.
Speaker 1
Know, I think to clarify, your your your is that if you put it in the PSSA, then you're appropriating it?
Speaker 2
No. Well, I think we I think any alternative proposal, we'd obviously always wanna at the language.
Speaker 2
I think it it could be something that provides a flexibility, within prop 98, potentially. I think we see this proposal as sort of providing sort of, you know, more flexibility within prop 98 and for the the overall budget as well. Got it.
Speaker 1
Appreciate that. So to to the concern of a view, he put in the PSSA, the flexibility will be re retained, remain for us?
Speaker 3
That's how we understand it. The state regularly makes adjustments to the required deposits or withdrawals from that account, within the prior year, and so we think the state, by the same logic, could also adjust, an optional deposit, based on what happens with revenue. Also I wanted to come back to your question about how much how much volatility are we really concerned about here, and we had a similar question in our analysis. And we looked at past deviations and forecasts, and what we found is that for the current year, so 2526 in this case, it's rare for revenues to deviate by more than about 4% from the estimates that the state has when it from the estimates in May that form the final budget. So a 4% swing in revenue is worth about 9,000,000,000.
So given that 40¢ ratio that you talked about, if the state wanted to mitigate that typical range of risk it's actually more than typical range of risk. It would need a settle up buffer of about 3 and a half billion. The governor's budget already has 664,000,000 in proposition 98 reserve deposits in 2526, so it would need an additional 2,900,000,000.0 on top of that to mitigate the kind of likely range of down down, revenue drops or drops in the guarantee that it might experience. Okay. Now 3 and a half billion is still far short of what the state would need to protect school programs during a significant downturn that, say, happens in a couple years.
So it's not as though we were saying that state puts 3 and a half billion in the reserve and then doesn't have to worry about volatility. But if you're specifically concerned about this forecasting issue and this prior year adjustment, then we think, a buffer of around 3 and a half billion, whether that's the settle up delay or the proposition 98 reserve deposit that we're suggesting, that's the range that's really the range of the buffer that you need.
Speaker 1
Okay. We'll talk a little bit more about the reserve in the in the in the next panel. As far as finance perspective on the on the settle of funds for next year, is there any expectation on how those would get used if those speak would were to become available?
Speaker 2
I I I don't think that's something I'd be able to speak to at this point. I think, you know, obviously, given the uncertainty that's sort of inherent in the the the proposal and the reason we're proposing it, you know, we we would wanna see sort of, I think, what the the Prop 98 package and the revenue picture looks like for it.
Speaker 1
Okay. And just to note for the committee last year, the budget, we approved prioritization of the utilization of the funds. So just so that you all know, for the funds that were settled up this year. Let me ask one last question, which is on the split with community colleges because it's 98. It's it's kind of feels like it's off topic, but it's 98 related.
Mhmm. And and wondering if so the '24, '25 split gets once again, I guess, readjusted. And then going forward, '25, 26 going forward, TK gets the now counted as part of the the, k 12 part of the, 98 guarantee. Just help me understand on a going forward basis, given there's growth in enrollment in community colleges, and that seems to be continuing. And, potentially, we are seeing declining in the k 12 pop t k 12 population.
Or have their thoughts been given about, like, what is gonna happen at some point probably a few years from now when this trend continues to to grow and you see the need in '98 per community college growing because of enrollment, the enrollment in k TK 12 not keeping up to pace. Have you all thought about that at all?
Speaker 2
So, I mean, I think from our perspective, I, you know, would would emphasize that this, in in the governor's budget is a onetime proposal. You know, I'm not an expert on the, you know, the the community college enrollment, but but I think that our team who works on that, is confident that they've provided, you know, kind of enough funding at least within the remaining years in the budget window, for that enrollment growth. You know, I think that I think that's a conversation we'd be happy to, you know, continue, with the legislature, but I don't, you know, I don't know that we can
Speaker 1
We'll we'll leave that out. Thank you. We'll leave that open. Do have any thoughts on that?
Speaker 3
Yeah. Well, I mean, as you know, less than a year ago, the state approved a budget that had a new methodology for calculating the split. And now less than a year later, reviewing the governor's proposal that effectively reverses part of that change, at least on a temporary basis. We don't think that's a sign of bad faith by the governor, but it's another reminder of the problems created by using the split as a budgeting tool. We've been concerned that it makes it more difficult for the legislature to build a budget that meets its priorities.
It turns out it also frustrates the the governor's priorities as well. The enrollment growth that you mentioned is a great example of that. If you continue to stick with eighty nine eleven as your split, given the enrollment trends, you're gonna have a community college budget that's consistently tighter than your k 12 education budget. Now if that aligns with your priorities and you wanna spend more and expand school programs more than community college programs, that you might be comfortable with that, but we wouldn't recommend taking that budgeting approach just because of these percentages that we had in nineteen ninety, ninety one. So we would, again, like last year, recommend discontinuing the split altogether as a budgeting tool, build a budget that covers COLA, enrollment growth, and the community school and community college proposals you think are the highest priorities.
Speaker 1
And just to clarify for all, the eighty nine eleven split was not part of the proposition 98 ballot measure constitutionally required. It was put into practice when it was first utilized.
Speaker 5
I wanna start by expressing gratitude for the report that you provided, Elio, and for your testimony today, Alex, with Department of Finance. Budget, obviously, is a very complex process. And when we're seeing volatility like that, of course, it raises a lot of questions. Ken, I appreciate you benchmarking me to this 4% swing. It's worth 9,000,000,000 because I'm trying to do, know, these kinds of calculations in my head and even on the back of the envelope, and I'm wondering where that 5,600,000,000.0 came from and how we justify that as a wild swing.
I understand that we may have some similar conditions to what it was in 2223, and yet the delta that we're withholding is substantially larger. Can you, put a little finer point on that for me, the the justification for the wider delta?
Speaker 2
So I I don't know that there is, like, a specific formula we can point to, for that 5,600,000,000.0, but I think it you know, say again, just the the continuing uncertainty, the the the the increases that we're seeing, you know, in prop 98 understanding kind of the, you know, $21,700,000,000 over the 2025 budget act, and the potential with that uncertainty, I think, kinda creating more volatility with the the the larger swings.
Speaker 5
Yeah. And so in with that caution in mind, I'm definitely intrigued by the proposal you've come up with the four step kind of approach to addressing that that gap. And I I find it strategic as well as tactical, and I appreciate that. I'm I'm gonna look at that a little bit more carefully. I have a couple specific questions also out of the report.
Ken, I read in here, and this kind of made me a little sad, that the $26.27 per pupil funding level is actually $300 lower per pupil than 2425, if you take into account cost of inflation.
Speaker 5
So, school districts will be seeing a need to cut even though we have possibly this withholding that we're also doing, which is one time funding.
Speaker 3
Yeah. We have, for the other members, I, doctor Patel is referring to a chart on page 12 that we have looking at the per pupil funding, and I think there's you look at the past three or four years, you can see that the story of the volatility that Cher mentioned about how it's fluctuated up and down. Pupil per pupil funding has grown. It grew quite a bit, during the pandemic years, it's continued to grow upwards. But in this most recent year, it hasn't been growing as quickly as inflation.
And so some of that, what you're probably hearing from your districts, is that it's tough to manage these rising costs. You're probably hearing a lot about personnel costs, been pressured to increase salaries to keep up with inflation, health care, pensions. Some other non non personnel costs too, insurance and utilities have been growing quite a bit. So districts aren't, seeing reductions in their people rates of funding, but they have expressed concerns about it not keeping going as much as their cost increases.
Speaker 5
Yeah. And then can I ask a follow-up question again? A a very detailed question, and I apologize as I'm trying to understand these budgets better. We have the governor's, total budget proposal, page seven, on the report. Prop 98 funding for schools is $20,427 per student with the commensurate increase.
What is the range on that from a base funded ADA district to the highest concentration funded ADA district? What's what's the range? Yeah. I we talk about averages a lot, but I would love to know what that range would would look like.
Speaker 3
I can talk a little bit about that. There will also be I think there's the next hearing will get into the very details of LCFF, but, that can be from the extremes, there can be a gap of about 50% in a high funded district might have 50% more funding per pupil than a district with very very few unduplicated very few low income students and English learners.
Speaker 1
Thank you. Alright. Any other questions? No. Okay.
We'll move on to the next panel, which is on the PSSA, the public school system stabilization account overview and the proposal. Department of finance, please.
Speaker 2
Alex Shope, Department of Finance. So the governor's budget includes true ups to the rainy day fund deposits and withdrawals that were included in the 2025 budget act. Similar to the previous panel, although year by year, first provide that budget act transfer and then the updated governor's budget amount. So starting in 2425, there was a mandatory deposit of $455,000,000 at the budget act. At the governor's budget, that mandatory deposit is revised up to about 3,800,000,000.0.
2526, there was a mandatory withdrawal of that same 455,000,000 at the budget act that fully depleted the reserve at the time. So the governor's budget true up flips that withdrawal to a mandatory deposit of about 424,000,000. It also includes a discretionary deposit of 240,000,000. That brings, it to a total deposit amount of about 664,000,000. Finally, 2627, there is a mandatory withdrawal of 407,000,000.
So of this amount, 363,000,000 will be used to backfill local control funding formula costs, and then 44,000,000 will be used to backfill students at their funding formula costs. So with those revised transfer amounts, the ending balance in the reserve is about 4,100,000,000.0 at the end of 2627, and that revised balance would be enough, to trigger the 10% school district, reserve caps in 2627.
Speaker 3
Thank you. Again, Ken Kapon with the analyst office. I think the department of finance gave you a good overview of the moving pieces. The two main factors that drive reserve deposits are year over year growth in the proposition 98 guarantee and capital gains revit capital gains revenue. So to the extent that revenues are higher in May, you'll likely see these deposit estimates revised up.
And to the extent they're lower, you'll likely see them revised down. 4,100,000,000.0 balance, wouldn't be enough to fully address a significant drop in the guarantee. Actually, only 4,100,000,000.0 is only about 3.3% of the guarantee in 2627, but it is a very important building block for budget resiliency, and that's because the reserve is very flexible. You can use it for any school or community college program. It can be accessed relatively quickly.
And unlike something like a payment deferral, it doesn't disrupt cash flow for districts. And so if you build a budget, around the governor's revenue estimates, we'd recommend using this reserve as part of the broader strategy to mitigate risk, potentially considering even a much larger deposit, as part of this alternative to the settle up proposal as well.
Speaker 1
Thank you. I think what we'll do is we'll also do, issue three here, and then we'll do questions so we can try to line up our time. So, Alex, you can present on this.
Speaker 2
Alex Shope, Department of Finance. So the 2025 budget act deferred approximately 1,900,000,000.0 in local control funding formula costs and 408,000,000 in student centered funding formula costs from twenty twenty five twenty six to 2627. These amounts are the only outstanding deferrals, as of the governor's budget, but the governor's budget proposes, fully repaying both.
Speaker 3
Go ahead. Paying off the deferrals aligns the ongoing cost of school programs with the funding that's needed to pay for them. It improves district cash flow, and it better positions the state to address future drops in the guarantee. We'd recommend approving, the governor's proposal. If the legislative analyst were here, he would tell you this is your basic good government fiscal hygiene type of action.
Speaker 1
Thank you. Appreciate you both. We would agree. I'll start with comments on that. Certainly, this committee and the assembly generally was not enthusiastic about the deferrals last year.
So I'm glad to see this happen, hopefully, we don't revisit this, again. It does, though, for me, at least, by the question, for clarification, maybe from either one, LAO, probably from the report, does the deferral payment in addition is that in addition to the roughly 10,000,000,000 in '24, '25, '25, 26 new payments that are gonna be occurring as a result of the current revenue numbers?
Speaker 3
So that 1,900,000,000.0 is part of how that 10,900,000,000.0 is used. So if you think about the way to think about deferrals is to think about monthly payments. Districts normally get 12 payments. Essentially, this year, they're only gonna get 11 and a half. So next year, we need to give them an extra half a payment to true up the cash schedule and get back on track.
So part of what we're doing with that 10,900,000,000.0 increase is giving them a onetime extra payment of half of half a month's payment to eliminate the deferrals moving forward.
Speaker 1
Got it. Okay. And then I think we just wanna be clear about the priority of this repayment for finances. Is this, in a prioritization, waterfall, if you will, whatever process you all determine to how you use, additional revenue is where does this fall in a priority of what gets funded?
Speaker 2
I can't give, you know, a specific ranking to everything, but I think, like, two of two of our highest priorities, of course, are always making sure that ongoing costs are funded and that, you know, we're we're kinda able to to retire any outstanding debt like like a deferral.
Speaker 1
Okay. That would be consistent, I think, with us as well. Any questions on well, let me just ask some on the PSSA. We kind of I know it's strange. We talked about it a little bit in the first panel conversation, but it just the again, theme volatility, the fact that we put money in, take money out, like, it just seems like it makes it very difficult for stability for, obviously, our local school districts, our schools, but also for us.
Has there been any conversation that can ask a bunch of questions in terms of, like, why this versus that, but any conversation has to try and create some sort of definition formula for how to do this in a way that creates more stability outside of just this the constitutional the, the required amount that needs to be deposited into the account?
Speaker 2
So I think, right, you know, as you alluded to, right, a lot of these most of what, occurred at the governor's budget, that's all constitutional. You know, that's just by the formulas that are there. You know, I think I I think as with sort of any budget or prop 90 package, it's sort of balancing the needs, you know, addressing district needs, you know, administration priorities, and also, sort of building that budget resilience. I think that I think that this package, you know, with the the deposits in there, including the supplemental, discretionary deposit, sort of works to try and build some of the resilience that was lost at the, 2025 budget act. You know, I think I think discretionary deposits are or can be a good tool, but as always, it just kinda needs to be balanced against the other needs of the
Speaker 1
To the LAO, again, appreciate the 4% comment that was made earlier. I think that was information for me that was useful. So that seems to be I don't know if you said an average or or but if we are concerned about potentially a very volatile situation occurring here, you know, we can probably only reference in recent history since '98. I mean, maybe in 2000, 2001, but certainly the the great recession in 08/2010. What were what was the volatility in those years?
Have you done an analysis of that? And should we be looking more towards that as a guiding sort of principle of how much to to be worried about, if you will?
Speaker 3
Yeah. The volatility that over the past couple years has been extreme. One of the reasons people are often surprised that the the the state constitution itself doesn't say more about how the state trues up and adjusts its estimates of the proposition 98 guarantee. Part of that is because back in the eighties when it was drafted, state revenue was substantially less volatile, and we didn't have the kinds of swings that we see today. 4% is is really only the volatility, within the current year.
The budget year volatility is much that sort of range of potential outcomes is more than twice that range, and we've seen some of the biggest swings that we've ever seen in the last couple years. In 2021, we saw an increase. In 2122, actually, we saw the proposition 98 guarantee ended up more than 30% higher than the estimate in the budget. And then a couple of years, after that in 2223, it ended up up dropping almost 20% compared to what was in the budget. We have seen some, increases like that before in the .combust and in the great recession, but we've seen large swings almost every year, for the past several years.
And so this is becoming a new even more of a challenge than it has been in the past. I think that maybe raises two issues for you. One is in the years where we have these large upswings, how can that money be put to good use? Some of the best ways to do that are to build budget resiliency with reserve deposits and paying off debts like deferrals. Sometimes that can mean covering start up costs for programs.
It can mean covering temporary or short term costs that districts are facing. We have this idea. Maybe it can be covering some paying some costs in advance that you know are coming in a future year. Those are all productive ways to use one time funding. But for building the budget, it also means to be cautious about how much you commit to new ongoing programs because you might have an estimate now that the proposition 98 guarantee is gonna be at a certain level.
We don't know for certain that it's going to keep growing each year from that point. So it's both thinking about using those onetime funds productively when they do happen, and they're not overcommitting, to ongoing increases, based on one point in time projection.
Speaker 1
I think I'm just gonna ask this is my last question that as we go through, again, I said every hearing and talk about the spending proposals is how much are we considering what you just said in terms of ensuring that, they're true and one time nature, that the districts are utilizing them truly for one time nature programs. I don't know that we're doing that well enough as a state. I think we're gonna have to figure out how to do that better. But I also think given the volatility swings, we probably should be focusing on analyzing a little bit better what the right target should be and not just the mandated amount with some number just because we think it's the right number or we ran out of ideas of how to spend, you know, 98 money on, which is I would argue perhaps, maybe something happening. So that that's it for me.
Questions, colleagues? Doctor Patel?
Speaker 5
Just have, follow-up comment, agreeing with needing to make sure when we do have these dollars that we have a very strategic plan for what kinds of programs we're gonna put them into. A couple of questions about the, stabilization accounts. For Department of Finance, do you have, a clear set of guidance around withdrawal parameters, specifically for the discretionary deposits that might be proposed?
Speaker 2
Right. So withdrawal, you know, withdrawals for, you know, all the constitutional deposits, again, that's sort of dictated by, the constitutional formulas.
Speaker 2
The governor's budget proposal does not propose, I think, specific withdrawal parameters. I I think that's something I probably have to go back and check with some other folks we have. You know, I I think it's my understanding that some past precedent, either with this or with the the the budget stabilization account, The those are treated a little bit differently, but I'd probably have to circle back for more details.
Speaker 5
Thank you. And as as I'm learning this process and how it all works, this is helpful to know what those processes look like, especially we're going to be in a transition year to a new governor. So we're looking at how those commitments are made and and wanna make sure that those commitments get honored with our new leadership. And for the LAO also, what metrics should we consider as a legislature for a possible voluntary contribution into the stabilization account? Advice.
Speaker 3
Yeah. There are a lot of factors you could consider. One is the different kinds of risk that you're looking at. So there again, the short term forecasting risk, you need a certain amount in 2526 to address that. If you think about, the reserve has a a 10% cap or target for mandatory deposits under this under the most recent estimates of proposition 98, that 10% target would be a little over $12,000,000,000.
A $12,000,000,000 balance probably would be enough to address a significant the first year of a significant drop. So if you set yourself up with that kind of a reserve level, you've bought yourself some time to deal with the drop if it happens, but there isn't enough money in there to deal with the full sweep of an economic downturn that might last a couple years. So then the question is, well, are there other ways you can build protection? If you're combining this with a large one time commission and you're not committing all of your proposition 98 funding to new ongoing programs, that helps. If you've paid off all of the deferrals, you're in a better position to deal with that.
So what we would suggest is thinking about this not so much as there's one right number for the reserve, but it we'd recommend building it from the level where it is today, which is zero, but also thinking about what are all of the the major tools that you have to address volatility.
Speaker 1
Okay. I think we are okay. No no other questions. Appreciate you all being here for these three issues, and, again, we'll continue on the theme throughout the year. That brings us to a public comment on this item.
If there are any members of the public who wish to comment on this item, I ask you to please step forward. Cognizant of the time, I'm just gonna gauge how many people get up to either give you a minute or two minutes. So if you if you are speaking on this, please help me out by standing up and giving me a visual assessment. K. We'll definitely give you one minute.
If you need to speak more, we'll get we'll be a little lenient. So that means for our 10:00 panel, probably starting about 10:05 between 10:10 o five and 10:10. So welcome. Please come forward, introduce yourself, and we'll give you a minute. I'll give you a notice that it's a minute, but if you need more time, we'll be flexible.
Speaker 6
Thank you, mister chair and members. Sandra Barrero on behalf of SEIU California. We oppose the withholding of 5,600,000,000.0 from the prop 98 minimum guarantee. If fiscal uncertainties necessitate the withholding, then we hope the legislature will consider proposals that generate more stable sources of revenue. Thank you.
Speaker 7
Good morning, mister chair and members of the committee. I have Dan Roan on behalf of the California School Boards Association. Probably a common refrain this morning, again, to the 5,600,000,000 withholding. We consider that a manipulation of Prop 98 not settle up. It's the third such manipulation in as many years as well.
You noted that if we're facing revenue uncertainty, it's probably around the term the the ballpark of $14,000,000,000.15000000000 dollars. We're not seeing proposals that mitigate that on the non 98 side of the budget. And if there is that kind of uncertainty, there's existing processes to address it, including higher revenue estimates when we get to May revise or at least more accurate revenue estimates. We'd encourage looking at those and, following some of LAO's recommendations in the meantime. Thank you.
Speaker 4
Good morning, mister chair and members. Barrett Steiner. We have the Small School Districts Association, about 26 county offices of education, including San Diego, Nevada, Placer, Fresno, the school number of school districts, including Escondido, Sweetwater, San Fernando Union High School District, and La Mesa Spring Valley. We we were cosigners on a letter that's being distributed to you by the the sergeants reflecting comments made by the school boards association. We have deep concerns, with the president around the proposal to withhold $5,600,000,000.
In in addition to the comments made by my colleague from CSBA, we're concerned it relies on a constitutionally suspect use of the prop 98 certification settle up process. That process was designed to be a process for the legislature and the governor to reconcile what is an estimate at budget adoption and what we know the guarantee is later when we have all the data. It was not designed to be a process by which the legislature and the governor can knowingly withhold billions of dollars of prop 98 guarantee, dollars, particularly when the same budget revenue estimates are applied to the rest of the state budget. It stacks all the uncertainty on schools. So for those reasons and others that are in our letter that you can read, we're opposed to that.
Speaker 8
Good morning, mister chair and committee members. Carlos Rojas representing the Kern County Superintendent of Schools Office. First of all, I wanna extend our appreciation to the state for their recent investments in education, particularly in those programs that extend beyond traditional classroom and been able to knock down a lot of barriers for our students and our families, and we've seen the results of those student outcomes improving. Because of that money being available for those those fund those programs to extend beyond the classroom, it makes those programs possible. However, that funding being timely and predictable for our school districts makes those programs, makes it possible for those programs to be operating in an efficient and effective manner, ultimately resulting in improved student outcomes.
For that reason, we are opposing concern with the proposal to withhold or create that settle up of 5,600,000,000 because it impacts predictability and tightness of receipt of those funds for schools to plan those programs effectively.
Speaker 9
Good morning, chair members. Sam Nasher on behalf of the Los Angeles County Office Office of Education. We wanna align ourselves with our colleagues in, posing the proposal to, withhold $5,600,000,000 in Prop 98 funding. At LACO, we have the responsibility of approving the budgets of 80 school districts, and school solvency is critical, to provide our students with a robust education. Thank you.
Speaker 10
Good morning, chair and members. Jessica Sacco on behalf of Children Now. As highlighted in the 2026 California children's report card, California schools continue to face some of the largest achievement gaps in the nation and have among the worst educator staffing ratios in the country. These challenges are deeply connected and cannot be addressed without predictable funding. Children Now shares the concerns raised by our education partners that the proposition 98 guarantee, not being met in the twenty twenty five, twenty six budget.
Based on the administration's own general revenue fund, assumptions, the state owes schools at least 5,600,000,000.0 as discussed. January revenue estimates now appear to significantly exceed Department of Finance projections, meaning the true obligation to schools is likely even higher. We urge this subcommittee to plan now to fully meet the proposition 98 requirements and reflect that commitment in the May revision. Meeting the guarantee is not optional. It is essential to giving the students and educators the resources they need to succeed.
Thank you.
Speaker 11
Good morning. Thank you, mister chair members. Andrea Ball. I'm here on behalf of three organizations, the California Association of Suburban School Districts, the Central Valley Education Coalition, which is a coalition of six county superintendents and district superintendents across the Central Valley, and the Orange County Department of Education. All these groups signed on to the coalition letter opposing the withholding of the Prop 98, 5,600,000,000.
So we echo and align ourselves with the comments of the previous speakers. In addition, we do want to thank the governor's proposal and hope the legislature adopts the paying off of the deferrals from the prior years. That also contributes to certainty, which is really important at the local level. Thank you.
Speaker 12
Morning. Paige Clark with the National Center for Youth Law. As the legislature weighs options for prop 98, we are increasingly concerned about the lack of dedicated education funding for k 12 students experiencing homelessness. Despite having almost 300,000 students identified as homeless during the 2425 school year, California invests no state funding and relies entirely on the federal McKinney Vento grant of just $15,000,000 annually. An annual state investment would ensure the majority of the students attend schools where support is accessible should they experience homelessness.
We appreciate the committee's attention. Thank you.
Speaker 13
Hello, chair and members of the committee. My name is Jonah Colon, and I'm a student at American River College. I also experienced homelessness during my k through 12 education. During my sophomore year of high school, I remember trying to focus in class while worrying about where I would sleep, how I'd get to school, and whether I had what I needed to keep up. Students facing homelessness today are facing with those same challenges, and they need more than good intentions.
They need consistent support. Investing 15,000,000 of ongoing proposition 98 funding is critical to support students with transportation, tutoring, and counseling that helps students show up, stay on track, and graduate. Thank you.
Speaker 1
Just give me a a minute. I'm just gonna remind folks to plea we're gonna have full discussions on all programs and projects funded by ninety eight, and so your comments should be limited to the topic today, but appreciate you. Please come forward.
Speaker 14
Hello, everyone. My name is Jamari. I am a student activist at Sac State, a young Latino activist here in Sacramento. As someone who experienced homelessness as a youth in high school for about two and a half years, this proposal of giving $50,000,000 a grant to programs that would help homeless youth is not something we want, but something that, we need because it is necessary. The high school I went to did not have a dedicated office or program for students dealing with homelessness.
But if it did and it had the necessary funding, like the one being proposed today, to help those homeless students, then I wouldn't have had to work three jobs all all at the same time. I would have performed better in school, been much more involved in school than I was, and, overall, I had the support of a homeless program. For these reasons and many more, a $50,000,000 proposal to e to LEAs is not something we just want, but, again, something we need because it is necessary. As a former homeless youth who continues to sleep on the couch whenever I visit or stay with the family for winter or summer break, having support for homeless youth is important. Thank you.
Speaker 15
Good morning, chair and committee members. Michelle Warshaw, on behalf of the California Teachers Association our over 300,000 members across the state, here in opposition to the $5,600,000,000 withholding from prop 98. California voters passed prop 98 nearly four decades ago to enshrine public to enshrine funding for public schools in our constitution. The governor's proposal violates his promise by failing to provide the full amount of funding that the constitution demands. That is money that, under the constitution, should be going to classrooms this year.
The constitution also does not permit unilaterally underfunding the minimum guarantee without suspension. CTA also rejects the administration's characterization that the 5,600,000,000.0 is settle up funds if revenues materialize after the fiscal year closes at the higher calculated level. There is no statutory authority for preemptively creating settle up for the current or budget year before the close of those fiscal years. Thank you for your time.
Speaker 16
Thank you. Good morning, everyone. I'm Cristiano Quinones. I'm a child development major at Sac State on behalf of the Guardian Scholars Program. I wanted to touch bases on this whole proposal.
And as a student who experienced, homelessness through the k through 12 system and also into higher education, I realized that these funds would have actually, excuse me. Sorry. Would have actually helped me get further into my academics. It is a very emotional thing for me, so I am working on trying to express that. I'm realizing also by being in my position, I'm seeing the things that are starting to affect children in education.
And as somebody who is going to be in education, I feel that this is something that we really need to think about in our, populations. Thank you.
Speaker 17
Good morning. Kathy Van Austin, representing John Burton Advocates for Youth. Just wanna echo some of the prior statements. We know investing in, chronic youth homelessness, whether it's housing, we know that that pays off. It curbs that pipeline into chronic adult homelessness.
We have about 300,000 students a year, experiencing homelessness. We have very limited funding going to making sure that they are getting identified and that they are getting supports to graduate, and it is absolutely essential to keep them off the streets long term. We need to invest in their graduating and getting on to hopefully higher education or other skilled work.
Speaker 1
Okay. And I'm just gonna, let if there's anybody else talking about this specific topic, we do have a hearing set for February 24 on funding of the local control funding formula. If you're here and you're gonna wanna say something similar to what it was just said, can you keep it a lot shorter because it's actually not germane to today's topic? You will have an opportunity on the February 24 to do so. So just say, I also support, and move on to the next person, please.
Speaker 18
Hi. My name is Ashley Powers Clark, and I am here to talk on that topic, so I'll keep it very brief. I've been a homeless liaison for about fourteen years and am the homeless liaison for this district right here in Sacramento. I do have two high school students that, very much prepared for today, and they're in my program standing behind me, so I'll give the rest of my time today.
Speaker 19
Hello. My name is Shatara Benjamin. I'm a high school intern in homeless education services at Sac City Unified School District. Secure funding for k through 12 students experiencing homelessness is not a request, but it is a necessity. Through my experience, I have seen students arrive at school exhausted from unreliable transportation, unable to complete assignments due to the lack of basic supplies, and most of all, I have witnessed the anxiety and insecurities they carry every day because of their environment.
Our children are students at the end of the day, the same children that represent our future and our potential for change. We cannot take this for granted. The mechanic mental program is a critical first step, providing immediate school enrollment for students experiencing homelessness. However, enrollment is not enough. We need proposition 98 to help us continue these efforts.
It is one thing to get students in the school, but it's another to ensure they have the resources and support needed to stay in school and graduate. Once again, proposition ID is not optional. It is essential to set these students up for long term success. Thank you.
Speaker 1
Next speaker will be our last speaker on this topic. If you are here for the same topic, just I'll let you raise your hand and let me know. You'll be the last speaker on this.
Speaker 20
Hello. My name is Janai Norman. I am a high school student at Hyrum Johnson, actually. I'm here today because I'm a large I'm a part of a large number of students who have experienced homelessness or still are homeless. I've been experienced homelessness since I was seven years old from being homeless with my family and then being homeless by myself.
I'm also a first generation where my parents did not go to college nor did finish high school. And due to who my parents are, I have been in and out of youth shelters since I was 12 years old because I had no place to go. And due to that, my grades and my mental health suffered completely. And, honestly, I thought I would go down the same road as my parents because I had no place to go. Luckily, because of my school, I was able to get back up, and I'm actually a really large part of the Hyrum Johnson community.
I am senior vice president along with black student union president. I'm here today because not all students are as lucky as me to go to school for help. A lot of students fear they will be judged or mistreated because of how they are because they didn't know where they would go to shower today nor would they have anything to eat. This is a really big step in the right direction to help our homeless youth population. All students deserve a chance to have necessities that students who are blessed to have a home have.
Schools should have these funds to help students later on so they don't go down the same road as their parents or earlier generations and experience chronically homelessness. Thanks to Hiram Johnson, I was also able to get health insurance due to the fact that I did not have any and a pair of glasses that I am not wearing right now, but I do have them.
Speaker 19
Tiffany Umaq on behalf of CFT, and we oppose the settle of creation. Thank so you much.
Speaker 21
Anahaya Gammidis on behalf of Los Angeles Unified, echoing others in our respectful opposition to the 5,600,000,000.0 deferral.
Speaker 1
Thank you. Anyone else on any of the issues that were before us today? K. And, again, for those who spoke on the issue not before us today, the February 24, would be an appropriate time for you to and we welcome you back. With that, thank you all.
We will adjourn this, particular hearing, and we will begin with the next one in just a couple minutes. Thank you.
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