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What is Proposition 98 and How Does the State Budget Shortfall Affect It?

February 2024 | By Jonathan Kaplan and Erik Saucedo

A group of students work together to solve the problems in their textbook during their precalculus class. Resource Title: What is Proposition 98 and How Does the State Budget Affect It?

key takeaway

Despite California’s commitment to funding education through Proposition 98, increased child poverty and budget shortfalls pose substantial challenges.

All California students deserve the opportunity to learn and achieve their goals. Recognizing the critical role schools play in supporting student success, California voters adopted Proposition 98 (Prop. 98), which established an annual minimum funding guarantee for public K-12 schools and community colleges. 

When students and their families struggle to make ends meet, their educational success is put at risk. The poverty rate for children in California more than doubled from 2021 to 2022, suggesting that more support is needed to help families meet their basic needs. 

Helping Californians meet those needs while adequately funding K-14 education is challenging when the state experiences a budget shortfall that results from revenues falling far short of projections — as is the case this year. Understanding Prop. 98 and its interaction with the state budget is essential to assess policymakers’ options for addressing the challenges this year’s state budget presents.

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What is Proposition 98?

Prop. 98 is a constitutional amendment adopted by California voters in 1988 that establishes an annual minimum funding level for K-14 education each fiscal year — the Prop. 98 guarantee. Prop. 98 funding comes from a combination of state General Fund revenue and local property taxes. Prop. 98 spending supports K-12 schools (including transitional kindergarten), community colleges, county offices of education, the state preschool program, and state agencies that provide direct K-14 instructional programs. While Prop. 98 establishes a required minimum funding level for programs falling under the guarantee as a whole, it does not protect individual programs from reduction or elimination.

How is the Prop. 98 minimum funding guarantee calculated?

Each year’s Prop. 98 guarantee is calculated based on a percentage of state General Fund revenues or the prior year guarantee adjusted for K-12 attendance and an inflation measure.1The inflation measure is either the percentage change in state per capita personal income for the preceding year or the annual change in per capita state General Fund revenues plus 0.5 percent. Since some of this information is not available until after the end of the state’s fiscal year, the Legislature funds Prop. 98 at the time of the annual Budget Act based on estimates of the Prop. 98 minimum funding level. 

Once the final Prop. 98 guarantee is determined, the process of reconciling the actual and estimated guarantee is known as “settle up.” If the final Prop. 98 guarantee turns out to be higher than initially estimated, the Legislature must provide additional funding to make up the difference. On the other hand, if the Prop. 98 spending requirement is below the funding level assumed in a budget act, the Legislature has the option to amend the Budget Act to reduce funding to the lower revised minimum Prop. 98 guarantee.2The Legislature also can suspend Prop. 98 for a single year by a two-thirds vote of each house.

To the extent that the Legislature provides funding above the Prop. 98 minimum guarantee, it can increase the following year’s Prop. 98 minimum funding level and state spending required to fulfill the Prop. 98 obligation in future years. In other words, deciding to provide funding above the Prop. 98 minimum guarantee for one budget year can increase the minimum funding level for the subsequent year’s budget and beyond.

What is the Prop. 98 reserve?

California voters approved a constitutional amendment in 2014 that established the Public School System Stabilization Account (the PSSSA) – the Prop. 98 reserve. Constitutional formulas require the state to make deposits into, and withdrawals from, the Prop. 98 reserve. When the state faces a budget problem, discretionary withdrawals from the Prop. 98 reserve may also be made if the governor declares a budget emergency and the Legislature passes a bill to withdraw funds, which can only be used to support K-14 education.

Why is California facing a budget shortfall? And how large is it?

California faces a budget shortfall, also known as a “budget problem,” of tens of billions of dollars. The shortfall is based on estimates of revenues and spending across three fiscal years: 2022-23, 2023-24, and 2024-25 (the fiscal year that begins on July 1, 2024). This three-year period is known as the “budget window.” The main reason for the budget problem is that state revenue collections have fallen short of projections. A large portion of the problem is related to state revenues for the 2022 tax year, which are estimated to be about $25 billion lower than what policymakers expected when they adopted the budget for the current fiscal year last summer.

The extent of the 2022 revenue shortfall only became clear in late 2023 due to the extension of tax filing deadlines for 2022 taxes to November 2023. Because of this delay, state leaders had to finalize the 2023-24 budget last June with much less complete revenue information than usual, and they enacted a budget assuming significantly more revenue for the 2022 tax year than actually materialized.

How does California’s budget problem affect the Prop. 98 guarantee?

Revenue collections falling short of projections not only creates a budget problem for the state, it also means the Prop. 98 minimum funding guarantee for K-14 education is significantly lower than the level assumed in last year’s enacted budget. Based on revenue estimates in the governor’s January 2024 budget proposal, the Prop. 98 minimum funding guarantee dropped by $14.3 billion across the three-year budget window (2022-23 to 2024-25) compared to assumptions made last June.3The amount of state funding required to fulfill the Prop. 98 guarantee across the three-year budget window dropped by $15.2 billion below the Prop. 98 funding level assumed last June. The difference between the state’s funding requirement and the $14.3 billion total decline in the Prop. 98 guarantee reflects estimates in the governor’s January 2024 budget proposal that include a $900 million increase in local property tax revenue, which offsets the $15.2 billion reduction in the state’s portion of the Prop. 98 funding obligation.

Reconciling Prop. 98 spending with revised estimates of the Prop. 98 guarantee can be challenging when the minimum funding guarantee falls — and it is especially difficult if the revised guarantee falls significantly. The current challenge of managing such a large decline in the Prop. 98 minimum funding guarantee is further complicated because the majority of the drop — $9.1 billion — is attributed to the 2022-23 fiscal year, which ended on June 30, 2023. 

The Legislature can address the challenge by amending last year’s Budget Act to reduce Prop. 98 funding to the lower revised minimum Prop. 98 guarantee. But, because the state has already allocated 2022-23 dollars to K-14 education, reducing K-14 education funding would be logistically difficult and would significantly impact K-12 schools’ and community colleges’ budgets. On the other hand, maintaining 2022-23 Prop. 98 spending above the minimum funding requirement could boost the state’s funding obligation to meet the Prop. 98 guarantee in 2023-24 and 2024-25.

How does the governor propose to address the budget problem and protect students and educators?

To help address the state budget shortfall, the governor’s January budget proposal assumes a reduction in state funding to the lower revised estimates of the Prop. 98 guarantee over the three-year budget window (2022-23 to 2024-25). To reduce Prop. 98 spending, the governor proposes a combination of spending reductions and discretionary withdrawals from the Prop. 98 reserve. 

A significant part of the governor’s plan is an $8 billion reduction in Prop. 98 spending attributable to 2022-23, which would help reduce state General Fund spending to the lower revised Prop. 98 minimum funding level. However, the governor’s proposal would not take away the $8 billion from K-12 schools and community colleges — dollars they received for 2022-23 that have largely been spent. Instead, the governor proposes a complex accounting maneuver that would shift the $8 billion in K-14 education costs — on paper — from 2022-23 to later fiscal years.

First Look: Understanding the governor's 2024-25 state budget proposal

Learn about the key pieces of the 2024-25 California budget proposal, and explore how the governor prioritized spending and determined cuts amid a sizable projected state budget shortfall.

Read Report

Specifically, $8 billion in 2022-23 costs would be spread across five state budgets from 2025-26 to 2029-30 ($1.6 billion per year). Moreover, these delayed expenses would be paid for using non-Prop. 98 funds. In other words, $8 billion in General Fund dollars from the non-Prop. 98 side of the state budget — funds that could otherwise support health, safety net, housing, and other critical services — would be spent on K-14 education but would not count as Prop. 98 spending nor boost the Prop. 98 minimum funding guarantee (the implications of this are discussed below).

In addition, to help pay for existing K-14 education program costs in 2023-24 and 2024-25, the governor proposes making $5.7 billion in discretionary withdrawals from the Prop. 98 reserve. These one-time reserve funds would help support K-14 education in 2023-24 and 2024-25 at the same time that the state reduces General Fund spending required to meet the Prop. 98 minimum funding obligation.

How could the governor’s proposal affect non-Prop. 98 spending?

The governor’s proposal would use non-Prop. 98 resources to make a total of $8 billion in payments to K-14 education starting in 2025-26, but the proposal fails to propose additional revenue or other non-spending cuts to make these payments. Because no additional alternatives are part of the plan, the proposal would create pressure to reduce spending for state budget priorities outside of K-14 education starting in 2025-26.

Shifting Prop. 98 costs to the non-Prop 98 side of the budget creates significant risks to state spending that supports California’s children and families. By creating a future obligation for K-14 education without additional resources to pay for it, the governor’s plan could force reductions in spending for programs such as child care, student aid, and social safety net services that many Californians depend on for support to make ends meet.

How can state leaders address the decline in the Prop. 98 guarantee?

Policymakers have options to address the large decline in the Prop. 98 minimum funding guarantee that include the following:

Bottom line: Policymakers can address the decline in the Prop. 98 guarantee without creating pressure to reduce spending for priorities outside of K-14 education. The decline in the state’s Prop. 98 minimum funding guarantee due to state revenues falling short of expectations creates significant challenges for state leaders this year. However, policymakers have options for addressing these challenges, including raising revenues from wealthy corporations and high-income individuals who have ample resources to contribute.

Policymakers can also choose to withdraw more from the state’s Prop. 98 reserve to support K-14 education spending. Relying on Prop. 98 reserve funds alone may not be sufficient to cover all K-14 education expenses for which the state has made commitments. However, policymakers should look to raising revenue and other options to address the decline in the Prop. 98 guarantee that do not harm K-12 schools and community colleges or create pressure to reduce spending for state budget priorities outside of K-14 education.

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  • 1
    The inflation measure is either the percentage change in state per capita personal income for the preceding year or the annual change in per capita state General Fund revenues plus 0.5 percent.
  • 2
    The Legislature also can suspend Prop. 98 for a single year by a two-thirds vote of each house.
  • 3
    The amount of state funding required to fulfill the Prop. 98 guarantee across the three-year budget window dropped by $15.2 billion below the Prop. 98 funding level assumed last June. The difference between the state’s funding requirement and the $14.3 billion total decline in the Prop. 98 guarantee reflects estimates in the governor’s January 2024 budget proposal that include a $900 million increase in local property tax revenue, which offsets the $15.2 billion reduction in the state’s portion of the Prop. 98 funding obligation.

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More than 2.3 million California TK-12 public school students bring a linguistic asset with them to school every day: living in homes where a language other than English is spoken. A majority of these students (1.2 million) demonstrate English proficiency during their school years. But, students’ home language skills are often neglected at school due to California’s shortage of bilingual education teachers. Neglecting students’ language assets means they may not become biliterate, causing them to miss out on numerous advantages biliteracy provides such as cognitive benefits and increased competitiveness once students enter the workplace.

“California must address its shortage of bilingual teachers so that all students have access to an education that prepares them for success.”

To help students achieve biliteracy, California must address its shortage of adequately trained bilingual education teachers. The magnitude of this shortage can be assessed by looking at the number of teachers who have been authorized to teach bilingually in recent years, which pales in comparison to the number of TK-12 students who live in homes where languages other than English are spoken. Specifically, a large imbalance exists between 1) the number of students who live in homes where one of the top 10 languages is spoken and 2) teachers who earned an authorization to teach in those languages from 2012-13 to 2021-22 (See Table).

The bilingual teacher shortage is a significant obstacle for California students to achieve biliteracy. One step the Legislature can take to address this shortage is reinstating the Bilingual Teacher Professional Development Program (BTPDP), which expired in June 2021. Last year, the California Department of Education reported the BTPDP “was very successful and helped address a critical teacher shortage area that is in high demand.” The Legislature should fund the BTPDP and build on its success, especially to help the millions of California TK-12 students with home language assets achieve biliteracy.

Demand for TK-12 Bilingual Education Teachers Outstrips Supply in California

LanguageStudents from Homes Where a Language Other Than English Is SpokenBilingual Authorizations Issued from 2012-13 Through 2021-22Student-to-Bilingual Authorization Ratio
Spanish 1,802,4207,518239.7
Vietnamese68,150302,271.7
Mandarin 67,712436155.3
Cantonese42,08161689.9
Filipino38,45357,690.6
Arabic32,944112,994.9
Korean29,675133223.1
Punjabi22,690211,345.0
Russian21,30737,102.3
Farsi18,55029,275.0

*Note: A bilingual authorization authorizes teachers to deliver instruction in languages other than English and does not include teaching intern credentials, permits, and waivers.

Source: California Department of Education and California Commission on Teacher Credentialing

Support for this report was provided by the Sobrato Family Foundation and the Stuart Foundation.

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Supporting Students Requires Investments Beyond the Classroom

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The diversity of California’s students is an invaluable asset that enables our communities to thrive. State leaders have a responsibility to ensure all students have the opportunity to learn and achieve their goals. Yet, many California students of color face persistent challenges. To address these challenges, Governor Newsom’s “Equity Multiplier” proposal would increase funding to … Continued

Every year, California’s governor and Legislature adopt a state budget that provides a framework and funding for critical public services and systems — from child care and health care to housing and transportation to colleges and K-12 schools.

But the state budget is about more than dollars and cents.

The budget expresses our values as well as our priorities for Californians and as a state. At its best, the budget should reflect our collective efforts to expand economic opportunities, promote well-being, and improve the lives of Californians who are denied the chance to share in our state’s wealth and who deserve the dignity and support to lead thriving lives.

State budget choices have an impact on all Californians and these decisions are particularly important for the nearly 6 million students in California’s K-12 public schools. Because the state budget provides
the majority of funding that K-12 public schools receive each year, it is critical for Californians to understand and participate in the annual budget process to ensure that state leaders are making the strategic choices needed to allow every K-12 student — from different races, backgrounds, and places — to thrive and share in our state’s economic and social life.

This guide sheds light on the state budget, the budget process, and why they matter for K-12 students and schools with the goal of giving Californians the tools needed to effectively engage decision makers and advocate for fair and just policy choices.

Key Takeaways

the bottom line

  1. The state spending plan is about more than dollars and cents.
    • Crafting the budget provides an opportunity for Californians to express our values and priorities as a state.
  2. The state Constitution establishes the rules of the budget process.
    • Among other things, these rules allow lawmakers to approve spending with a simple majority vote but require a two-thirds vote to increase taxes. Voters periodically revise the budget process by approving constitutional amendments.
  3. The governor has the lead role in the budget process
    • Proposing a state budget for the upcoming fiscal year gives the governor the first word in each year’s budget deliberations.
    • The May Revision gives the governor another opportunity to set the budget and policy agenda for the state.
    • Veto power generally gives the governor the last word.
  4. The Legislature reviews and revises the governor’s proposals.
    • Lawmakers can alter the governor’s proposals and advance their own initiatives as they craft their version of the budget prior to negotiating an agreement with the governor.
  5. Budget decisions are made throughout the year.
    • The public has various opportunities for input during the budget process.
    • This includes writing letters of support or opposition, testifying at legislative hearings, and meeting with officials from the governor’s administration as well as with legislators and their staffs.
    • In short, Californians have ample opportunity to stay engaged and involved in the budget process year-round.

California’s State Budget & Why It Matters for K-12 School Funding

The State Budget Consists of Three Types of State Funds

three types of state funds

  1. General Fund — The state General Fund accounts for revenues that are not designated for a specific purpose.
  2. Special Funds — Over 500 state special funds account for taxes, fees, and licenses that are designated for a specific purpose.
  3. Bond Funds — State bond funds account for the receipt and disbursement of general obligation (GO) bond proceeds.

The state General Fund provides more than 95% of state spending that supports K-12 education.

The Largest Share of State General Fund Spending Supports K-12 Education

Under the enacted 2022-23 state budget:

  • Nearly one-third of General Fund dollars (33.1%) supports K-12 education.
  • Almost 3 out of every 10 General Fund dollars (29.3%) pays for health and human services.
  • Roughly 1 out of every 10 General Fund dollars (10.1%) goes to higher education.
  • Less than 1 out of every 10 General Fund dollars (6.3%) supports corrections, primarily the state prison system.
  • More than 1 out of 5 General Fund dollars (21.3%) goes to other essential services and institutions, such as transportation, environmental protection, the state’s court system, and so-called “General Government,” which consists of a variety of statewide expenses such as emergency expenditures.
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Most General Fund Revenues Come From Three State Taxes

More than 9 out of every 10 General Fund dollars (just over 94%) under the enacted
2022-23 state budget are projected to come from:

  • The personal income tax (61.8%),
  • The corporation tax (17.3%); and
  • Sales and use taxes (15.3%)

The remaining General Fund dollars in 2022-23 are projected to come from smaller state revenue sources (5.7%), such as insurance and cigarette taxes.

The Majority of K-12 Education Funding Comes From the State

In 2020-21, K-12 school districts and county offices of education received:

  • More than half of their dollars (nearly 56%) from the state;
  • Nearly one-quarter of their dollars (24.6%) from local property taxes;
  • More than 1 in 10 (13.1%) of their dollars from the federal government, which included funding to mitigate effects of the COVID-19 pandemic; and
  • Only 6.5% of their dollars from other local sources of revenue, such as parcel taxes and fees for the use of school buildings.
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Most K-12 Education Funding Is Allocated Through the Local Control Funding Formula

The Local Control Funding Formula (LCFF) is the primary funding formula for K-12 school districts and county offices of education.

  • State policymakers fundamentally restructured the state’s K-12 education finance system when they enacted the LCFF in 2013.
  • The LCFF is an equity-based formula that provides a base grant per K-12 student, adjusted to reflect the number of students at various grade levels, as well as additional grants for English learners, students from low-income families, and foster youth.
  • The Legislature determines LCFF grant levels in the annual state budget.

LCFF Dollars Come From the State and from Local Property Taxes

In 2020-21, nearly 2 out of every 3 dollars (66.2%) that K-12 school districts and county offices of education received were allocated through the LCFF.

  • Slightly less than two-thirds of LCFF dollars came from the state and slightly more than one-third came from local property taxes.

State Budget and Policy Choices Are Key to Determining the Allocation of K-12 School Funding

The state budget provides most of the funds that K-12 schools use to educate California’s 5.9 million K-12 students.

  • These funds go to more than 1,000 school districts, county offices of education, and charter schools.

The size of the state budget is a key factor that determines the total amount of annual funding K-12 schools receive.

  • However, the Legislature and governor decide how these state funds are allocated across the state.

Understanding the financial resources available to K-12 schools requires familiarity with the state budget and the state budget process.

Group of guys and girls doing class assignment in the library. Young university students reading reference books for study. Group of high school students studying for exam in classroom sitting in a row.

Terms and Definition

The Constitutional Framework

The governor and legislators craft the state’s annual spending plan according to rules outlined in the state Constitution.

California voters periodically revise these rules by approving constitutional amendments that appear on the statewide ballot.

  • Proposals to amend the state Constitution can be placed on the ballot through a citizens’ initiative or by the Legislature.
  • A constitutional amendment takes effect if approved by a simple majority of voters.

Three Key Budget Deadlines

Two in the State Constitution (January 10 and June 15), One in State Law (May 14)

The governor must propose a budget for the upcoming fiscal year on or before January 10. The budget must be balanced: Estimated revenues (as determined by the governor) must meet or exceed the governor’s proposed spending.
The governor must release the May Revision on or before May 14.
The Legislature must pass a budget bill for the upcoming fiscal year by midnight on June 15. The budget bill must be balanced: Estimated General Fund revenues (as set forth in the budget bill passed by the Legislature) must meet or exceed General Fund spending.

Proposition 25: Simple Majority Vote for Budget Bill and Most Budget-Related Bills

The budget package generally may be passed by a simple majority vote of each
house of the Legislature.

  • Prop. 25 of 2010 allows lawmakers to pass, by a simple majority vote, the budget bill as well as certain budget-related bills (“trailer bills”) that may take effect as soon as the governor signs them. Typically, the budget package consists entirely or primarily of such majority-vote bills.
  • To qualify as a budget-related bill under Prop. 25, a bill must (1) be listed in the budget bill and (2) contain an appropriation of any amount.
  • The budget package may include bills that require a two-thirds vote of each house, such as bills to raise taxes or to place constitutional amendments or general obligation bonds before the voters.
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Proposition 25: Penalties for a Late Budget

Lawmakers face penalties if they fail to pass the budget bill on or before June 15.

  • Prop. 25 requires lawmakers to permanently forfeit both their pay and their reimbursement for travel and living expenses for each day after June 15 that the budget bill is not passed and sent to the governor.
  • These penalties do not apply to budget-related bills, which do not have to be passed on or before June 15.

Proposition 26: Supermajority Vote for Tax Increases

Any tax increase requires a two-thirds vote of each house of the Legislature.

  • Under the state Constitution, “any change in state statute which results in any taxpayer paying a higher tax” requires a two-thirds vote of each house.
  • This standard was imposed by Prop. 26 of 2010. This measure expanded the definition of a tax increase and thus the scope of the two-thirds vote requirement, which was originally imposed by Prop. 13 of 1978.
  • Prior to Prop. 26, only bills changing state taxes “for the purpose of increasing revenues” required a two-thirds vote. Bills that increased some taxes but reduced others by an equal or larger amount could be passed by a simple majority vote of each house.

Proposition 26: More Charges Are Classified as Taxes

Prop. 26 of 2010 also expanded the definition of a tax to include some fees.

  • Prior to Prop. 26, lawmakers could create or increase fees by a simple majority vote. These majority-vote fees included regulatory fees intended to address health, environmental, or other problems caused by various products, such as alcohol, oil, or hazardous materials.
  • Prop. 26 reclassified regulatory and certain other fees as taxes. As a result, a two-thirds vote of each house of the Legislature is now required for many charges that previously were considered fees and could be passed by a simple majority vote.

Additional Supermajority Vote Requirements

The state Constitution requires a two-thirds vote of each house of the Legislature in order to:

  • Appropriate money from the General Fund, except for appropriations that are for public schools or that are included in the budget bill or in budget-related bills that meet the requirements of Prop. 25.
  • Pass bills that take effect immediately (urgency statutes), except for the budget bill and Prop. 25 budget-related bills.
  • Place constitutional amendments or general obligation bond measures before the voters.
  • Override the governor’s veto of a bill or an item of appropriation.

A Bill Must Be Published for at Least 72 Hours Before the Legislature Can Act on It

Proposition 54 of 2016 requires bills to be distributed to legislators and published on the Internet, in their final form, at least 72 hours before being passed by the Legislature.

This rule applies to all bills, including the budget bill and other legislation included in the budget package.

This mandatory review period can be waived for a bill if:

  • The governor declares an emergency in response to a disaster or extreme peril, and
  • Two-thirds of legislators in the house considering the bill vote to waive the review period.

Proposition 98: A Funding Guarantee for K-12 Schools and Community Colleges

Prop. 98 of 1988 guarantees a minimum annual level of funding for K-14 education.

  • The amount of the guarantee is calculated each year based on one of three tests that apply under varying fiscal and economic conditions. Two of these tests include adjustments for changes in statewide K-12 attendance. Prop. 98 funding comes from the state General Fund and local property tax revenues.
  • The Legislature can suspend the guarantee for a single year by a two-thirds vote of each house and provide less funding. Following a suspension, the state must increase Prop. 98 funding over time to the level that it would have reached absent the suspension.
  • While the Legislature can provide more funding than Prop. 98 requires the guarantee has generally served as a maximum funding level.

Proposition 2: Saving for a Rainy Day, Paying Down Debt

Prop. 2 of 2014 revised the rules that apply to the Budget Stabilization Account (BSA) — the state’s constitutional rainy day fund — and also established a new requirement to pay down state budgetary debt.

  • The state is required to set aside 1.5% of General Fund revenues each year, plus additional dollars in years when tax revenues from capital gains are particularly strong.
  • Until 2029-30, half of the revenues go into the BSA and the other half must be used to pay down state budgetary debt, which includes unfunded pension liabilities. Starting in 2030-31, the entire annual transfer goes into the BSA.
  • State policymakers may suspend or reduce the BSA deposit and withdraw funds from the reserve, but only under limited circumstances that qualify as a “budget emergency.”

Proposition 2: A Budget Reserve for K-14 Education

Prop. 2 of 2014 also created a state budget reserve for K-12 schools and community colleges called the Public School System Stabilization Account (PSSSA).

  • Deposits come from state capital gains tax revenues in years when those revenues are particularly strong.
  • However, various conditions must be met before these dollars could be transferred to the PSSSA. For example, transfers could occur only in so-called “Test 1” years under Prop. 98, which have been rare.

Proposition 55: Potential New Funding for Medi-Cal from a Tax on the Wealthiest Californians

Prop. 55 of 2016 extends, through 2030, personal income tax rate increases on very high-income Californians and establishes a formula to boost funding for Medi-Cal, which provides health care services to Californians with low incomes.

  • Starting in 2018-19, General Fund revenues — including those raised by Prop. 55 — must first be used to fund (1) the annual Prop. 98 guarantee for K-12 schools and community colleges and (2) the cost of other services that were authorized as of January 1, 2016, as adjusted for population changes, federal mandates, and other factors.
  • If any Prop. 55 revenues remain after meeting these required expenditures, Medi-Cal would receive 50% of this excess, up to a maximum of $2 billion in any fiscal year.
  • Prop. 55 has not yet resulted in any additional funding for Medi-Cal.
Asian female doctor use stethoscope to listen heartbeat of little girl child sit with her father in living room while doctor visit at home. Home health care delivery and doctor visiting concept.

State Appropriations Limit (SAL): A Cap on Spending

Appropriations are subject to a limit established by Prop. 4 of 1979, as modified by later initiatives. This spending cap is often called the Gann Limit.

  • The SAL limits the amount of state tax proceeds that can be appropriated each year. This limit is adjusted annually for changes in population and per capita personal income.
  • Some appropriations from tax proceeds do not count toward the limit, including debt service and spending that is needed to comply with court or federal mandates.
  • Revenues that exceed the SAL over a two-year period are divided equally between Prop. 98 spending and taxpayer rebates. The state last exceeded the SAL in 2020-21 (but did not do so in the prior year).

State Mandates: Pay for Them or Suspend Them

The state is required to pay for or suspend mandates that it imposes on local governments.

  • Prop. 4 of 1979 requires the state to reimburse local governments for costs related to a new program or a higher level of service that is mandated by the state.
  • Prop. 1A of 2004 expanded the definition of a mandate to include the transfer of financial responsibility from the state to local governments.
  • Prop. 1A also requires the state to suspend a mandate in any year in which local governments’ costs are not fully reimbursed.

What do the Governor and the Legislature Do?

the governor

Approves, modifies, or rejects spending proposals prepared by state departments and agencies through an internal process coordinated by the DOF.

Proposes a spending plan for the state each January, which is introduced as the budget bill in the Legislature.

Updates and revises the proposed budget each May (the “May Revision”).

Signs or vetoes the bills included in the budget package.

Can veto all or part of individual appropriations (line items), but cannot increase any appropriations above the level approved by the Legislature.

the legislature

Approves, modifies, or rejects the governor’s proposals.

Can add new spending or make other changes that substantially revise the governor’s proposals.

Needs a simple majority vote of each house to pass the budget bill and Prop. 25 budget-related bills.

Needs a two-thirds vote to pass certain other bills that may be part of the budget package, such as bills that increase taxes or propose constitutional amendments.

Needs a two-thirds vote of each house to override the governor’s veto of a bill or an appropriation.

What Happens When?

The state budget process is cyclical. Decisions are made throughout the year.

State Budget Resources

  • Department of Finance: The governor’s budget proposals and related documents.
  • Legislative Analyst’s Office: Budget and policy analyses, budget recommendations, and historical budget data.
  • Legislative Counsel: Bills and bill analyses, a free bill-tracking service, the state codes, and the state Constitution.
  • State Assembly and Senate: Committee agendas and other publications, floor session and committee schedules, the annual legislative calendar, and live audio streaming of legislative proceedings.

Support for this report was provided by the Sobrato Family Foundation and the Stuart Foundation.

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Having a safe, stable place to live is crucial for student development and educational success. But more than 220,000 of California’s public K-12 students experienced homelessness in 2020-21. This includes children temporarily staying with other families due to economic hardship, and children living in motels, shelters, vehicles, public spaces, or substandard housing.

“More support is needed for California’s Latinx, Black, Indigenous, and Pacific Islander K-12 students who disproportionately experience homelessness.”

Latinx, Black, American Indian, Alaska Native, and Pacific Islander students were disproportionately likely to experience homelessness. These students also experience high rates of chronic absenteeism causing them to lose critical access to curriculum and social structures that schools, educators, and peers offer.

A bar chart showing the percentage of public K-12 students considered homeless during the 2020-21 school year where California's Latinx, Black, Indigenous, and Pacific Islander students disproportionately experience homelessness.

Students’ housing situations shouldn’t block them from learning opportunities. Policymakers should boost investments in safe, affordable housing and target additional funding and resources for students who experience homelessness to ensure every California K-12 student can thrive in school and life.

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California is home to the California State University (CSU) and the University of California (UC), which educate thousands of students every year and help them build strong futures for themselves and their communities. CSU and UC require that high school students complete certain courses, known as A-G courses, to be eligible for admission.

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Policymakers can improve CSU and UC access by reforming course requirements so that all students have an equitable chance to pursue higher education.
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However, California high school students do not have an equal opportunity to successfully fulfill this requirement on their pathways to higher education. In 2020-21, many student groups graduated high school without completing the A-G pathway at rates that were higher than the state average of 48%. These groups include students with disabilities, English language learners, students experiencing homelessness, and students of color.

Policymakers can improve CSU and UC access by reforming course requirements so that all students have an equitable chance to pursue higher education, irrespective of their socioeconomic backgrounds.

Ballot Propositions
Education

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All California students pursuing higher education and career pathways should have access to an affordable education and the ability to achieve economic security. And California offers many postsecondary institutions for students to pursue their goals, including colleges, universities, community colleges, and trade schools. Yet, high costs of higher education and career training programs, along with economic hardship exacerbated by the COVID-19 pandemic has caused many students to cancel their education and career training plans. This is hitting students from households with low incomes the hardest. 1“Households with low incomes” are defined as households with annual income of less than $50,000. State policymakers can support students in building their education and careers by making education affordable and addressing costs of basic needs so California’s communities are home to thriving students, families, and workforces. 

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The high costs of postsecondary education are a major barrier for students with low incomes to stay enrolled and complete their coursework.
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Since the beginning of the 2021-22 academic year, more than 1 in 5 households with low incomes included at least one prospective student who canceled all plans to take classes from a postsecondary institution due to impacts of the pandemic (23%).2The US Census Bureau, Household Pulse Survey defines postsecondary institutions as colleges, universities, community colleges, trade schools, or other occupational schools. Students living in households with low incomes were more likely to cancel their education plans than California households overall (18%) and compared to households with higher incomes (14%). Students in Black and Latinx households also canceled education plans at higher proportions than all households (24% and 19%, respectively).

Bar chart: More Than 1 in 5 Households with Low Incomes Included a Student Who Canceled Postsecondary Education Plans. California Households with at Least One Adult Who Canceled All Plans to Take Classes in 2021-22.

There are various reasons why students canceled their postsecondary education plans, but financial stress is a key factor. Of those California households where at least one member canceled all plans for postsecondary education, 41% did so because they were unable to pay for educational expenses due to pandemic-related changes to income and 45% of households with low incomes canceled for the same reason.3Survey respondents were able to select various reasons why plans to take classes were canceled, including being unable to pay for educational expenses, having COVID-19 or having concerns about the virus, uncertainty about how classes or programs would change, among others. Respondents could choose more than one reason for canceling plans.

The high costs of postsecondary education are a major barrier for students with low incomes to stay enrolled and complete their coursework. At a time when California households with low incomes are much more likely to be struggling to meet basic needs, policymakers should ensure that Californians with low incomes seeking postsecondary degrees and certificates have the financial support necessary to complete their programs, provide for themselves and their households, and build their lives across the state’s diverse communities.

Support for this report was provided by the Conrad N. Hilton Foundation.

Ballot Propositions
Education
  • 1
    “Households with low incomes” are defined as households with annual income of less than $50,000.
  • 2
    The US Census Bureau, Household Pulse Survey defines postsecondary institutions as colleges, universities, community colleges, trade schools, or other occupational schools.
  • 3
    Survey respondents were able to select various reasons why plans to take classes were canceled, including being unable to pay for educational expenses, having COVID-19 or having concerns about the virus, uncertainty about how classes or programs would change, among others. Respondents could choose more than one reason for canceling plans.

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All California K-12 students deserve an engaging education that prepares them for college, career, and community life. However, many K-12 students are increasingly not enrolled and not attending schools. Students of color, students learning English, and students from families with low incomes have disproportionately experienced declines in enrollment and attendance. State policymakers should pursue policies that increase attendance rates and re-engage students who are not enrolled, many likely due to the health, economic, and learning challenges exacerbated by the COVID-19 pandemic.

California students of color, students learning English, and students from families with low incomes not enrolled or attending K-12 schools are losing critical access to curriculum.

While recent California student enrollment in K-12 public schools has fallen sharply overall, declines have been especially pronounced for socioeconomically disadvantaged students of color.1Socioeconomically disadvantaged students are either eligible for free or reduced priced meals or have parents or guardians who did not graduate high school. In 2021-22, enrollment for socioeconomically disadvantaged students fell by 3% from the prior year, following a drop of more than 3% between 2019-20 and 2020-21. Enrollment dropped for students in most racial and ethnic groups in 2021-22, but these drops were larger for most racial groups who were socioeconomically disadvantaged. These drops in enrollment were double the average statewide decline for Pacific Islander (6.4%) and Filipino (6.1%) students and nearly double for Black (5.8%) students.

Even for students enrolled in K-12 schools, many lost educational opportunities because they were chronically absent.2Students who are chronically absent are those who miss school for 10% of instructional days or more in a school year. Socioeconomically disadvantaged students disproportionately experience chronic absenteeism — with varied causes including limited transportation, adverse health conditions, and housing insecurity. The pandemic exacerbated these challenges causing chronic absenteeism to soar, especially for socioeconomically disadvantaged students of color and English learners. In 2020-21, nearly one-third of socioeconomically disadvantaged American Indian/Alaska Native (32.2%) and Black students (31.9%) were chronically absent, as were more than a quarter of Pacific Islander students (27.8%), and nearly one in five Latinx students (19.2%). The chronic absenteeism rate for socioeconomically disadvantaged English learners spiked to 18.8%, approaching the statewide average of 19.4%.  

California students of color, students learning English, and students from families with low incomes not enrolled or attending K-12 schools are losing critical access to curriculum and social structures that schools, educators, and peers offer. While state policymakers weigh options to address the fiscal impacts on California school districts due to shifts in enrollment and attendance, they also hold responsibility for the educational and social well-being of students who have historically faced barriers to learning. To fulfill that responsibility, policymakers’ choices should prioritize the meaningful engagement of K-12 students and their families and help them rebuild educational opportunities.

Support for this report was provided by the Sobrato Family Foundation and the Stuart Foundation.

Ballot Propositions
Education
  • 1
    Socioeconomically disadvantaged students are either eligible for free or reduced priced meals or have parents or guardians who did not graduate high school.
  • 2
    Students who are chronically absent are those who miss school for 10% of instructional days or more in a school year.

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