(The Center Square) – As work continues on the state budget, education and finance officials told California legislators on Thursday that taxpayer funding for Proposition 98, which funds K-12 education and two years of community college, was making teachers and district officials nervous throughout the state.
Concerns were aired during a meeting held by the Senate Budget Subcommittee on Education on Thursday morning in Sacramento.
“The volatility of our revenues is on full display,” Sen. Sasha Renée Pérez, the chair of the Senate Budget Subcommittee on Education, said at the beginning of the meeting at the Capitol.
“We are seeing the Prop. 98 minimum guarantee at unprecedented levels and with a declining student population,” said Pérez, D-Pasadena.
The state’s precarious budget situation was first detailed in a November 2025 budget outlook report compiled by the state’s Legislative Analyst’s Office. Gov. Gavin Newsom’s budget, released in January, projected a $21.7 billion increase in Prop. 98 funding this year.
K-12 education takes up about 40% of California’s overall budget, Pérez said.
Proposition 98, which California voters passed at the ballot box in 1988, requires that the state spend a minimum amount of taxpayer dollars to adequately fund K-12 education and the first two years of community college, often referred to as K-14.
Prop. 98 is one of two measures the state is required to fund in this year’s budget. The other is Proposition 2, which passed in 2014 and authorizes bond measures to help pay for K-12 and community college facilities, according to the Legislative Analyst’s Office.
The governor’s budget proposed $115.9 billion in funding for the Prop. 98 “settle-up,” which essentially pays public education in California back for Prop. 98 funding K-14 schools should have gotten in the two previous school years. At the time, schools didn’t get the entire amount. The previous “settle-up” allocation was $121.4 billion, according to the governor’s budget.
“I have to acknowledge there is heartburn in our districts as it relates to Prop. 98,” state Superintendent of Public Instruction Tony Thurmond testified during the committee meeting. “The $6 billion that is being held up as part of the settle-up has created angst for many of our districts.”
District leaders told Thurmond that layoffs are being considered because of that shortfall of expected funding, Thurmond told lawmakers.
“They’re looking for a signal that that money might be restored, and they will have it to balance their budgets in a very tough time,” Thurmond testified. “That part of the proposal does threaten to undermine the goals of our districts.”
Required expenditures from the state budget for both Prop. 98 and Prop. 2 exceed revenue gains, the Legislative Analyst’s Office projected in its November report. That gap between constitutionally-mandated expenditures and the state’s revenue persists despite record revenues from higher income tax receipts, which are fueled by enthusiasm surrounding artificial intelligence technology developed by Big Tech companies headquartered in California, The Center Square previously reported.
“The revenue picture right now is deeply unsettled,” Kenneth Kapphahn, principal fiscal and policy analyst with the Legislative Analyst’s Office, testified on Thursday.
Kapphahn said January was a good month for the state, with higher-than-expected income tax receipts coming in to help fuel a projection that revenues in the current fiscal year could exceed the governor’s budget estimates by $8 billion.
“That is significant for this committee, because Proposition 98 would direct almost half of that amount to $3.7 billion towards schools and community colleges,” Kapphahn testified.
However, the higher-than-expected revenues, because they are based on the recent strong performance in the stock market of some of California’s Big Tech companies, are increasingly tenuous, Kapphahn testified. In the event of a stock market downturn, that could affect income taxes enough to not be able to depend on that funding, he noted.
“We think revenues for the upcoming year, 26-27, are likely to be $3 billion below the estimates in the governor’s budget, and for schools, that would mean a $1.4 billion less in Proposition 98 funding,” Kapphahn testified. “If the market drops significantly, and that is certainly a possibility, those losses could quickly become much larger.”
