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School Funding 101

Although few of us understand the school funding process that results in a local district’s budget, it is important to know that we are all part of it.

As a voter, you determine the fate of school budgets—and ultimately, even your own pay and benefits.

  • You vote for the state and federal representatives who determine school funding
  • You vote for the initiatives that frame our finance system
  • You vote for the school board members who determine how money is spent at the local level

Obviously the process matters, but how does it work, and what do you need to know. Here is a basic overview of some key components in the school funding process:

General purpose vs. categorical funding
There are two major types of state funding: general purpose and categorical. The majority of money that schools receive from the state is general purpose funding, which basically has “no strings attached.” Districts determine how to best use this money.

Revenue limits, COLA and ADA
Each district has a base amount of ‘general purpose’ money it spends per student. That amount is called a “revenue limit”. Original revenue limits were based on 1972 spending levels and have been updated ever since with cost of living adjustments (COLA). The district’s total revenue limit is primarily based on how many student it has, or its average daily attendance (ADA).

Categorical aid is earmarked for targeted programs such as federal Title I Program, special education and child nutrition. Categorical programs are largely funded by state and federal sources, which come in the form of grants or conditional funding. For example, the federally funded Title 1 program has resulted in a list of qualifications that teachers as well as paraeducators and other instructional assistants must meet in order for schools to receive that money.

Prop. 13 and Prop. 98
Two major laws—both approved by California voters— have had a far-reaching effect on school finance. The first is Prop. 13. This controversial ballot initiative was passed in 1978 in an attempt to limit property taxes. Since Prop. 13, California schools have increasingly relied on the state for the majority of their funding. Unfortunately for schools, state revenue has fluctuated wildly through cycles of accumulating large reserves to deficit spending.

To help protect schools from the state’s boom and bust economy, voters approved Prop. 98 in 1988 to guarantee a minimum level of funding for public schools. The calculation of the guarantee is very complicated, as are the politics of funding it. The multi-step process involves three tests, one of which permits a smaller minimum increase in bad economic years. The minimum guarantee can be suspended altogether with a two-thirds vote by the state legislature and approval of the governor.

School Bonds
Most of the funding for K-12 school facilities comes from state and local bonds. A school bond, like a home mortgage, enables a school district to borrow money to finance the construction of a new school or make major improvements over many years. Bond money is restricted and cannot be used to pay for salaries or employee benefits. However, it can alleviate the burden placed on a district’s general fund, freeing up money to pay for those needs.

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Where the money comes from
School funding can be hard to understand because it involves federal, state, and local governments to determine the needs of our students, school employees, and facility needs.

Schools rely on state budget
California public schools have grown increasingly reliant on state funds to provide critical local services, including education. This is not the case in most states where local property taxes provide the majority of public school funding.