- “We estimate that if per student funding continues to grow at the same rate as overall education funding, the state could leverage an additional $7.5 billion for schools, even without new revenue sources.” – Public Policy Institute of California report
California’s school funding system could be reshaped in coming years as declining enrollment creates new fiscal flexibility and policymakers reconsider how billions of education dollars are distributed, according to a new report from the Public Policy Institute of California.
The report examines potential changes to the Local Control Funding Formula, the state’s primary K–12 funding mechanism since 2013, and models how different policy choices would affect district funding levels across the state. While overall funding has increased substantially under the LCFF and targeted investments have been associated with improved outcomes for high-need students, the report concludes that California schools continue to face significant fiscal and academic challenges.
“California’s system for funding schools—the Local Control Funding Formula (LCFF)—is well into its second decade,” the report states. “Overall funding levels have nearly doubled since LCFF’s inception, and targeted funding for high-need students (defined as low-income, English Learner, or foster youth) has been shown to boost student achievement. Yet California schools continue to face fiscal and academic challenges.”
The LCFF replaced California’s former school finance system, which relied on a complex network of categorical grants, with a streamlined structure built around base grants for all students and supplemental funding for districts serving higher shares of high-need students. Districts with especially high concentrations of those students receive additional concentration grants. The formula was designed to improve transparency, promote equity, and give districts greater flexibility over how funds are spent.
Despite the gains since the formula’s adoption, the PPIC report identifies several structural concerns that have fueled calls for reform. Among them are ongoing disparities in student outcomes, rising rates of chronic absenteeism, questions about whether funding adequately reflects regional cost differences, and how well the formula accounts for students with overlapping needs.
To explore potential changes, the authors model California’s funding system excluding charter schools and county offices of education and simulate alternative allocations. The analysis focuses on how funding distributions would change under different approaches rather than attempting to predict effects on student achievement.
“What changes to the funding formula could help address these challenges—and how might they affect district funding levels?” the report asks. “We model the state’s funding system—excluding charter schools and county offices of education—and simulate a variety of alternative allocations to highlight fiscal costs and trade-offs.”
One of the report’s central findings is that declining enrollment could allow the state to modify the funding formula without reducing funding for any district. Statewide enrollment has fallen by about 7 percent since the mid-2010s and is projected to continue declining over the next decade. If overall education funding continues to grow at historical rates while the number of students decreases, per-student funding would rise even without new revenue sources.
“We estimate that if per-student funding continues to grow at the same rate as overall education funding, the state could leverage an additional $7.5 billion for schools, even without new revenue sources,” the report states.
According to the analysis, the state could use those funds in several ways, including increasing LCFF allocations, supporting one-time or off-formula programs, or financing changes to the existing funding structure. The authors note that such an approach could mitigate political and operational challenges by avoiding funding reductions for any district.
The report also evaluates a shift from attendance-based funding to enrollment-based funding. Under current law, LCFF allocations are tied to average daily attendance, meaning districts lose funding when students are absent. California is now one of only a small number of states that continue to rely on attendance-based formulas.
“Basing funds on student enrollment rather than attendance would benefit higher-need districts,” the report states.
Modeling a statewide switch to enrollment-based funding at a cost of $3.8 billion shows that most districts would see changes of less than $250 per student. Districts with higher absence rates would experience the largest gains, while districts with consistently high attendance would receive less funding than they would under an equivalent increase distributed through the existing LCFF.
The authors also examine the effects of adding regional cost adjustments to account for geographic differences in competitive teacher wages. Because staffing accounts for the vast majority of school spending, cost differences across labor markets can affect districts’ ability to attract and retain educators.
“Regional cost adjustments would redirect funding from rural and high-need districts to urban and suburban areas,” the report states.
The modeled adjustment, estimated to cost $2.5 billion, would reduce per-pupil funding for the average high-need student compared with a comparable increase through the LCFF. Rural and small-town districts would see significantly lower funding levels, while urban and suburban districts would experience moderate increases.
Another focus of the report is how the LCFF treats students with overlapping needs. Under current rules, students who qualify in multiple high-need categories are counted only once for supplemental funding purposes.
“Providing additional funding for students with overlapping needs would direct more resources to most high-need districts,” the report states.
The analysis finds that boosting funding for students who are both low-income and English learners would increase revenues for most high-need districts by about 2 percent on average, or roughly $2 billion statewide, because those districts tend to enroll higher shares of such students.
The report also considers changes to how the LCFF addresses concentrated need. Currently, districts receive significantly higher funding once the share of high-need students exceeds 55 percent. The authors model a “smoothed” alternative that gradually increases funding as concentrations of need rise.
“Changing how the formula addresses concentrated need could increase revenues for districts with moderate shares of high-need students,” the report states.
That approach would still provide substantial funding increases for districts with the highest levels of need while extending additional support to districts below the current threshold, at an estimated cost of $1.5 billion statewide.
The authors emphasize that the design choices examined in the report carry significant consequences for California’s school system.
“The stakes of these design choices are substantial,” the report states. “Even small changes to the LCFF could shift the distribution of billions of dollars across California’s more than 1,000 school districts serving nearly 6 million students.”
While the report does not endorse a specific reform, it aims to inform policymakers as they weigh competing priorities.
“While we remain agnostic about the ‘correct’ funding approach, our analysis aims to provide policymakers with a clearer understanding of the trade-offs involved in these decisions,” the report states
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How about increasing subsidy to school districts who has board members who act as a shill to developers as a ‘means’ of increasing enrollment.