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California Gov. Gavin Newsom signed his eighth and final budget last week, with $128 billion for schools and community colleges. During his tenure, Newsom has overseen substantial increases in public education funding, despite setbacks in years of budget turmoil. Largely due to a boom in the technology sector driven by investments in artificial intelligence, projections for state school funding are far above where they were when Newsom’s first budget passed in 2019. But there are growing concerns about potential future shortfalls in the event of a market crash, and conflicts over how to prepare.
$48billion
a 60% increase in Prop. 98 funding during the eight years of Gavin Newsom’s tenure as governor.
In large part, education spending is not in the hands of the governor or Legislature but is determined by the formula set in Proposition 98, the 1988 law that guarantees a minimum amount of state funding toward TK-12 schools and community colleges. The Prop. 98 funding formula includes factors such as general fund revenues, the prior year’s spending and changes in school attendance and per capita income.
$21.1k
per-student funding for 2026-27 is 9.5% higher than last year and reflects billions of dollars in unanticipated revenue from 2025-26.
Newsom’s first budget, in fiscal year 2019-20, included only a modest increase of Prop. 98 funding over the prior year. But the following years saw large increases when the state’s revenues swelled, as well as declines when California weathered budget shortfalls.
These increases came with a great deal of financial volatility, a norm in California, which relies on personal income tax returns for the bulk of its state revenue. Planning around that volatility will be a challenge for the next California governor as well.
$3.9billion
Prop. 98 money Newsom is withholding. The next governor must decide when to release those funds from the 2026-27 budget.
There is much disagreement over how much school funding to hold in reserves in Newsom’s final budget. The Legislature approved Newsom’s plan to withhold $3.9 billion in Prop. 98 funding, in case revenues don’t meet projections. Some advocates, including teachers unions as well as school administrators, have argued that the funds are urgently needed now, and holding them back violates Prop. 98’s promise of guaranteed minimum funding.
The Newsom administration says it wants to err on the side of caution, having seen a Covid-era revenue surge followed by budget shortfalls. In the May budget revision, Newsom moved to raise the Prop. 98 reserve, to guard against a financial downturn or crash in AI and tech investment. The final budget sets aside $9.2 billion in the Prop. 98 Rainy Day Fund.
Will these moves prove to be over-cautious or prescient?
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