The California Department of Finance told the Assembly Budget Subcommittee No. 3 on Education Finance that the May Revision forecasts the Proposition 98 guarantee for 2025–26 at $114.6 billion, about $4.3 billion lower than the governor’s January forecast, and proposes rebenching certain program costs — including universal transitional kindergarten (TK) — onto the K–12 side of the Proposition 98 split.

The rebenching proposal removes TK funding from the K–12/community college split calculation and shifts $492 million from community colleges to K–12 going forward, according to Alex Schopf of the Department of Finance. The administration said the move is intended to align program funding with where the costs are realized and to address multi‑year TK expansion that has increased K–12 costs.

Why it matters: the LAO and community college leaders warned the committee the May Revision relies heavily on payment deferrals, one‑time monies and reduced reserves to preserve or expand many K–12 proposals despite lower revenue estimates. "Deferrals effectively are debts that reduce the funding available in the future and weaken district cash flow," Ken Kippon of the Legislative Analyst's Office said, noting the governor’s package shifts roughly $2.4 billion in deferrals, of which a larger share, as a percentage of their budgets, affects community colleges.

Deputies from the Department of Finance told the committee they are attempting to backfill some prior‑year impacts to community colleges using reappropriations and system savings identified by the Chancellor’s Office. Justin Hirsch, Department of Finance, said the administration proposes appropriations and reappropriations to avoid immediate cuts to community college operations for prior years. Chancellor and district representatives told the committee they remain concerned about impacts in future years and about the cumulative effect of retroactive rebenching and larger deferrals.

The LAO offered an alternative package that would align ongoing spending with the revised guarantee, avoid deferrals, and delay or reject certain new ongoing proposals. The LAO also recommended reconsidering reliance on a historical "split" (the nominal 89/11 school/college split) and instead build budgets around priorities such as COLA, enrollment growth, and core program funding.

Committee members asked Finance and LAO how the state should weigh TK facility and staffing costs versus impacts on the community college system; Finance said rebenching seeks to correct multi‑year adjustments as TK expansion continued, and LAO urged the Legislature to prioritize objectives (e.g., TK facilities) rather than target a fixed historical percentage.

The May Revision also proposes a $1,300,000,000 downward revision to an earlier settlement obligation and a variety of rebenching and reserve adjustments, including a $540 million deposit/withdrawal plan for the Public School Stabilization Account across 2024–25 and 2025–26. The LAO cautioned these moves reduce the state’s flexibility should revenues weaken further and suggested a more cautious, targeted approach.

What’s next: Committee members sought additional data from both Finance and the Chancellor’s Office about how colleges will be made whole in the near term and what the out‑year exposure will be if revenues continue to slow. The LAO recommended the Legislature consider rejecting some new ongoing proposals and using one‑time funds to increase the discretionary K–12 block grant instead of layering on ongoing obligations.

Ending: The rebenching of TK and related Proposition 98 technical changes were the central policy tensions in the panel: the administration emphasized aligning costs with where they fall, while the LAO and community college leaders warned the approach uses deferrals and one‑time fixes that may create painful budget choices in 2026–27 if revenues continue to soften.