Senate subcommittee flags $4.6 billion May Revision hit to Proposition 98, questions deferrals and LA fire backfill

The Senate Budget Subcommittee No. 1 on Education on May Revision heard an overview of the May Revision’s Proposition 98 calculations and follow‑on debate about budget architecture, one‑time funding and how wildfire property‑tax losses are being addressed.

The panel opened with Alex Schop, Department of Finance, who summarized the administration’s May Revision: “The May revision forecast that the Proposition 98 guarantee amount for ’25‑26 will be $114.6 billion, which is $4.3 billion less than what was forecast at the governor’s budget.” Legislative Analyst Office staff quantified the three‑year impact: Ken Kappan told the subcommittee that the May Revision “shows a total decrease of about $4.6 billion compared to the governor’s budget” across the 2024–25 and 2025–26 years.

Why it matters: Proposition 98 is the constitutional minimum guarantee for K–14 funding in California. Changes to that guarantee affect the Local Control Funding Formula (LCFF), categorical programs, community colleges and the state’s ability to sustain newly created or expanded programs such as universal transitional kindergarten (TK).

Major numbers and mechanics

- May Revision guarantee for 2025–26: $114.6 billion (administration estimate). - Three‑year reduction compared with the governor’s budget: about $4.6 billion (LAO figure). - Maintenance factor: revised up slightly to about $8.0 billion (an increase from about $7.9 billion at the governor’s budget). - Projected maintenance‑factor payment for 2024–25: about $4.9 billion (down from $5.6 billion in the governor’s budget). - The May Revision projects a modest year‑to‑year increase in statewide average daily attendance (ADA) from 2024–25 to 2025–26 of about 0.47%, while showing lower ADA relative to the governor’s earlier estimates for 2024–25 and 2025–26. - Public School System Stabilization Account (the Prop 98 reserve) deposits and withdrawals: the May Revision includes a $540 million deposit in 2024–25 (about $617 million less than the governor’s budget projected) and a constitutionally required $540 million withdrawal in 2025–26 to support one‑time LCFF and student‑centered funding costs.

Rebenches and wildfire backfill

The administration said the guarantee is being “rebenched” to account for universal TK implementation and, on a one‑time basis in 2024–25 and 2025–26, to reflect projected property‑tax losses tied to the Los Angeles fires. The May Revision includes a $9.7 million one‑time Proposition 98 appropriation described as property‑tax backfill for impacted basic aid and non‑basic aid districts.

Budget architecture and LAO critique

The Legislative Analyst Office framed three structural concerns with the May Revision. Kappan warned that the May Revision “uses about $1.6 billion in one‑time funds to pay for ongoing activities,” creating a potential hole in the following year when one‑time funds expire. The LAO also cautioned about heavy reliance on deferrals — shifting payments between fiscal years to free up cash now — calling deferrals “a tool of last resort” because they weaken future cash flow for districts.

The LAO proposed an alternative package that would align ongoing spending with the guarantee (avoid a structural deficit), avoid use of deferrals and preserve core programs by rejecting or delaying some May Revision proposals. Among the LAO’s recommendations: postpone the lower staffing‑ratio requirement for TK (delay moving from a 12:1 to 10:1 ratio), reject certain new one‑time proposals (including a $200 million literacy training proposal), and instead increase the discretionary block grant so districts can prioritize local needs.

Split with community colleges

The May Revision includes a controversial reallocation — described in the hearing as roughly $492 million — shifting some community college funds to K–12 to help cover TK costs. Finance and LAO witnesses said the state identified savings in the community college budget (about $320 million of savings identified in the May Revision) and used those to offset the K–12 increases; LAO and Finance staff both noted the approach is unusual because it adjusts prior‑year and current‑year allocations to reflect updated costs. The panel pressed administration staff on whether community colleges had already planned to spend those savings; Finance testified the May Revision’s savings were reviewed with the Chancellor’s Office and are expected to be realigned rather than spent locally.

What the subcommittee discussed and asked

Committee members pushed administration and LAO staff on several architectural questions: whether the state should instead build a discretionary Prop 98 rainy‑day deposit to buffer future risks; how the constitutionally required true‑up and certification process will affect next year’s budget; and whether one‑time investments will force painful choices next year if revenues weaken. The administration said it prefers to wait for clearer revenue information before finalizing repayment or true‑up plans.

Next steps

Members said the hearing’s purpose was to provide a clear sense of priorities that will inform the Senate negotiators as budget negotiations proceed. The subcommittee did not take formal actions at the hearing; staff said the May Revision figures and LAO alternatives will feed into ongoing negotiations leading up to the final budget.

Ending note: committee leadership closed the item by directing staff to carry concerns about the budget’s architecture into the upcoming budget negotiations.