Proposal to create education equalization reserve fund advances; senators debate mechanics and Prop 98 implications

Sen. Dave Cortese presented Senate Bill 743, a proposal to create an Equalization Reserve Account (ERA) designed to reduce longstanding funding disparities between California’s “basic aid” (property-tax rich) school districts and nonbasic-aid districts that rely more heavily on state funding.

Cortese said research links higher per-pupil spending with better academic outcomes and argued the ERA would provide additional, sustained dollars to underfunded districts without reducing current allocations. The bill would set aside funds to be invested in the state investment pool and use investment earnings—rather than principal—to provide ongoing equalization payments; the author said the measure is designed not to interfere with the Proposition 98 guarantee while creating a dedicated mechanism to close gaps over time.

Supporters at the hearing included school board members, the Silicon Valley Education Foundation, and the Santa Clara County School Boards Association’s legislative action committee, which cited local disparities in per-pupil funding and urged a multi-decade strategy to address gaps in resources such as counselors, STEM programs and smaller classes.

The California School Boards Association expressed concern that excluding ERA funding from Proposition 98 protections could leave it vulnerable and suggested instead increasing Prop 98 funding and distributing funds through LCFF to ensure guaranteed growth and protections. The California Charter Schools Association asked that direct-funded charter schools and county offices be included among eligible nonbasic-aid LEAs to avoid creating new inequities.

Committee members, including members representing basic aid and nonbasic-aid areas, asked technical questions about the source of funds, the investment vehicle, governance and how the program would work with LCFF and Prop 98. The author said the bill is intended to be paired with a constitutional amendment that would protect the ERA and that the ERA’s investment strategy would be handled by the state treasurer through the state investment pool; principal would be preserved while earnings fund equalization over time.

The committee passed SB 743 to Appropriations (7–0); members said the bill will require further technical work—particularly on Prop 98 interactions and on including direct-funded charters—before final passage.