Assembly panel reviews LCFF funding, COLA assumptions and proposed LCAP penalty

Chair Alvarez convened the California State Assembly Budget Subcommittee No. 3 on Education Finance to hear overview briefings and questions on the Local Control Funding Formula (LCFF), the governor's proposed cost-of-living adjustment (COLA) and a trailer-bill proposal that would penalize local educational agencies (LEAs) that fail to adopt Local Control and Accountability Plans (LCAPs) by the July 1 deadline.

The Department of Finance said the LCFF provides the bulk of unrestricted funding for LEAs and is distributed based on student counts with additional allocations for low-income students, English learners and foster youth. "The bulk of unrestricted funding for local educational agencies is provided through the local control funding formula," said Katie Lagomarcino, Department of Finance. Lagomarcino described grade-span adjustments in the formula — a 10.4% increase for grades TK–3 and a 2.6% increase for grades 9–12 — and described enrollment protections such as three-year averaging of attendance for district funding.

Why it matters: The subcommittee probed whether the statutory COLA — which the governor's budget assumes at 2.43% — and the LCFF structure reflect California school districts' real cost pressures, including staff compensation and regional differences in costs. The Legislative Analyst's Office (LAO) told the committee its current estimate for the COLA calculation is slightly lower than the administration's: "We have it currently at 2.26%, which would reduce LCFF costs by about a hundred and $30,000,000," said Michael Alfeteros of the LAO. The LAO also recommended exploring COLA measures more closely tied to school-district labor costs.

Key details and discussion: - Funding mechanics: The Department of Finance said LCFF totals reach $83.4 billion in the 2025–26 budget projection, reflecting the administration's 2.43% COLA assumption and other adjustments; county offices of education receive a separately calculated entitlement. - COLA debate: LAO recommended considering an index that focuses on employee compensation rather than the broader state-and-local deflator used in the statutory COLA calculation. LAO advised the committee that alternative staffing-ratio assumptions for transitional kindergarten (TK) could lower the governor's projected TK costs by several hundred million dollars. - TK and grade-span adjustment: Finance staff said TK is already included in the TK–3 grade-span adjustment under the Education Code definition for kindergarten/TK enrollment, but committee members and State Board staff raised concerns that statutory TK class-size caps could have unintended effects on K–3 class sizes. - LCAP penalty proposal: Hugo Solis Galena of the Department of Finance described the governor's trailer-bill proposal to withhold state and federal apportionments from LEAs and county offices of education that do not adopt an LCAP by July 1. The proposal would assess a penalty beginning at 20% of a district's second principal apportionment and would increase by 1 percentage point for each year the LCAP remains outstanding, up to an 80% cap, and would withhold apportionments until an adopted LCAP is on file. The proposal was presented for committee consideration; no formal action was taken during the hearing.

Committee direction and next steps: Chair Alvarez directed staff to work with the LAO and the Department of Finance to explore alternatives for COLA calculation and to investigate the interaction of TK expansion with the TK–3 grade-span adjustment to avoid unintended class-size effects. Committee members repeatedly pressed for data showing how regional cost differences and declining enrollment affect districts' real costs.

Ending: The subcommittee did not take any formal votes on LCFF policy or the trailer-bill proposal during the hearing. Members asked staff and the LAO to return with analysis of alternate COLA measures and with further work on TK integration and LCAP implementation timelines.