District projects 2026-27 deficit while awaiting state special-education and LCFF actions

Modesto City Schools' finance team presented the proposed 2026-27 all-funds budget at the June 8 board meeting and described a set of assumptions and risks that produce a projected general-fund operating deficit of about $11.9 million for the upcoming year.

Tim Zerley and district business staff said revenue assumptions for the proposed budget use a 2.87% statutory COLA with a proposed additional LCFF augmentation (1.44%) under consideration at the state level. The presentation noted the governor's May revision included significant one-time and potential ongoing increases for education, but some details remain subject to the state budget action.

The district's special education contribution is a central fiscal pressure. Zerley told trustees the district currently contributes an estimated $77.5 million toward special education costs from general fund resources; staff said a proposed special education base-rate increase at the state level could add approximately $11.5 million to the district's revenue, but would not eliminate structural pressures.

Trustees asked for cost estimates tied to the new state-required 14-week paid pregnancy disability leave; staff estimated that policy could cost the district roughly $1.5 million annually. Officials said the LCFF's 1.44% augmentation could generate about $4.5 million in additional local-control funding when the final state budget is adopted and added to the district's numbers during the statutory 45-day revision process.

Zerley said projected enrollment shows a slight elementary increase but a decline of approximately 100'00 high-school students in projection years, and the district expects average daily attendance to be 94% of enrollment for elementary and 90% for high schools. The budget presentation included multi-year projections showing the operating deficit narrowing under current assumptions by 2028-29.

Zerley emphasized that the budget remains contingent on the final state budget and that several large, one-time proposals (the student support and professional development block grant, additional special education funding) will be included or adjusted after the state enacts its budget and the district completes the 45-day revision process.

Representative quote: "One positive note is a historical 43% increase to special education funding," Zerley said, adding that some increases in state proposals are onetime or subject to additional statutory requirements.

Next steps: The board will consider the proposed budget for adoption on June 22; staff will prepare a 45-day revision if the state budget includes the LCFF augmentation or special education base-rate changes.