AI stock boom lifts California school funding to record levels

California’s budget for public education is strongly influenced by economic conditions, including the fortunes of the stock market. In January, Ed100 summarized those conditions and the process ahead for the governor’s 2026-27 education budget proposal. So what happened?

This post explains where the money goes, what has changed from prior years, and why it matters.

In the enacted budget for 2026-27, a massive increase in state revenue – generated by the boom in artificial intelligence stocks – boosted funding for TK-12 schools to a record $151.4 billion. That’s a big number, about $2 billion higher than the governor proposed in January.

In the Ed100 blog
Funding squeeze: Why California school funding isn’t keeping up with rising costs

Even so, many districts remain in a funding squeeze as expenses have grown faster than revenues. Some education advocates argue that the budget fails to deliver funds that are guaranteed under state law. The California Teachers Association contends that the budget violates the state constitution by delaying payment to school districts.

Education victory lap for Governor Newsom

For the Newsom administration, this education budget can be seen as a victory lap — assuming the stock market holds. It tops off nearly seven years of growth despite significant structural challenges that squeeze investment and divert funds from the classroom. Education investments have moved California from near the bottom in the nation in funding to above average.

California has also expanded special education, community schools, before- and after-school programs, summer learning, teacher support, dual enrollment, bilingual education, universal school meals, and arts education.

California’s students face many challenges. The share of students who are English learners is nearly twice the national average. The rate of child poverty is the fourth highest in the nation and well above the national average. Under Newsom’s watch, academic performance has recovered somewhat better than in other states, but California still lags the national average:

Historic investments

Special Education:

For years, California schools have struggled to meet the needs of children with disabilities. The federal government has been part of the challenge — it routinely fails to deliver on its funding commitments for special education.

In the Ed100 blog
Special education costs flood school budgets

In the 2026-27 budget, California stepped up to this challenge with a $2.4 billion increase in special education funding — a 43% nominal increase from the 2025 Budget Act. Under the 2026-27 budget, school districts and county offices of education will receive special education funding at the same rate, and the state will increase the per-student rate to $1,340. This will help fill the federal gap.

Community schools:

As explained in Ed100 Lesson 5.7, community schools expand the role of school sites bringing in services and expertise from community partners.

Ed100 Lesson 5.7
Community Schools

Examples include health services, tutoring, counseling, case management, or other supports to address local needs. Research has found that community schools can improve academic outcomes for historically underserved students. Building on those findings, the 2026-27 Budget Act provides $1 billion in ongoing funding. It expands the model to 3,700 additional school sites that have large concentrations of students from low-income families, English learners, and youth in foster care.

Literacy:

In the Ed100 blog:
How parents changed reading instruction in California

The budget makes a significant investment of $350 million for literacy coaches and reading specialists to help students become stronger readers.

Another $40 million is committed to universal screening for reading difficulties for K-2 students. This will help teachers identify struggling readers so they can support them more effectively.

Quick budget explainer

Each year, California’s state constitution requires the state budget to set aside money specifically for TK-14 education (that is, grades TK-12 and public community colleges). The protected funds, known as the Proposition 98 minimum guarantee, come to about 40% of the General Fund of the state budget. (See Ed100 Lesson 8.4.)

Most of the money in the Prop. 98 education budget goes to school districts through the Local Control Funding Formula (LCFF), explained in Ed100 Lesson 8.5. This money pays for operating costs like salaries for educators, administrators, and counselors in virtually all California public schools. Costs for transportation and building maintenance fall in this category, too.

To protect ongoing programs like public education from being eroded by inflation, each year the state calculates a cost-of-living adjustment (COLA) based on economic data. In the 2026-27 budget, the statutory COLA was 2.87%. The legislature allocated additional discretionary funds to create what has been called a “super COLA” of 4.31%. This additional funding is expected to cover the cost of a new (and unrelated) requirement: Beginning January 1, 2027, TK-14 local educational agencies must provide all employees with up to 14 weeks of paid pregnancy disability leave.

Even with these investments, the Proposition 98 budget for next year is slightly lower than in past years on an inflation-adjusted basis:

The budget also includes restricted money that must be spent on specific educational programs. These include, for example, American Indian programs, Child Nutrition, Foster Youth, Special Education and arts education.

Want even more nitty-gritty details? Revel in the entire education budget. (See page EDU-24 for the totals.)

A note of caution

Budgets are built on predictions. Will Californians actually earn income and pay taxes at the levels the state Department of Finance has predicted in the budget?

“The budget is overextended… at highs last seen at the peak of the dot-com bubble” —LAO

No one knows for certain. The state Department of Finance tracks key indicators monthly, relying on information like incoming taxes.

The state Legislative Analyst's Office (LAO), a nonpartisan agency independent from the Department of Finance, warns that the three years ahead could be rough sledding:

Specific education investments

The budget contains significant investments that parents and communities have asked for. Ed100 lessons and blog posts linked below help explain the issues.

How does California pay for schools?

As explained in Ed100 Lesson 8.3, funding for public K-12 education in California comes from three main sources: state income taxes, local property taxes, and the federal budget, in that order. The portion from each source has varied over time.

State income taxes that go toward education are strongly influenced by the economy, the stock market, and the terms of Proposition 98. Property taxes that go toward education (and which are included in calculation of the Prop. 98 guarantee) were more or less set in stone by voters who passed Proposition 13 in 1978.

The schematic below, produced each year as part of the state budget process, helps make an important point: education is a one of the state government’s largest responsibilities. We pay taxes so that kids can learn.

Years of context

Ed100 has examined and explained the California education budget process for many years. Here are links to our prior writing on the subject. We like to think we are getting better at it. Let us know what would make these budget posts more useful to you.

Jeff Camp contributed to this post.