The previous lesson explained California's school funding system, particularly the Local Control Funding Formula (LCFF).

This lesson focuses on the important state and federal funds that are not part of LCFF.

What are categorical funds?

In public finance, funds that may only be used for specific purposes are known as categorical funds or restricted funds. They work kind of like coupons — valuable, but inflexible and a bit cumbersome to keep track of.

In some cases, categorical programs are connected with federal funding. In other cases, they are created in response to state-defined priorities.

How does categorical funding for special education work?

Federal law requires schools to provide "specially defined instruction, and related services… to meet the unique needs of a child with a disability." It's the biggest categorical program in education.

Approximately one of every eight students in California students is identified for Special Education services. This rate has modestly increased since the early 2000s, driven significantly by autism. Most of these students require services that cost only modestly more than a normal program, but some students need intensive interventions that cost far more. The average cost of education for special ed students is more than double the norm.

Both federal and state laws require public schools to educate all students, including those with special needs. Categorical funds for Special Education are set aside by both the state budget and the federal government, but the categorical funds do not cover the full cost. It falls to local school districts to make good on the legal obligation to educate all kids.

The federal government has a weak record when it comes to delivering on its commitments to fund special education. For example, in 2018-19 federal funding for special education in California fell short by a whopping $3.2 billion, more than $4,000 per identified student. Local school districts are obligated to make up the difference, effectively reducing the amount they have for their basic programs.

At times, this unfunded mandate has been huge. In a 2020 study, California Special Education Funding System, WestEd estimated that schools in California spent $13 billion on special education in 2018-19, and well over half came from local sources. During the 2021-22 school year, combined state and federal categorical funding covered about a third of the extra cost of special education. Roughly two-thirds of the additional special education costs were paid by local funding sources.

In general, districts receive state funds for special education based on overall enrollment rather than on an actual count of students with disabilities. This is known, counterintuitively, as a census-based approach. Categorical funds for special education are directed to local consortia of schools and districts, called Special Education Local Planning Areas or SELPAs. SELPAs, in turn, develop local plans to allocate funds. The actual per-pupil amounts for each SELPA vary based on historical factors.

Federal funds cover about a tenth of the cost of special education

Special education funding is a lightning rod for complaints. Local districts say it costs them too much. Parents and teachers worry that students don’t get the services they should. And policymakers struggle to even make sense of how the system works. There is widespread agreement that the system needs to be rebuilt, but not strong agreement about how to do it. When California reinvented school finance in 2014 with the Local Control Funding Formula (LCFF, explained in Lesson 8.5), reform of the special education funding system was omitted. It remains a categorical program. For more about special education, see Ed100 Lesson 2.7.

How does funding work for school facilities?

With nearly 6 million school children and tens of thousands of buildings, facility costs are a substantial and ongoing expense that school district and state officials must plan for.

The money associated with building and renovating school facilities comes from a combination of local and (sometimes) state sources. These capital funds and expenses involve debt and depreciation, so the accounting is kept separately from the operational funds used to run the schools. This topic is explained in Ed100 Lesson 5.9: School Facilities.

Special programs and partnerships

Both the state and federal governments from time to time provide financial incentives to encourage K-12 schools to take actions or participate in programs.

For example, as part of the fiscal stimulus measures enacted under the Obama administration, the federal government created the Investing in Innovation Fund, better known as the i3 grants. These awards provided temporary funding to school districts, charter schools and community-based organizations to test new ideas and demonstrate the value of new practices.

California officials perhaps took a page from the federal book when they set aside $250 million to encourage innovation in the area of career-technical education by creating the "California Career Pathways Trust." The program awarded grants to schools and community colleges to work in partnership with local business to create new technical programs and curriculum. The Low Performing Schools block grant directed $300 million to schools with low results, subject to an application process and two rounds of reporting. As of 2024 the program is no longer funded.

Emergency funds

Sometimes, California’s schools face special circumstances that require funding beyond what is allocated at the beginning of the fiscal year. When the federal government comes to the rescue, it does so by providing categorically-defined funds.

California's constitution requires a balanced budget. The federal government can take on debt, so it is far better equipped to expend large sums in an emergency. For example, the COVID-19 pandemic imposed dramatic temporary costs on California’s education system. The Coronavirus Aid, Recovery, and Economic Security (CARES) Act, passed in March of 2020, provided $30.75 billion to states for education. California increased education spending in 2020 in part by taking funds from other state programs. That strategy was only viable because Congress passed the American Rescue Plan, granting states the financial support they needed to respond to the calamity.

California schools feed all children

Food service is one of the oldest federal interventions in school systems. Meals are prepared or coordinated through schools, with the costs supported by a mix of federal, state and local funds. In 2022-23, California became the first state in the country to provide all students with free lunch. It does so with a mix of categorical funds from the federal government, the state, and local funds.

More exceptions to come

When the California legislature first established LCFF in 2013, it purged the system of many little categorical programs. The theme of the reform, after all, was local control. Over time, categorical exceptions began to creep back in. The most notable example is arts education, a categorical requirement that voters added to the state constitution in 2023. This page on the Department of Education website is a good source for information about exceptions to the Local Control Funding Formula.

Of course, none of these funds and programs are meaningful unless they ultimately benefit students, right? The next lesson examines how little we know about how funds are actually used.

This page was last updated in August 2024.