Most education funding in California is allocated to school districts based on the characteristics of the students enrolled. The system is known as the Local Control Funding Formula, or LCFF.

This lesson explains how LCFF works, how it came to be, and why it's important.

The golden rule: “Whoever has the gold makes the rules.”

Local control vs. state control

From 1978 through 2013, California's education finance system was very centralized, complicated, and unfair. Laws and policies set in Sacramento determined the amount of money each school district received, and significant portions of the money were earmarked for specific categorical purposes, almost like coupons. To prove their compliance with the terms of each categorical program, districts filed bushels of reports. In effect, California had a statewide system of state schools.

In 2013, as this lesson will explain, California dramatically decentralized the school finance system, aiming to create a statewide system of local school districts. The Local Control Funding Formula eliminated virtually all categorical programs. School districts were given far more power to make choices about how money is used.

Today, school districts have considerable control over money and how to spend it. (To be a little more technical, the state apportions funds to Local Education Agencies, a term that includes districts, county offices of education and charter schools. Insiders call them LEAs, pronounced as the letters, not like the name of a certain Jedi princess.)

LCFF provides funds based on student characteristics

The big idea of LCFF is that schools get money based on the needs of the students they are educating. Districts where there are many "higher need" students get more money to invest in those students. Here is how it works:

1. Base Funding: All districts receive a base grant for each student. The base grant is larger for grades 9-12 than for other grade levels.
2. Supplemental Funding: Districts receive 20% additional funding per student for students with high needs — specifically defined as learning English, in poverty, and/or in foster care.
3. Concentration Funding: Districts get additional money if more than 55% of children in the district qualify as having high needs. Specifically, the district receives an extra 50%* of the base grant for each high-need student beyond the 55% threshold. For example, a district where 60% of the students are in a high-need category receives 165% of the base for 5% of its students. (* Note: Beginning in 2022-23, the concentration grant was boosted from 50% to 65%.)

The end result is that districts receive very different levels of funding based on how many English language learners, children in poverty and children in foster care they have. Districts with higher needs receive more money to address them.

Under LCFF, the use of funds is substantially unrestricted, meaning that school districts have a lot of latitude, so long as they spend the supplemental and concentration funds in ways that follow the intent of the law. This was a big change. Now it is school districts that hold the gold, and make the rules.

Now it is school districts that hold the gold and make the rules.

LCFF accountability

Are districts actually following through on the intent of LCFF by investing more money in higher-need students?

Maybe not. A 2020 study of 14 districts by the Edunomics Lab found that only two of them spent money on high-need students in proportion to the additional money received.

In principle, school districts are accountable to their community for using LCFF funds as intended. A document known as the Local Control Accountability Plan (LCAP) is intended to provide transparency about the actual use of LCFF funds, but the accounting detail in the LCAP is minimal. Who enforces the use of funds under LCFF? In practice, it is up to community members to stand up for the intent of the law.

They don't have to do it alone, thankfully. Nonprofit law firms and advocacy groups like Public Advocates and ACLU have supported communities in this critical role, bringing cases against districts that have used LCFF targeted funds in untargeted ways. These cases are difficult. Standard public reports don't necessarily show where school district money is spent. Organizations have had to use Freedom of Information Act requests and the threat of litigation to obtain the detailed information required. It's a serious matter: in 2017 Los Angeles Unified settled such a case for $150 million.

In order to encourage local oversight, an important element of the Local Control Funding Formula is that school districts must engage parents and community to create a Local Control and Accountability Plan (LCAP). See Lesson 7.10 and the Ed100 LCAP Checklist for more information about how spending decisions are made.

The exceptions to LCFF

The financial transition to the LCFF system was unexpectedly rapid. Originally forecast to take seven years, the job was essentially done in three due to strong growth in California's tax receipts.

Education funding for virtually all school districts is determined by LCFF. There are only a few exceptions, generally known as Basic Aid districts, where locally-generated taxes are greater than the level guaranteed by the state.

The first step in filling a district's LCFF bucket is to pour in all the local property taxes. If those taxes fill the bucket halfway, state money is used to fill the other half of the bucket. If property taxes fill the bucket two-thirds of the way, state money fills the other third.

In perhaps as many as 100 school districts in California, the property taxes will fill or overflow the LCFF Funding Bucket. In those cases, the districts keep all their property taxes and get no LCFF money from the state. These are known as Basic Aid or Excess Tax districts.

Some funds are outside of LCFF

LCFF did not eliminate all categorical funds because some of them involve federal funding. The largest of these programs is Special Education, which has its own set of allocation rules and also requires the district to spend funds from its base allocation. Ed100 Lesson 8.6 explains more about the exceptions to the LCFF funding system.

Is LCFF Working?

In 2018 a major research project known as Getting Down to Facts II (GDTFII) examined a big, important question: How is LCFF working? The initial answer was encouraging. According to the researchers, "The data provide initial evidence that money targeted to districts with the greatest student needs has led to improvements in student outcomes."

One of the associated studies, provocatively titled Money and Freedom, found that additional funds apportioned through LCFF were put to work in ways that made a distinct, measurable difference:

The studies suggest considerable support for the funding formula's basic design, which directs more funding to districts where needs are greater. For example, one study for the GDTFII project surveyed Chief Business Officers, who oversee the deployment of funds in school districts. These officers generally expressed support and confidence for the changes brought about by LCFF, even in districts that did not get additional funds from the policy.

Of course, there is still plenty of room for improvement, according to the research. In particular, the report finds weakness in the central idea of local control through the reporting and public discussion system known as the Local Control Accountability Plan (LCAP). We examine the LCAP in Lesson 7.10.

Updated August, 2017 with new LCFF budget data.
Updated April, 2017 and September, 2017 to include litigation to enforce equity in use of LCFF funds.
Updated April, 2018 to reflect budget changes.
Updated Nov, 2018 to incorporate GDTFII research.
Updated December 2020.
Updated September 2022.