AMENDED IN ASSEMBLY JULY 7, 2025

AMENDED IN SENATE MAY 29, 2025

AMENDED IN SENATE MARCH 26, 2025

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

96

Introduced by Senator Cortese

February 21, 2025

An act to add Section 42253 to the Education Code, relating to education finance.

Vote: majority   Appropriation: no   Fiscal committee: yes   Local program: no

LEGISLATIVE COUNSEL’S DIGEST

Existing law establishes a public school financing system that requires state funding for county superintendents of schools, school districts, and charter schools to be calculated pursuant to a local control funding formula (LCFF), as specified. Under existing law, school districts that receive local revenues that exceed the LCFF amount do not receive a specified apportionment of LCFF funds, as provided, and are known as “basic aid school districts” or “excess tax entities.”

The Classroom Instructional Improvement and Accountability Act, an initiative approved by the voters as Proposition 98 at the November 8, 1988, statewide general election, amended the California Constitution to, among other things, set forth a formula for computing the minimum amount of revenues that the state is required to appropriate for the support of school districts and community college districts in any given fiscal year.

The California Constitution creates the Public School System Stabilization Account in the General Fund and requires the Controller to transfer, pursuant to a schedule provided by the Director of Finance, a specified amount from the General Fund to the account in each fiscal year, except as provided.

The California Constitution generally prohibits the total annual appropriations subject to limitation of the state and each local government from exceeding the appropriations limit of the entity of government for the prior fiscal year, adjusted for the change in the cost of living and the change in population. The California Constitution defines “appropriations subject to limitation” for these purposes.

This bill would establish the Equalization Reserve Account in the General Fund. The bill would require interest earned on funds in the account to be available, upon appropriation by the Legislature, to increase per-pupil funding in non-basic aid school districts, defined as school districts that received the above-described apportionment of LCFF funds in any of the then preceding 3 fiscal years, in a manner prescribed by the Legislature. The bill would require the Controller, in any fiscal year in which there is an increase over the preceding fiscal year in the minimum amount of revenues the state is required to appropriate for the support of school districts and community college districts, to transfer from the General Fund to the Equalization Reserve Account an amount equal to the total amount transferred from the General Fund to the Public School System Stabilization Account in that fiscal year, as provided.

These provisions would become operative only if a constitutional amendment, approved by the voters, (1) excludes funds transferred to or allocated from the account from computations of the minimum amount of revenues that the state is required to appropriate for the support of school districts and community college districts, from the moneys allocated for purposes of meeting that minimum funding obligation, and from the total annual state appropriations subject to the limitation described above, and (2) requires the Legislature, in each fiscal year in which funds are transferred to the Equalization Reserve Account, year, to allocate a percentage of funds the interest that has been deposited in the account to increase per-pupil funding in non-basic aid school districts.

The people of the State of California do enact as follows:

SECTION 1.

Section 42253 is added to the Education Code, immediately following Section 42252 42252.1, to read:

42253.

(a) The Equalization Reserve Account is hereby established in the General Fund.

(b) (1) Funds Interest earned on funds in the Equalization Reserve Account shall be available, upon appropriation by the Legislature, for the support of non-basic aid school districts. Funds These funds shall be allocated from the account to increase per-pupil funding in non-basic aid school districts in a manner prescribed by the Legislature.

(2) It is the intent of the Legislature in proposing this section to establish a dedicated source of state funding to close the gaps in per-pupil spending among school districts without reducing the amount of state funding that any school district receives.

(c) (1) (A) Except as provided in subparagraph (B), in any fiscal year in which there is an increase over the preceding fiscal year in the moneys to be applied by the state for support of the public school system and public institutions of higher education pursuant to Section 8 of Article XVI of the California Constitution, the Controller shall transfer from the General Fund to the Equalization Reserve Account an amount equal to the total amount transferred pursuant to subdivision (b) of Section 21 of Article XVI of the California Constitution for that fiscal year. The calculation of this amount shall include all reductions, suspensions, and other adjustments pursuant to any other provision of Section 21 of Article XVI of the California Constitution, or paragraph (3) of subdivision (a) of Section 22 of Article XVI of the California Constitution.

(B) If Section 21 of Article XVI of the California Constitution is amended after January 1, 2025, in any fiscal year in which there is an increase over the preceding fiscal year in the moneys to be applied by the state for support of the public school system and public institutions of higher education pursuant to Section 8 of Article XVI of the California Constitution, the Controller shall, instead of the amount prescribed in subparagraph (A), transfer from the General Fund to the Equalization Reserve Account an amount equal to the total amount that would have been transferred pursuant to subdivision (b) of Section 21 of Article XVI of the California Constitution for that fiscal year, had Section 21 of Article XVI of the California Constitution not been amended. The calculation of this amount shall include all reductions, suspensions, and other adjustments that would have been made pursuant to any other provision of Section 21 of Article XVI of the California Constitution, as it read on January 1, 2025, or paragraph (3) of subdivision (a) of Section 22 of Article XVI of the California Constitution, as it read on January 1, 2025.

(2) Interest earned on funds in the Equalization Reserve Account shall be deposited in the account.

(d) For purposes of this section, “non-basic aid school district” means a school district that, in any of the then preceding three fiscal years, received an apportionment of state funds pursuant to Section 42238.02.

(e) This section shall become operative only if a constitutional amendment, approved by the voters, includes both of the following conditions:

(1) The exclusion of funds transferred to or allocated from the Equalization Reserve Account pursuant to this section from both of the following designations:

(A) “Moneys to be applied by the State for the support of school districts and community college districts,” as that phrase is used in Section 8 of Article XVI of the California Constitution.

(B) “Total annual appropriations subject to limitation” of each entity of government, as that phrase is used in Article XIIIB of the California Constitution.

(2) A requirement that the Legislature allocate, in each fiscal year in which funds are transferred to the Equalization Reserve Account pursuant to paragraph (1) of subdivision (c), year, a percentage of funds the interest that has been deposited in the account to increase per-pupil funding in non-basic aid school districts.