California’s public schools were spared in the state’s 2025 budget, but that doesn’t mean the state’s school districts should breathe a sigh of relief. The final state budget, approved by lawmakers, aimed to close the $46.8 billion state deficit but left public school dollars unscathed—for now.
“This budget remarkably insulates K-14 funding from cuts, abides by constitutional requirements to restore funding in the future, and even provides a modest cost-of-living increase, all amid a record budget shortfall,” said Kevin Gordon, president of Capitol Advisors Group, a consultancy company.
However, California’s state budget crunch shows no signs of abating. And with public school enrollment projected to drop nearly 16% by 2031-32, the fiscal outlook for many public school districts is bleak, despite record funding boosted by COVID relief funding in recent years.
A new Reason Foundation study shows how state policymakers can adapt and better use K-12 dollars. The report examined two California hold-harmless funding policies that provide extra funding to schools based on outdated enrollment numbers and factors unrelated to students.
First, it looked at how California calculates education funding for school districts. States like Texas, Indiana, Arizona, and others divvy up state education dollars based on the number of students currently in their schools. But California lets school districts choose the highest number of the current year’s enrollment, the prior year’s enrollment number, or the average number of students in its schools over the three most recent prior years. This results in taxpayers sending money to public schools for “ghost students”— kids who are no longer in classrooms but still generating funding for schools.
Hold harmless policies are supposed to make public school budgets more predictable, but they also have steep price tags. Statewide, Reason Foundation finds California taxpayers sent public schools $4 billion for 401,000 ghost students in 2022-23. Over 6% of the state’s total K-12 formula aid was allocated based on ghost students—a large share considering this is more than half of what’s spent on grants for disadvantaged kids, a supposed priority under the state’s Local Control Funding Formula (LCFF).
Most of California’s school districts received funding for ghost students, with over 300 districts getting at least $1,000 per student. Top recipients of taxpayer money for students no longer in their schools included San Diego Unified ($90.9 million), Long Beach Unified ($73.8 million), and Santa Ana Unified ($59.3 million), which each had thousands of ghost students.
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