On November 16, 2020, the Legislative Analysts Office (LAO) released an update on the fiscal condition of school district budgets and spotlighted looming cost pressures. The report lands as Governor Newsom and the State Legislature are set to begin the process of developing the 2021-22 state budget. This non-partisan report was provided to members of the Legislature.

You can read the entire report here.

Key Findings

The report highlights that despite significant fiscal uncertainty for the state, school district budgets remained generally stable for 2020-21. The LAO says that was made possible by a state budget that generally avoided reductions to schools and provided relief through one-time federal funding and lower pension contribution rates.

However, the report goes on to highlight that these fiscal tools evaporate in future years, at a time when school districts will face a daunting double whammy: runaway pension and health care costs during a time of slowing school funding (driven by overall declining enrollment).

The LAO appropriately identifies future state funding as a key factor affecting how school districts will adapt to these cost pressures.

This report helps highlight some of the looming fiscal pressures for school agencies with an incoming Legislature. Newly elected Legislators will be sworn-in on December 7 and will face a complicated budget scenario.

What’s Next?

On Wednesday, the LAO is set to release their Fall fiscal outlook, which will provide the first non-partisan analysis of the economy and how that will affect the state’s fiscal condition. But most importantly, it will provide projections for school funding over the next several years. Governor Newsom is set to kick off this budgeting process with his budget proposal by January 10, 2021.

We will provide a full analysis of the LAO’s outlook later this week. In the meantime, this report is helpful from an advocacy perspective.