California’s 2026 budget and legislative session brought major changes affecting school finance, community schools, educator workforce investments, dual enrollment, charter oversight, software taxation, Proposition 28, and public contracting.

This overview highlights major changes local educational agencies (LEAs) should be aware of as they prepare for implementation. Unless otherwise specified, bills signed by the Governor take effect January 1, 2027.

Major Changes Enacted Through Education Budget Bills

The 2026 K-12 Education Budget Omnibus bill, AB 126, is a comprehensive budget trailer bill that implements new requirements across many areas of education. We summarize several of the major components below:

$5 billion discretionary block grant

The budget provided a $5 billion discretionary block grant to eligible LEAs, translating into roughly $935 per ADA. Funds are available for expenditure through June 30, 2032, and a final expenditure report will be required by September 30, 2032. Like last year’s $1.7 billion discretionary block grant, the funding is fully discretionary but this year’s grant does include new conditions for LEAs that receive funds:

• Districts and charters that are in declining enrollment, or are projected to be within the next five years, shall hold a public hearing on plans to address the impact of declining enrollment, including school closures or consolidations, and
• LEAs are prohibited from charging their employees fees for professional services, including induction and professional development costs

A follow-up budget trailer bill, SB 133, further clarified that the declining enrollment hearing must be in conjunction with a public hearing on the LEA’s local control accountability plan. SB 133 also adds to the list of things to be considered as part of an LEA’s plan to address declining enrollment to include attracting and retaining pupils, strengthening course offerings, new program opportunities, class size reduction, facilities management, and local revenue options.

Ongoing resources, new framework for Community Schools

A major priority for the Newsom Administration in its final year, the budget provides $1 billion in ongoing funding for the California Community Schools Partnership Program (CCSPP). Funding will be allocated to LEAs with eligible school sites, defined as schools with at least 65% unduplicated pupils and enrollment of 10 or more students, or schools currently receiving a CCSPP implementation grant. Funding amounts will vary based on school enrollment. Eligible LEAs had to notify the California Department of Education (CDE) of their intent to receive funding by November 1, 2026. The budget also extends funding for regional technical assistance centers through 2029–30 and requires the State Board of Education (SBE) to adopt an updated Community Schools Framework by January 2030. Additionally, a school site certification process must be implemented by October 1, 2031, with legislative intent to extend eligibility to nonclassroom-based charter schools once the certification process is established.

“Super COLA,” with Strings

As we discussed in our Human Resources update, the final budget included the adoption of a 4.31% COLA, 1.44% above the statutorily required adjustment of 2.87%, for the Local Control Funding Formula for school districts, county offices of education (COEs), and charter schools. AB 126 provides that the funding from the 1.44% augmentation is tied to covering the costs incurred by an LEA in providing up to 14 weeks of paid pregnancy disability leave for certificated and classified staff. That leave mandate takes effect January 1, 2027.

Differentiated Assistance

AB 126 streamlines the Statewide System of Support and shifts the differentiated assistance and direct technical assistance framework into a Universal and Targeted Assistance model in order to address the over-identification of LEAs. The budget revised the eligibility metrics for targeted assistance, and beginning with the 2026 Dashboard, and every 3 years after that, LEAs that meet the SBE’s new criteria get at least 3 years of technical assistance.

Educator Workforce

$408 million was appropriated for the Student Teacher Stipend Program to extend it through 2031-32 and increase stipends in high-need fields to $15,000 beginning July 1,

1. The high-need fields may include bilingual, computer science, math, science, technology and special education, as designated by the CTC. Additionally, $250 million was provided for residency grants along with $30 million in technical assistance support. The budget also provided $10 million for the Bilingual Teacher Pathway Program and $10 million for the Classified Employees Teacher Credentialing Program. $16.2 million in ongoing federal funds was also allocated to the Golden State Teacher Grant program for Special Education teacher applications, with an increase in those teacher grants to $20,000.

KIT (Kitchen Infrastructure and Training)

The budget agreement appropriated $500 million for a fourth round of KIT funding (KIT IV), which will be available for encumbrance until June 30, 2030. Eligible LEAs are school districts, COEs and charters that participate in both the School Breakfast Program and the National School Lunch Program. Allowable uses of KIT IV funds are:

• Kitchen equipment and infrastructure
• Food service staffing and training
• California-grown and plant-based food procurement
• School food pantries (new for KIT IV)
• Hands-on food education (new for KIT IV)

Necessary Small Schools

Beginning with the 2026-27 fiscal year, the budget provides a 20% augmentation, totaling $30.7 million, for the Necessary Small School Formula.

Dual Enrollment

AB 126 expands access to dual enrollment opportunities and provides $100 million in competitive grant funding for 2026–27, available for expenditure through June 30, 2032. The legislation authorizes regional occupational centers and programs (ROC/Ps) to operate middle college high schools, enter into College and Career Access Pathways (CCAP) agreements, and participate in dual enrollment grant programs. It also clarifies that courses offered through agreements with community colleges qualify as dual credit courses and may be reflected on both high school and college transcripts.

The legislation establishes the following grant opportunities:

• Up to $250,000 to establish a new middle college or early college high school program.
• Up to $100,000 to expand an existing middle college or early college high school program.
• Up to $100,000 to establish a CCAP agreement, with an additional $50,000 available to serve justice-involved youth in county facilities.

New funding priorities include having an unduplicated pupil percentage that is higher than the state average, applicants without an existing CCAP agreement, and applicants that have not previously received a dual enrollment grant. CDE must begin distributing funds by January 1, 2027 (the application window closed on October 30, 2026). As a condition of funding, LEAs must develop a plan for continued financial and administrative support of dual enrollment opportunities at schoolsites with coursework supported by the grant for at least three years after the end of the grant period.

Early Learning and Care

The State continues to support Pre-K and early learning with $200 million for Pre-K Planning and Implementation Grants for 2026-27.

Funding breaks down as follows: Base grants of $25K for LEAs with an enrollment of 1-500 kindergarten students, $50K for LEAs with 501 or more, plus $15K to the COE for each LEA in the county that operates kindergarten programs. The remainder will go out 60% as enrollment grants and 40% as supplemental grants based on unduplicated pupil percentage. Grantees must offer TK to all eligible pupils and full-day TK at every site with kindergarten, and funds must be spent by June 30, 2032.

$50 million was also appropriated for Universal Preschool Planning Grants for renewal grants or new consortium grants, with a required one-to-one funding match. AB 126 also extends the deadlines for spending existing funds to June 30, 2032.

Charter Oversight and Auditing

AB 126 includes many requirements for the oversight of charter schools and makes significant changes to the procedures covering auditing, contracting and charter oversight. The law requires charter authorizers, which are COEs and school districts, to review and approve correction plans of its approved charter’s audits and exceptions and to certify they have completed this task. It also expands the list of duties for the oversight of charter schools, as well as auditing of an authorizer to ensure those oversight requirements have been completed. Authorizers are encouraged to develop a system of documentation of oversight to be prepared when this part of the bill goes into effect in July 2027. Also, commencing with the 2027-28 fiscal year, a dependent charter’s financial information will now need to be presented separately in an audit from the district or county’s financial information.

The bill also includes new contracting provisions that all LEAs must follow, including approving a new policy by July 1, 2027. Among other provisions, the policy must include 1. A provision stating that LEAs shall not expend public funds for a contract unless the materials, programs, and actives are nonsectarian and comply with state and federal nondiscrimination laws, 2. Public funds shall not be

expended for a contract that pays tuition or fees at a private school, except as required as part of a student’s IEP, and 3. LEAs shall ensure contracts reflect a reasonable market value.

State Preschool Funding Shifted Into Proposition 98

As part of the 2026–27 State Budget, AB 109 shifted the remaining California State Preschool Program (CSPP) funding into Proposition 98, effective July 1, 2026. Previously, CSPP programs operated by LEAs were funded through Proposition 98, while programs operated by community-based organizations and other non-LEA providers were supported by non-Proposition 98 General Fund. This change shifts approximately $813 million in ongoing funding into Proposition 98. The shift does not, by itself, increase overall CSPP funding but changes the funding source and places the full program within the Proposition 98 guarantee.

Sales Tax on Prewritten Software Starts January 1, 2027

The 2026–27 state budget agreement included expanding sales tax to prewritten software and digital products, including downloaded software, subscription licenses, and cloud-based software (SaaS). Beginning January 1, 2027, software will generally be taxable regardless of how it is delivered or accessed. The new tax is expected to generate approximately $900 million in annual state general fund revenue and $1.1 billion in local sales tax revenue. The law does not provide a broad exemption for schools, nonprofits, or public agencies, meaning this change will almost certainly create new ongoing costs for LEAs.

The expansion will affect many commonly used education technology products, including student information systems, learning management platforms, assessment tools, financial and HR systems, and productivity software such as Microsoft 365 and Google Workspace. Certain products and services remain excluded, including qualifying custom-built software, separately charged professional services, and specified digital infrastructure.

LEAs should begin reviewing their software contracts, renewal schedules, and technology budgets to estimate the financial impact. Purchases subject to the new tax will generally incur the applicable state and local sales or use tax. Schools should also evaluate contracts spanning the January 1 implementation date, as the timing of payment, delivery, and software access may affect tax treatment under forthcoming regulations.

The California Department of Tax and Fee Administration (CDTFA) is developing implementation regulations that may clarify treatment of existing contracts, subscriptions, and mixed software-service agreements. In the meantime, LEAs should work with vendors to identify taxable costs, separately itemize eligible nontaxable services, and incorporate additional expenses into their 2026–27 and 2027–28 budgets. Additional guidance is available in CDTFA’s Digital Products Tax Guide.

New Law Brings Clarity and Flexibility to Proposition 28 Funds

After the passage of Prop 28 in 2022, it became clear to school leaders that the initiative, however well intentioned, was imperfect. Providing roughly $1 billion a year to arts education, implementation has been stymied by a lack of arts educators, ambiguity around how to interpret the supplement not supplant requirement, and, in certain cases, local allocations so small as to be essentially unusable.

AB 2440 (Muratsuchi, D-Torrance) brings reform to several of these provisions. Austin Beutner, chief architect and proponent of Prop 28, expressed early opposition to the bill in a strongly-worded letter to the author, though all parties reached a compromise on the final language that was signed into law. In addition to the changes detailed below, AB 2440 also requires school site expenditure plans and information about approved waivers be publicly posted, annual LEA reports be submitted by September 30, and beginning in 2027–28, LEAs must certify compliance with Prop 28 requirements at each school site.

Supplement not Supplant

AB 2440 establishes a clear methodology for demonstrating compliance with Prop 28’s supplement not supplant requirement. Previously, districts faced uncertainty over whether changes in arts education expenditures, including the expiration of grants, philanthropy, or other one-time funding, could result in audit findings that Prop 28 dollars had replaced existing resources.

Under AB 2440, LEAs will calculate a baseline of existing arts education expenditures using the prior year’s spending, excluding Prop 28 expenditures and resources that are no longer available. These may include expired grants, one-time state or federal funding, and private contributions. Newly available non-Prop 28 resources spent on arts education are then added to the baseline. An LEA satisfies the supplement-not-supplant requirement if its current-year arts education expenditures, excluding Prop 28 funds, meet or exceed that adjusted baseline. This approach should provide districts with a clearer standard for compliance, while maintaining the spirit of the original language.

Pooled Funds

AB 2440 authorizes the pooling of Prop 28 funds across school sites, providing greater flexibility to share arts educators and coordinate programming. This is particularly significant for smaller schools and districts where individual allocations may be insufficient to support a dedicated arts educator or comprehensive program.

Importantly, the new authority does not permit districts to redirect one school’s allocation to another. Funds must still be allocated to individual school sites under the existing Prop 28 formula, and expenditures attributable to each site must remain proportional to its allocation and consistent with its principal’s or program director’s expenditure plan.

Arts Education Programming

AB 2440 also expands allowable uses of Prop 28 funding by including curriculum, instructional materials, and professional development within the definition of arts education programs. These

expenditures add to current allowable uses, including instruction, training, supplies, materials, and arts education partnerships.

The bill also requires funded programming to be consistent, as applicable, with California’s Arts Standards, Arts Education Framework, or Preschool/Transitional Kindergarten Learning Foundations. These changes provide greater clarity for districts seeking to build or expand sustainable arts education programs while maintaining expectations for instructional quality.

School Finance Bills Signed Into Law

Attendance Accounting

• SB 959 (Grayson) – Average daily attendance: emergencies: major safety hazard.This bill, an urgency measure, authorizes a local fire agency to determine the imminence of a major safety hazard for purposes of holding an LEA’s average daily attendance (ADA) harmless for state funding purposes.

  Chapter 773, Statutes of 2026

Budget Bills

• AB 112 (Gabriel) – Budget Acts of 2022, 2023, 2024, and 2025.This bill amends previous budget acts to conform to actions taken in the 2026 budget package. This bill declares that it is to take effect immediately as a Budget Bill. Among other things, the bill includes $4.2 billion for Medi-Cal and reappropriation of $8 million in prior year funds for administrative costs tied to a housing and homeless support program.

  Chapter 22, Statutes of 2026

• AB 113 (Gabriel) – Budget Act of 2026.The Budget Bill Jr. of 2026, this bill amends the 2026 budget package. Among (many) other things, the bill clarifies allowable uses of the federal adult education funds, appropriates $15 million one-time for LEAs to provide one free meal per day to children during intersession periods of less than 10 days, and appropriates $2 million one-time to support youth sports coaching.

  Chapter 248, Statutes of 2026

• AB 126 (Committee on Budget) Education finance: education omnibus trailer bill.AB 126 contained the major education budget and policy changes that were part of the 2026-27 budget act, including major charter school accountability reform, the $5 billion discretionary block grant, $1 billion ongoing for Community Schools, and up to 14 weeks of paid pregnancy leave. This bill may require LEAs to update their board policies dealing with contracted services.

  Important Dates:

  • July 1, 2027 – Board policy that is compliant with new contractor requirements due must be in place.
  • July 1, 2027 – New oversight requirements for chartering authorities begin.
  • By July 1, 2027 – Teachers employed by an LEA and offering a course in which pupils receive credit, or that counts towards instructional minutes, or both, must hold the certificate, permit, or other document required by the Commission on Teacher Credentialing for that assignment, and they will be monitored.

  Chapter 65, Statutes of 2026

• AB 150 (Committee on Budget) – Early care and education.AB 150 is the Early Childhood Education Omnibus Trailer Bill, with all provisions for the 2026-27 Budget Act in child care and development programs administered by the Department of Social Services (CDSS), and state preschool program administered by CDE. We describe the major provisions in the Early Learning Changes in Law.

  Chapter 25, Statutes of 2026

• AB 167 (Committee on Budget) – Higher education budget trailer bill.This bill makes several changes related to higher education necessary to enact the 2026 budget. Among other things, this bill clarifies how enrollment growth is calculated for community college funding, corrects the academic years for which CalGrant eligibly expands to cover individuals up to age 30 from 2027-2032, and authorizes an additional round of student housing projects.

  Chapter 251, Statutes of 2026

• AB 190 (Committee on Budget) – Early care and education.This bill makes several changes related to early care and education necessary to enact the 2026 budget. Changes, which are detailed in the Early Learning Changes in Law document, include clarification of new provisions for CSPP income eligibility requirements and paid staff training days.

  Chapter 257, Statutes of 2026

• SB 111 (Laird) – Budget Act of 2026.This bill amended the Budget Act of 2026 by amending, adding, and repealing items of appropriation and making other changes. This bill contained the $1 billion annual investment in Community Schools, established and funded the Office of Superintendent of Public Instruction, and set the ELOP Tier II rate to no less than $1,800.

  Chapter 21, Statutes of 2026

• SB 114 (Laird) – Budget Acts of 2022, 2023, 2024, and 2025.This is a Budget Bill Junior associated with the Budget Acts of 2022, 2023, 2024 and 2025. This bill makes technical and substantive changes to the Budget Acts.

  Chapter 249, Statutes of 2026

• SB 122 (Committee on Budget and Fiscal Review) – Taxation.This bill is a revenue trailer bill for 2026-27. Notably for schools, as described above, this bill contains an extension of sales and use tax on prewritten software, commencing January 1, 2027, which is estimated to increase General Fund revenues by $450 million in 2026-27 and by $900 million annually thereafter.

  Chapter 23, Statutes of 2026

• SB 133 (Committee on Budget and Fiscal Review) – Education finance: education omnibus trailer bill.This bill is the TK-12 “clean up” measure of the 2026-27 state education budget, which we reported on once it was in print. The bill makes changes to early learning grants, community schools, career education and dual enrollment programs, among others.

  Chapter 250, Statutes of 2026

• SB 135 (Committee on Budget and Fiscal Review) – Higher education budget trailer bill.Existing law establishes the California Cradle-to-Career Data System to be a source for actionable data and research on education, economic, and health outcomes for individuals, families, and communities, and to provide for expanded access to tools and services that support the navigation of the education-to-employment pipeline. Existing law defines “data providers” as the entities that submit the individual, educational, academic, training, employment, social service, health, and other information used to create the data system. This bill requires the data providers, and requests the University of California to enter into memoranda of understanding for data sharing purposes for implementation of the data system.

  Chapter 79, Statutes of 2026

Public Contracts

• AB 1198 (Haney) – Public works: prevailing wages.This bill, beginning July 1, 2027, applies semiannual prevailing wage rate changes to school public works contracts valued at $35 million or more if the contract is awarded or advertised for bids after that date. An affected school employer, contractor, or specified representative can petition the Department of Industrial Relations to review a rate determination within 20 days, and the department would generally have 20 days after the petition is filed to issue a final decision.

  Important Dates:

  • July 1, 2027 – New prevailing wage requirements apply to specified public works contracts awarded or advertised after this date.

  Chapter 513, Statutes of 2026

• AB 1838 (Berman) – Public contracts: local agencies: responsive bidders.This bill requires contractors bidding on public works contracts to disclose any final wage and hour violations from the past five years and provide documentation showing how those violations were resolved. The bill permits a local agency to disqualify a bid for missing disclosures but would have to

  give the contractor written notice and an opportunity to appeal. The requirements do not apply to contracts covered by a project labor agreement or to projects that already require comparable disclosures through contractor prequalification.

  Chapter 551, Statutes of 2026

School Finance

• AB 2440 (Muratsuchi) – Arts and Music in Schools—Funding Guarantee and Accountability Act: allowable uses: pooled funding: certifications.This bill makes several changes to Proposition 28, which voters passed in 2022, described in detail above. The bill, among other things, establishes clear guidance on following the supplement-versus-supplant requirement, allows pooling of school allocations, and clarifies allowable uses and alignment with state arts standards and frameworks. This bill may require LEAs to update their board policies on arts education.

  Important Dates:

  • Beginning 2027-28 school year – LEAs must certify that all provisions of this of Prop 28 have been implemented property at each of its schoolsite.
  • September 30, annually – Board approved report detailing how Prop 28 funds were used.

  Chapter 606, Statutes of 2026

• AB 2640 (Hadwick) – Commission on State Mandates: state mandates.AB 2640 allows local agencies to offset mandate repayments resulting from State Controller audits against unpaid mandate reimbursements it is owed by the state, meaning an agency could reduce its outstanding reimbursement balance instead of returning the funds to the state.

  Chapter 307, Statutes of 2026

Source: Capitol Advisors Group, School Finance: Changes in Law 2026, November 2026.