School funding rift growing

The property-wealthy districts have become magnets for teachers. They can offer salaries that are tens of thousands of dollars higher and smaller class sizes than in less competitive districts, many of which have a higher proportion of higher-needs students.

“We often assume that California has gotten past the issue of property wealth driving educational opportunity. But in fact, property wealth is still a significant predictor of the quality of education that a district can provide,” said Carrie Hahnel, a co-author of the report and a senior associate partner at Bellwether, a national nonprofit education consultancy. Bellwether and PACE, an education research center affiliated with five California universities, produced the report.

Training grounds for wealthy districts

That resource imbalance played out this summer when the Alum Rock Union Elementary District in East San Jose, which actually receives more state funding than many districts, closed or consolidated eight of its 22 schools because it was at risk of insolvency. It had put off closures while its 16,000-student enrollment in the early 2000s had dwindled to 7,300.

Two of the six principals who lost their jobs in Alum Rock are now principals in the Santa Clara Unified School District, earning between $50,000 and $60,000 more than at Alum Rock, said former Alum Rock Superintendent German Cerda.

Santa Clara Unified, whose coffers are fed by property taxes from Google, Apple and Intel campuses, along with the 49ers’ Levi’s Stadium, had per student funding of $22,709 in 2023-24. Alum Rock’s was $14,819 per student, 35% less — about $8,000.

The pay differences have left state-funded districts continually scrambling for qualified teachers, particularly for hard-to-find special education and middle school math and science teachers, said Juan Cruz, superintendent of Franklin-McKinley School District, a 5,500-student district in San Jose with mostly low-income, immigrant families.

“We train new teachers, they leave, and we start all over again,” he said.

At issue are 139, mainly small districts that currently generate more money from property taxes than they would otherwise receive in state funding. They’re called “basic aid districts,” a term tied to the adoption of the state Constitution, which guaranteed that the state would provide a minimum amount to all districts — originally a few hundred dollars per student.

Along with the minimum state aid, which is now thousands of dollars per student for some districts, basic aid districts retain the “excess” amount of their property taxes. Their higher funding level also exempts them from the Local Control Funding Formula, which disburses about 70% of TK-12 funding. LCFF steers more money to districts with the most English learners, low-income and foster children. Most basic aid districts have far fewer of these students, furthering funding inequalities.

Concentrated in the Bay Area

Much of the state is unaffected by the disparities. The study found that basic aid districts comprise 15% of districts but only 5.5% of the state’s students. They are in 32 of 58 counties, although they’re primarily in three Bay Area counties — Santa Clara, San Mateo and Marin; the Central Coast; and in rural eastern California, where districts with enrollments of a few dozen students also benefit from state Necessary Small School aid. And there are a few districts, like the 64-student McKittrick Elementary School District in Kern County, that benefit from sitting among high-value oil fields or rich agricultural lands.

Altogether, their per-student funding averages $4,000 more than Local Control Funding Formula-based districts, according to the new analysis, the first examination of basic aid districts since the passage of LCFF.

The basic aid districts received $1.3 billion in “excess” property taxes above what they would have gotten through LCFF in 2023-24. Some are barely basic aid, like the San Jose Unified School District, with only $36 extra per student, and Acalanes Union High School District in Contra Costa County, with only $71 more per student than under LCFF.

But a subset of 50 basic aid districts alone generates 87% of that total: $1.1 billion. The study refers to them as “excess advantage districts,” with, on average, far fewer students of need and per-student funding that’s at least $5,000 higher per student than the average LCFF districts. They also include communities with the priciest homes in California, like the Woodside Elementary School District ($33,278 per student) in San Mateo County and the Palo Alto Unified School District ($25,391 per student) in Santa Clara County.

“Despite serving just 2.5% of California’s total TK-12 student population, excess advantage districts’ financial power and demographic profile make them critical outliers, capable of outcompeting other districts, especially when it comes to educator compensation,” the study said. It found that the average teacher salary in these districts was $27,000 higher than the combined average in LCFF and other basic aid districts.

Alum Rock loses about 60 to 80 teachers each year, Cerda said. LCFF doesn’t include a regional cost adjustment, so many teachers also move out of state or to other, more affordable parts of California, as well as to basic aid districts. The district doesn’t track where they go, Cerda said.

“But if you want equitable outcomes for all students, you need highly qualified teachers, and a high turnover prevents that,” he said.

The LCFF and basic aid comparison doesn’t include other state funding steered to low-income districts — for community schools, learning-loss recovery and after-school programs. Nor does it include $2.4 billion in statewide federal Title I funding for low-income students or other federal programs, some of which face cutbacks.

At the same time, however, it also doesn’t include parcel taxes passed by primarily higher-income districts (producing an extra $16 million annually in Palo Alto) and school foundations’ fundraisers, which bring in hundreds of thousands of dollars in communities like Woodside.

What is clear from the study, though, is that the overall basic aid gap has grown and, unless addressed, will widen.

Unaddressed by courts and legislators

Funding school districts with property taxes has always produced wide disparities. That’s why the California Supreme Court, in the landmark decision Serrano v. Priest in 1971, declared that reliance on property taxes violated children’s constitutional right to equal access to an education. But in ordering corrective actions, the judges focused on raising funding levels of the underfunded districts, not capping or lowering the highest-funded districts.

And so, for the last 50 years, basic aid districts have been left alone. And that continued when former Gov. Jerry Brown championed LCFF as a bold reform to make funding fairer. Michael Kirst, a professor emeritus at Stanford University who was an architect of the funding formula and served as the president of the State Board of Education, mostly recently from 2011 to 2019, said Brown knew he would face stiff opposition from the basic aid districts and decided “it wasn’t worth the political costs of messing around with what was then 2 to 3 percent of the state’s enrollment,” he said. And, he said, basic aid was viewed as a Northern California dilemma, not a statewide problem.

LCFF redistributed, but did not increase, funding, and the Legislature passed it in the aftermath of the Great Recession, when total state per-student funding had fallen to the bottom of the nation. Through a temporary tax increase that state voters approved in 2012 and extended in 2016, LCFF funding per student has grown steadily since. California now ranks 26th nationally when adjusted for regional costs.

And yet it has fallen further behind the basic aid districts, particularly since the pandemic. According to the Bellwether and PACE study, while LCFF funding has increased 25% per student over the past five years, basic aid districts’ per student funding rose 41%. As a result, an EdSource analysis found that the funding gap between basic aid and LCFF districts in San Mateo County increased from $5,100 per student in 2020-21 to $7,500 in 2024-25.

Declining enrollment’s perverse impact

Along with rising property values, a primary reason that Kirst and advocates of LCFF didn’t foresee in 2012 is declining student enrollment and its diametrically opposite effects on LCFF districts.

A district’s LCFF funding is tied to student enrollment and attendance — how often enrolled students show up to school. From 2018-19 to 2024-25, enrollment had dropped 8.2%, about a half-million students, and is projected to continue falling precipitously over the next decade.

For LCFF districts, fewer kids mean less state funding. But for basic aid districts, fueled by property taxes regardless of enrollment, fewer kids means more revenue per student.

“For a basic aid district, from a financial point of view, declining enrollment is good,” said Todd Collins, a former Palo Alto Unified school board member.

The switch statewide from growth to decline has led Kirst to change his thinking about basic aid. “Declining enrollment is the key issue,” he said.

During his time on the school board, from 2026 to 2024, Collins observed the impact of Palo Alto’s competitive advantage.

“Our teacher turnover is lower than almost any other district; we finish our hiring months in advance of other districts,” he said. “We have these advantages because of our immense per-pupil funding. It also means that we draw (teachers and administrators) away from districts that have many, many more high-needs kids.”

Characterizing what he sees as a “runaway train,” Collins helped commission the study, along with other donors that include the Silicon Valley Education Foundation, the Walton Family Foundation, and Ken and Jaclyn Broad Family Fund.

“My main goal for this whole exercise is, you can’t solve any problem until you recognize there is a problem,” he said.

EdSource data journalist Daniel Willis contributed to this article. EdSource, an independent nonprofit organization founded in 1977, is dedicated to providing analysis on key education issues facing the state and nation. Go to edsource.org to learn more.