School districts across the Bay Area are facing financial crises, with many turning to school closures, widespread layoffs or both in an effort to plug multimillion-dollar budget holes.
Last month, Franklin-McKinley School District in San Jose became the latest to announce school closures and layoffs when the school board voted to close three schools in an attempt to repair a $22.9 million budget shortfall.
Franklin-McKinley isn’t alone. Alum Rock Union in East San Jose announced plans to close and consolidate schools to tackle its $20 million budget deficit. Oakland Unified and San Francisco Unified — which are facing $95 million and $113 million budget deficits, respectively — have also considered closing schools.
Oakland, Hayward Unified, Fremont Unified, Dublin Unified and West Contra Costa Unified are considering layoffs or job reductions to tackle budget shortfalls. More are struggling.
While the shift in district finances might seem sudden, Kenneth Kapphahn, from the Legislative Analyst’s Office — a nonpartisan state agency that advises the California Legislature — said the crisis has been brewing for some time.
“It’s reflecting trends that have been underway for a number of years,” Kapphahn said. “We wouldn’t say that the school system overall is in a statewide financial crisis, but districts are facing some significant financial challenges … and a few of those challenges are more acute in the Bay Area than other parts of the state.”
Here’s how Bay Area schools got to this breaking point and what’s being done to address it.
Q: Why is this happening now?
A: The Fiscal Crisis and Management Assistance Team (FCMAT) — a state agency that helps California schools resolve financial and operational issues — identified several factors negatively impacting district budgets, ranging from inflation and higher operating costs to uncertain federal policy and funding changes. Students enrolling in private school or being homeschooled is also a factor, Kapphahn said, but not as significant. The biggest impact comes from declining enrollment, which has been trending downward for several years due to a drop in birthrates and families fleeing higher-cost areas but was accelerated by the COVID-19 pandemic. Fewer students means districts receive less money from the state, FCMAT’s chief executive officer, Mike Fine, said. But it should also mean fewer staff and fewer facilities so schools can balance their budgets, he added — actions many schools were able to avoid temporarily thanks to one-time, temporary pandemic-relief funding. Those funds expired in September and now school districts are scrambling to make necessary cuts.
But cutting staff and facilities isn’t an easy decision and can disproportionately impact families in lower-income areas, Franklin-McKinley parents and staff pointed out recently.
Kapphahn said declining enrollment has hit the Bay Area particularly hard, as families leave more expensive urban and coastal areas and shift inland.
Total enrollment in California public schools has dropped by about 360,000 students — about 6% — in the past five years. But in the Bay Area, the declines have been larger, with a 7.5% drop in Alameda County, 9% drop in San Francisco County, 11% drop in San Mateo County and more than a 12% drop in Santa Clara County.
Q: Is this something other states are facing?
A: California is one of seven states that fund schools based on average daily attendance — the average number of students in class every day throughout the school year — rather than on student enrollment counts. Other states fund schools primarily through local property taxes, which are a funding source in California but not as significant after the introduction of Proposition 13.
Fine said Proposition 13 — which limits property taxes and reassessments — shifted the funding responsibility back to the state.
“It did create some of the volatility that we have in the education funding system and we still have today,” Fine said. But while Proposition 13 plays a role in schools’ financial struggles, it is not the main reason schools are facing multimillion-dollar budget deficits, he said.
Q: How many schools are being impacted?
A: The FCMAT categorizes school districts’ budgets into three tiers: positive, meaning districts can meet their financial obligations, qualified, meaning districts are at risk of not being able to meet their obligations, and negative, meaning districts will be unable to meet their obligations without significant intervention. Out of the 937 school districts in the state, 32 fall under the qualified category — including seven Bay Area districts — and seven fall under the negative category, including three Bay Area districts: Hayward, San Francisco and Oakland. The number of negative districts is concerning, Fine said.
“In the last decade … I don’t think we’ve hit seven before,” he said. “We’re usually in the two-four range.”
Q: What happens when a school runs out of money?
A: The state steps in and provides an emergency loan, Kapphahn said. But that loan comes with “significant consequences,” he added. The local school board loses all legal authority and the state makes decisions until the district is able to regain financial stability. Fine said state loans typically last about 20 years and some districts struggle to recover completely. He said that in the last 30 years, 10 districts have been forced to resort to state control. West Contra Costa Unified School District became the first district to become insolvent about 26 years ago and Oakland Unified also turned to state control in 2003. Both districts still face financial hardship.
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Q: What does the future look like?
A: Kapphahn said the LAO is monitoring any changes coming from the Trump administration. Currently California receives about $8 billion in federal funds for K-12 public schools.
Gov. Gavin Newsom is considering adding a $1.8 billion one-time grant to schools to the state budget, which would provide temporary financial relief to school districts — about $323 per student.
The state is also considering a switch to enrollment-based funding for schools. But that won’t change the fact that there are fewer children in California classrooms.
“(Districts) have to make difficult decisions. There’s just no question about it,” Fine said. “This is the norm. You can call it the new norm if you want, but in my mind, it’s just the norm.”
