California’s two largest education advocacy groups have taken the state to court over $3.9 billion in public school funding that Governor Gavin Newsom’s administration has held back from districts, arguing the delay is not just painful but illegal. The California Teachers Association filed suit on Sept. 15, and the California School Boards Association followed with its own lawsuit a week later on Sept. 22, both targeting money guaranteed under Proposition 98, the 1988 voter-approved formula that sets aside roughly 40 percent of California’s general fund for K-12 schools and community colleges.
Two Lawsuits, One Target
According to The Mercury News, both lawsuits name Department of Finance Director Joe Stephenshaw and State Controller Malia Cohen as defendants, since their offices control how Proposition 98 money actually gets distributed to districts. Newsom himself is not named as a defendant in either case, though the California Teachers Association’s complaint centers on his administration’s decision-making. As reported by USA Today, the CTA argues that Newsom and the Legislature illegally withheld $3.9 billion meant for TK-12 schools and community colleges in the 2026-27 budget, and its suit asks a judge to force the state to pay that money now and bar similar withholding in the future.
The California Federation of Teachers, which represents more than 120,000 educational employees, announced it had joined the CTA’s case. The federation is seeking to recover both the $3.9 billion withheld under the budget approved in July and an additional $1.9 billion held back during the 2024-25 school year. Federation president Jeff Freitas said the funding fight has immediate consequences in classrooms, framing it as a matter of priorities: students, he said, deserve a state that invests in their future rather than balancing the budget on their backs.
School Boards File Their Own Case
The California School Boards Association, which represents nearly every school district and county office of education in the state, filed its separate lawsuit on Sept. 22, according to CSBA. The group contends the withholding violates the state Constitution’s minimum funding requirement for public schools and community colleges, and it isn’t the group’s first fight over this issue: CSBA previously sued state leaders in 2024 over Newsom’s proposal to withhold $8.8 billion in education funds. CSBA CEO Vernon Billy said Proposition 98 funds should not be gratuitously raided by the state, according to a report from KALW.
A Bay Area coalition had called on state officials to reject Newsom’s plan to withhold billions in education funding before the lawsuits were filed, per the Mercury News. Both education groups are now asking courts to safeguard Proposition 98 funds against future withholding attempts, not just resolve the current dispute.
How the Withholding Shrank From $5.6 Billion to $3.9 Billion
The dispute traces back to Newsom’s January budget proposal, which called for withholding $5.6 billion. He reduced that figure to $3.9 billion in his May revision, according to EdSource. The state’s Legislature ultimately deferred $3.9 billion in Proposition 98 payments in its July budget, though that same budget included $1.9 billion to cover what schools were still owed from the 2024-25 school year, per the same account. The projected Proposition 98 guarantee for 2026-27 stood at a record $127.1 billion, making the withheld sum a small but consequential slice of overall school funding.
The state has defended the delay as a matter of fiscal caution. Newsom said deferring 2025-26 funding was necessary to create a budget cushion amid uncertain revenue projections, and the Department of Finance has said California doesn’t immediately know the finalized amount owed under Proposition 98 when it prepares its budget, since the guarantee is calculated through a formula tied to prior-year school funding. The department said the deferral, sometimes called a settle-up maneuver, is intended to mitigate the risk of potentially appropriating more resources than the state ultimately owes, according to the Sacramento Bee. Officials have pointed to income tax revenue collections that came in below projections in fiscal year 2024-25, and have argued schools actually received more money than they should have that year. The department has also disputed claims that the settle-up maneuver causes school layoffs, saying districts should not base long-term expenses like salaries on fluctuating funding.
Layoffs Mount as Districts Wait
Education groups counter that the uncertainty is already reshaping classrooms. More than 2,400 preliminary layoff notices have gone out for teaching positions represented by the California Teachers Association, and the union has said that number could grow in the days following its initial count, per a CTA press release. Separately, more than 3,300 layoff notices have been sent to classified positions represented by the California School Employees Association, the union’s reporting shows. CTA’s president has said the funding instability has caused layoffs and some of the largest class sizes in the country, as reported by KALW.
The financial strain varies widely by district. The CTA has estimated Los Angeles Unified could lose more than $221 million because of the withholding, while San Francisco Unified was short $24 million this year, according to a school board official cited by KALW. Sacramento City Unified, which carries a structural deficit of $222 million, has built its long-term financial plan around receiving $22.7 million in each of the 2027-28 and 2028-29 school years from the withheld funds — money that has yet to arrive.
What Happens Next
The state has not given districts a specific timeframe for paying back the $3.9 billion, though Newsom has indicated repayment would follow once projected revenue is collected in early 2027, per USA Today. It would not be the first time California has had to unwind a Proposition 98 miscalculation: in 2022-23, the Legislature overestimated Prop. 98 revenues by about $8 billion amid delayed tax filings related to that winter’s storms and flooding, with estimates made before the state had full data on the storms’ impact, but chose to borrow against future revenues rather than cut school funding outright. A 2019 settlement resolving three earlier lawsuits over similar disputes provided for repayment of $686 million in prior-year underpayments to schools and community colleges, according to CSBA. Whether the current fight ends the same way, or drags through the courts, remains to be seen.
