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California Teachers Association plans to file a lawsuit against the state Tuesday over its decision to withhold Proposition 98 funding from schools in the 2024-25 and 2025-26 school years.
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The lawsuit follows the Legislature’s July approval of a revised state budget that deferred $3.9 billion in Prop. 98 payments, which has drawn criticism from education groups and districts across California.
“California Teachers Association filed a lawsuit against the withholding of nearly $6 billion in constitutionally-guaranteed Prop. 98 funding from California Public schools in the 2025-2026 and 2024-25 school years,” said the union’s planned media advisory.
“These funds were guaranteed to public schools through Proposition 98, enshrined in the California constitution for nearly 40 years.”
As California school districts face mounting pressure from declining enrollment and rising costs, many have built their budgets around expected state funding, making the delayed Prop. 98 money especially consequential.
Sacramento City Unified is among the districts that have opposed the deferral as it grapples with one of the state’s most severe fiscal crises, with a structural deficit of $222 million. The district’s latest long-term plan to avoid insolvency assumes it will receive $22.7 million in each of the 2027-28 and 2028-29 school years.
Other financially strained districts, including Los Angeles Unified, have also made staffing cuts amid budget shortfalls, laying off hundreds of employees.
In May, the union criticized Gov. Gavin Newsom’s budget was unconstitutional, warning that withholding the money would further destabilize schools as thousands of educators throughout the state faced layoffs.
“These are public school educators who have devoted their entire career to educating California students, and their future is in jeopardy with threats to withhold vital funds from our local school districts,” said David Goldberg, president of CTA, in a statement at the time.
“California is the fourth largest economy in the world. Our schools should reflect that dominance – there is no reason for public school educators to be facing layoffs.”
While the lawsuit targets withheld payments for both the 2024-25 and 2025-26 school years, the state’s July budget included $1.9 billion to cover what schools were owed for 2024-25.
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The union will hold a press conference at 10 a.m., according to the advisory. The lawsuit will be filed Tuesday morning, Rachel Warino, a spokesperson for the union confirmed.
Why the state delayed the money
Prop. 98 establishes the minimum amount of funding California must provide to K-12 schools and community colleges each year, based largely on state revenues and student enrollment.
The dispute centers on the fact that the state does not immediately know the final amount owed under Prop. 98 when it prepares the budget. State officials say some tax revenue is collected after the fiscal year ends, which is why it does not expect to certify the final amount until the following spring.
John Affeldt, an attorney at Public Advocates, said the current law does not clearly establish when the state must finalize the Prop. 98 amount.
“Does the governor have the flexibility to wait and see what the final number is, or do they need to set the amount based on best projections at the time the budget’s adopted? — it’s a bit of a gray area,” Affeldt said.
Kenneth Kapphahn, a Legislative Analyst’s Office analyst, explained that while the state has faced several lawsuits over its Prop. 98 calculations, “none of the rulings directly addressed any controversies that are directly comparable to the one this year” involving the $3.9 billion.
The state’s caution stems from a law that prevents California from reducing school funding after a fiscal year ends. If it overestimates revenue and provides too much Prop. 98 funding, it must make cuts elsewhere in the state budget, said H.D. Palmer, a Department of Finance spokesperson.
Palmer pointed to fiscal year 2022-23, when delayed tax filings led the state to overestimate the revenue available for school funding by about $8 billion.
“There is an increased amount of uncertainty in revenues for 2026-27, as federal policies have made economic projections substantially more complex,” Palmer wrote in an email.
“This is intended to mitigate the risk of potentially appropriating more resources to the Guarantee than are ultimately available in the final calculation for 2025-26 – which is what happened three fiscal years ago.”
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