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Categorical Aid

Last updated September 23, 2013

    Please note: California's new Local Control Funding Formula (LCFF), which was signed into law on July 1, 2013, significantly alters how the state funds its public schools and will eliminate most of the state's categorical programs. However this article explains the system as it worked through the 2012-13 school year. To learn more about the new funding system, see, Understanding the Local Control Funding Formula.


    Categorical aid is money from the state and federal governments targeted to particular programs, such as K-3 Class Size Reduction, and to students with special needs, such as Special Education, which is the largest state categorical program and a significant federal categorical. Categorical aid usually comes with restrictions on how the money can be spent. Title I (extra support for students who live in poverty) and Child Nutrition (school breakfast and lunch) are among the largest ongoing federal programs.

    State Categorical Funding Changed Significantly in 2008-09

    Traditionally, about one-third of total K-12 education funding has come from state and federal categorical programs. The money is granted according to a variety of formulas, often tied to districts’ student demographics. Sometimes programs require a local match, and some are competitively awarded. With differing student populations and abilities to compete for funds, districts vary substantially in the amount of categorical funding they receive and the percentage of their total revenues that funding represents.

    In February 2009, to help districts deal with deep budget cuts, lawmakers made substantial changes to many of the state’s categorical programs, allowing districts flexibility to use funds from about 40 state categorical programs for other educational purposes. The flexibility was subsequently extended to 2014-15 by Senate Bill 70, Chapter 7/Statutes of 2011. These newly flexible programs totaled about $4.5 billion statewide in 2009-10 (nearly 20% lower than their 2008-09 funding level). Prior to implementing this new flexibility, a school district or county office of education (COE) was required to discuss proposed changes to its use of categorical funds at a public hearing.

    Lawmakers retained the categorical requirements for about 20 other programs, some big and some small. These non-flexible programs include programs such as Special Education, Child Care and Development, Economic Impact Aid, Child Nutrition, and the after-school programs created by Proposition 49 as well as Student Assessment, English Learner Student Assistance, and Foster Youth Services.

    Implications for Ed-Data's Financial Reports
    For the now-flexible state categorical programs, use of the funds is unrestricted and no longer needs to be tracked under the previous program codes.

    Since the change occurred mid-year in 2008-09, the state allowed school districts and county offices to decide whether to continue reporting the funds under the categorical program or to report them as unrestricted for the entire year. Some districts reported them under the categorical program for part of the year and as unrestricted funds for the remainder. As a result, accounting for these funds in 2008-09 was complicated and inconsistent.

    Starting in 2009-10, all flexible funds were to be reported as unrestricted. However, some districts continued to report their revenues and expenditures in the original restricted categories. In 2010-11, a few districts and counties still reported some funds under the flexible categorical programs.

    Therefore data including flexible funds may not be comparable with prior years or other school districts or county offices. Statewide averages including flexible funds are skewed.

    The Largest State Programs

    Categorical programs range from very big to very small. (See a list of state and federal categorical programs for 2011-12.)

    The largest state program, by far, is Special Education for students with physical, emotional, or learning disabilities. These services are mandated by federal and state law, and they account for much of the past growth in categorical funding.

    The next largest state categorical is a voluntary one, the reduction in K-3 class sizes. Almost all districts in California accept this money. Although this was not one of the categorical programs that became flexible in 2008, policymakers significantly reduced the penalties for exceeding the 20-to-1 student/teacher ratio. As a result, districts with class sizes larger than 25 can receive 70% of the funding they would have received with class sizes of 20. For districts that choose to implement larger classes, this new policy could be seen as freeing up class size reduction money. This flexibility is currently slated to last through 2014-15. However, the governor has proposed a new "Local Control Funding Formula" that would permanently eliminate most state categorical programs. 

    Under Senate Bill 311, 2004​ New Flexibility: 2008-09 through 2011-12​ ​
    Average number​ of
    students per class
    ​Penalty ​Average number of
    students per class
    Up to 20.44​ No Penalty​ Up to 20.44​ No penalty​
    20.45-20.94​ ​20% penalty 20.45-21.44​ ​5% penalty ​
    ​20.95-21.44 40% penalty​
    21.45-21.84​ 80% penalty​ ​21.45-22.44 ​ 10% penalty​ ​
    ​21.85+ ​ ​ ​ ​100% penalty ​ ​ ​
    ​22.45-22.94 15% penalty​
    22.95-24.94​ ​20% penalty
    24.95+​ 30% penalty​
    ​ ​ ​ ​Data: California Department of Education (CDE), legislation EdSource 1/10
    Federal Programs

    Most federal funding comes from programs created by the Elementary and Secondary Education Act (ESEA) of 1965. The 2001 ESEA reauthorization—which became law in 2002—is called the No Child Left Behind Act (NCLB). It modifies the original ESEA, as have previous reauthorizations. NCLB increases the federal focus on educationally disadvantaged pupils, including English learners and students who live in poverty. The law also emphasizes a standards-based reform agenda. The law was originally slated to be reauthorized in 2007, but Congress has not yet acted. NCLB continues in its current form until Congress passes reauthorizing legislation.

    The largest federal program under NCLB, Title I, provides funds for educationally disadvantaged students, including the children of migrant workers. Funding is based on the number of low-income children in a school, generally those eligible for the free/reduced price meals program.

    Districts receiving Title I funds must comply with the considerable regulations under NCLB. The federal government also supports child nutrition, child care, and Special Education (among others).

    Federal categorical programs will not be affected California's new Local Control Funding Formula, which eliminates most of the state's categorical programs.

    All contents copyright © 2015, Education Data Partnership. All rights reserved.

    Ed-Data is a partnership of the California Department of Education, EdSource and the Fiscal Crisis & Management Assistance Team (FCMAT) designed to offer educators, policy makers, the legislature, parents, and the public quick access to timely and comprehensive data about K-12 education in California.