Public education’s demographic challenge is acute in California
5 min read
S&P Global Ratings
The list of challenges facing public schools keeps growing as they face the end of pandemic era funding and deal with shrinking birth rates.
A slowing national economy, federal cuts to education, and expectations of reduced state funding as states face their own fiscal pressures are among the growing challenges listed by S&P Global Ratings analysts in a sector report on K-12 schools published Sept. 11.
S&P outlooks for the K-12 sector have evolved in a negative direction over the past three years, hitting a 5-1 ratio in November, from a 4-1 ratio in 2024 and 2-1 ratio in 2023, said Sarah Sullivant, a managing director and sector lead for U.S. local government.
“Between June 2024 and June 2025, S&P Global Ratings’ negative rating and outlook revisions for U.S. K-12 public school districts rose markedly, with the number of negative outlooks rising 40% during this period,” according to the report.
The rating agency assigned a stable outlook for K-12 schools for 2025 in December and will release its 2026 outlook next month, Sullivant said. S&P analysts published the September report ahead of the rating agency’s year-end annual sector outlook because so much is occurring in public education, she said.
School districts had until 2024 to spend funding they received from the federal government for COVID-19 relief, partly to deal with learning loss that occurred when in-person classes weren’t occurring, Sullivant said. Fiscal 2025 was the first year that schools had to see how structurally balanced they are fiscally, without the federal funding, she said.
“I think districts made the decisions on what to spend funding on that included additional staffing to alleviate learning losses that were meant to be temporary,” Sullivant said. “In some cases, they chose to continue those programs as long as they could, even after the funding expired. They are trying to balance their responsibilities as educators against fiscal responsibilities.”
This year some tapped budget reserves, so they will now have to make choices about whether to cut those programs, she said.
“In the past three years, fiscal results for K-12 public school districts have weakened, with the number of school districts reporting general fund deficits rising to 33% of rated entities in 2024 from just 17% in 2021,” S&P analysts said in the report.
The impact of the decline in birth rates, which is expected to continue through 2035, isn’t uniformly felt throughout the country, Sullivant said.
“Across the U.S., public school K-12 enrollment is projected to fall 8% between 2020 and 2030,” S&P analysts said in the report. “This is particularly significant for districts where attendance drives revenue: a large majority of public schools. Of the 50 states, plus the District of Columbia, fewer than 15 are projected to experience enrollment increases between 2020 and 2030.”
California and some other states are experiencing declining enrollments from outmigration in addition to declining birth rates, competition from charter schools and the potential for lowered attendance from the deportations and other anti-immigrant actions of the Trump administration, Sullivant said.
In California, schools receive state funding based not just on how many students are enrolled, but on average daily attendance counts done periodically to see how many students are actually attending class, Sullivant said.
“If they don’t have 100% of enrolled students attending on the days they conduct student counts, they are only getting credit for the students who are there,” Sullivant said. “It’s an example of how immigration enforcement can affect that ratio.”
California accounts for more than 18% of charter school enrollment nationwide, according to data Akiko Mitsui, a Fitch Ratings director, presented at The Bond Buyer’s California Public Finance conference in San Diego last week. It has about 11.8% of the nation’s total K-12 enrollment, according to data from the state and federal education departments.
The state faces one of the highest declines in birth rates in the nation and its birth rates are at a record low, Mitsui said.
“We just put out a report on California school districts that showed an 8% increase in the number of charter schools,” said Treasure Walker, an S&P associate director. “But charter schools are not the overarching concern for the decline in enrollment. Birth rates are more of a factor.”
Birth rates in California
“There are states where enrollment is growing, but the long term trend nationally is declining birth rates, so you will see a decline in enrollment nationwide for the next 10 years,” Sullivant said.
The state has experienced its slowest population growth ever recorded since 2000, the PPIC report said. It only grew by 5.8% or 2.4 million from 2010 to 2020, according to decennial U.S. Census Bureau counts, slower than the national rate of 6.8%, which led to the loss of a U.S. House of Representatives seat. If recent trends continue, California could lose as many as 4 of its 52 seats in the 2030 reapportionment, according to the PPIC report.
California had 39.5 million residents at the beginning of 2025, according
The state lost population in 2020 and 2021 before the number started ticking up in 2022, according to the DOF.
Most California school districts’ available fund balances are currently strong, because of the federal stimulus funds received in the past several years, but are expected to “meaningfully weaken” in the medium term, as most school districts across the state are projecting deficits, according to an Oct. 29 S&P report on California’s public schools co-authored by Walker. The report cited the expiration of the stimulus funds, rising fixed costs and the state’s slower growth relative to recent years, which could lessen per-pupil funding, as factors.
School district enrollment in California schools has declined for the eighth consecutive fiscal year, S&P analysts wrote, which might have a material impact on finances for districts with sustained declines.
“This will likely require critical and urgent decisions about resource allocation, staff right-sizing and school closures, so prudent financial management will be key to preserving credit quality,” S&P analysts wrote.
In California, the credit stability will “hinge on the ability of districts to adequately plan around headwinds and make proactive budgetary adjustments to maintain fiscal stability,” S&P analysts said in the October report.
“States are also facing pressures from revenue changes related to tax reform; and additional budgetary pressure from Medicaid and Supplemental Assistance Program cuts could lead to higher expenditures and reduce federal support for these programs, affecting K-12 districts,” S&P’s national schools report said.
“The cuts to the Supplemental Nutrition Assistance Program, loss of Title 1 funding and the elimination of the Department of Education could also complicate the revenue picture of schools,” S&P analysts wrote in the national schools report.
The states that S&P said in its Sept. 11 report were experiencing credit pressure tied to financial imbalances that were particularly acute were in Indiana, Louisiana, Minnesota, Pennsylvania, Texas and Wisconsin. Those states comprised more than 5% of school districts rated by S&P with negative rating outlooks. In Kansas, Missouri, Oklahoma and Pennsylvania, S&P said, downgrades outnumbered upgrades by more than a 2-1 ratio.
