State’s Fiscal Outlook: Déjà vu? It Feels Like 2006-07 All Over Again

By Tim Taylor, Executive Director, Small School Districts’ Association of California

We are weeks away from Governor Newsom’s 2023-24 budget proposal. The state Legislative Analyst Office has projected a $42 billion dollar deficit across a three-year budget forecast. This includes an estimated $25 billion problem for next year alone. State leaders are optimistic that they have prepared for “a rainy day” unlike what happened in 2006-07. The state has been successful in creating a safety net against budget shortfalls. The state has up to $37 billion reserves of which some must be used for education.

So, what happened in 2006-07 that we can learn from? The state’s economy was beginning to show long-term projections of a major recession. The state had little to no reserves to deal with a deficit budget. In 2005-06 there was a windfall of funding and districts were provided up to 9-10% COLA.   The combination of school districts approving double-digit raises combined with a 7-year state budget deficit lead to continual budget challenges for ALL districts. Between 2006 and 2012, the state faced a $23 billion dollar deficient. Districts suffered tremendously with staffing, layoffs and services cut to students and classrooms.

Fast forward to 2023-24 budget forecast. It is expected that the state will provide up to an 8% COLA for school districts. The Assembly has committed to not cutting education and use state reserves to balance deficit budgets. It has very similar budget characteristics that we faced in 2006-07.  Therefore, what can districts do to prevent draconian cuts and deficits? 

  1. Focus on your multi-year projections to tell you story. Many districts are using Forecast 5 to project out for five years.
  2. Protect your cash flow and your reserves.
  3. Work closely with labor and review what happened to your district during the Great Recession of 2006-12.
  4. If you sign a three-year contract with labor, make sure you have protections from a recession.
  5. Utilize all your one time funding to improve student achievement and modernize your facilities to save you funding long term.


Leadership will be tested in the upcoming years, both at the Superintendent level and the Governing Board level. It has been 10 years since we have had fiscal challenges. The best thing to do is to prepare your district for what lies ahead.