Proposed Federal Cuts Could Echo Through State School Funding Systems

Late last week, the Trump administration released its federal budget recommendation for fiscal year (FY) 2026. As a “skinny budget,” it’s an outline for Congressional consideration and, as such, it’s not fully detailed. But it does give the clearest and most specific picture yet of cuts the administration wants Congress to make. The proposal recommends $12 billion in cuts across all U.S. Department of Education programs — about 15% of the department’s total budget. From a state K-12 education finance standpoint, there are several stand-out items: 

• Title I funding for students from low-income households would be maintained, but 18 other competitive and formula grants in K-12 would be “consolidated” into a flexible $2 billion fund, reflecting a reduction of $4.5 billion (presumably compared to the fiscal 2025 funding levels for the separate programs).  

• Special education funding would also be maintained, and the narrative indicates that seven funding streams within the Individuals with Disabilities Education Act (IDEA) would be consolidated and states given flexibility to support students with disabilities.  

• $890 million in English language acquisition grants (Title III A) would be eliminated entirely. This program is intended to help states support the education of English learners (ELs) and immigrant students.  

• The Charter Schools Program is the only department program with a proposed budget increase of $60 million. 

In our last edition, we discussed how potential cuts in federal education funding might hit school budgets and (re)shape state leaders’ funding decisions. One of the most obvious concerns for states might be to shore up funding for EL students and assess the impact of other proposed federal cuts in their states. (Stay tuned for more from Bellwether on this topic in the coming weeks.)  

Changes to federal programs outside the U.S. Department of Education’s portfolio could also impact state education funding. 

For example, the proposed budget would eliminate $315 million in Preschool Development Grants administered by the U.S. Department of Health and Human Services. These competitive grants support states’ system-building and coordination around early childhood education. 

There are also subtler ways, besides budget cuts, that federal changes could affect school funding. Consider state funding for economically disadvantaged students: nearly every state (45 at our last count) allocates additional funding toward schools serving this student population. And every one of those states depends on federal programs to define which students qualify. Most states rely on eligibility for free and reduced-price meals to determine a student’s “economically disadvantaged” status. When eligibility for the meals program (administered by the U.S. Department of Agriculture) changed several years ago, some states shifted their low-income definitions to use data from other means-tested federal programs, such as Medicaid, the Supplemental Nutrition Assistance Program, Head Start, and the Temporary Assistance for Needy Families program — which all sit under the U.S. Department of Health and Human Services.  

With the exception of Medicaid administrative funds (the narrative suggests services would remain the same), none of these major safety net programs are singled out for cuts in the new budget proposal, but full details remain to be seen, and changes in administration, eligibility, and process could still have immediate effects for families. Additionally, there could be compounding effects on state resources for schools, because so many states rely on data from these programs to determine their own funding.  

State leaders might seek to backfill or supplement funding, and create new data collection methods, in anticipation of federal cuts. Yet that, too, would consume additional state resources in a moment when the economy is on uncertain ground.  

There aren’t any easy answers. This is just one example of the complex interconnectedness among the federal budget, state school funding systems, and outcomes for students — especially students furthest from opportunity. Our team is working with state partners and advocates to better understand the scope of proposed and enacted changes at the federal level, and how they might impact students. 

—Jennifer O’Neal Schiess and Bonnie O’Keefe 

The Big Picture: Trends We’re Watching  

State leaders reacted to federal education proposals along partisan lines prior to the release of the FY26 budget recommendation. 

A group of 12 Republican-led state education agency leaders signed a letter in January requesting increased state control over federal funds and waiver authority from the U.S. Department of Education. Waivers have become a hot topic: Iowa and Oklahoma have each requested greater flexibility in spending. Although some of that requested flexibility seems clearly ruled out by federal law, the Trump administration has repeatedly pushed the boundaries of law and let the courts sort it out.  

On the other side of the aisle, a group of 16 Democrat-led state attorneys general and one governor filed suit over the cancellation of more than $1 billion in previously approved spending extensions for COVID-19 pandemic relief funds for education.  

In separate legal actions in late April, federal judges blocked the Trump administration from enacting threats to withhold federal funding from schools that “use Diversity, Equity & Inclusion programs…to advantage one race over another.” 

State Spotlights: Notable News From Statehouses  

• Alabama’s state legislature approved a $6.7 billion K-12 education budget that includes $375 million over three years targeted at students from low-income households, special education students, and EL students, with the aim of transitioning toward a more student-based funding formula in the next several years. The budgets and revised funding formula now go to Gov. Kay Ivey for approval. (Disclosure: Bellwether provided research and analytic support to A+ Education Partnership in Alabama that contributed to the work of the Joint Legislative Commission charged with making a recommendation to the full legislature this session.) 

• Georgia remains one of only five states without additional state K-12 funding for economically disadvantaged students. A recent proposal to allocate $28 million in targeted support to these students passed the state House but failed in the state Senate (a shout-out to Southerners for Fair School Funding for the update).  

• Indiana’s governor signed a $386 million reduction in local property taxes into law. Among other provisions, the bill offers tax credits of up to $300 for eligible homeowners, caps local governments’ authority to increase property taxes in the future, allows local governments to establish personal income tax with limitations, and requires school districts to share local tax revenues with certain charter schools. The controversial bill sparked criticism from the Indiana State Teachers Association and demonstrations by educators at the capital. 

• Vermont is considering an overhaul of its school funding alongside other major changes in its K-12 system. The state’s current funding system stands out for its unique approach to education revenue and budgeting, where it levies property tax and each locality votes on its own per-pupil spending level. Though there are competing proposals from governor and within the state house, the state’s policy aim seems to be a more typical student-based funding system with an emphasis on district consolidation amid severely declining enrollment. 

Follow the Money: What We’re Reading  

• Bellwether’s new dual enrollment report examines funding for the more than 2.5 million-plus high school students engaged in college courses. The report highlights funding structures across four states — California, Idaho, Minnesota, and Texas — that bridge K-12 and higher education by prioritizing dual enrollment access. 

• EdFund released a new resource on funding for concentrated poverty that includes a 50-state scan of funding approaches and research on how community-level poverty affects student outcomes.  

• The National Association of State Budget Officers’ Brian Sigritz released a blog post highlighting governors’ tax proposals, most of which are tax reductions of various flavors.