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Prop 28 Supplement-Not-Supplant: The 3 Mistakes That Trigger a T-5 Audit Finding (2026-27)

Aug 4, 2026 · 12 min read

Prop 28 Supplement-Not-Supplant: The 3 Mistakes That Trigger a T-5 Audit Finding

For California superintendents, CBOs, and arts coordinators preparing for 2026-27 audit season — the exact procedure, the three most common findings, and the paperwork that saves you.

In 2025, former LAUSD Superintendent Austin Beutner and a coalition of parents and students sued Los Angeles Unified School District, alleging the district had diverted $76.7 million in Proposition 28 funds to pay for arts staff who were already on the payroll — a textbook supplant. LAUSD moved to dismiss. The judge denied the motion. The case is now proceeding to trial. Every business services officer in California is watching, because the audit procedure that will decide it — Section T, Procedure T-5 of the EAAP K-12 Audit Guide — is the same procedure applied to every LEA that draws Prop 28 dollars. This post walks through what T-5 actually tests, the three most common findings, and the specific paperwork that keeps your district on the safe side of the line. Every claim below is cited to primary source.

01 / What T-5 actually is

The California Education Audit Appeals Panel (EAAP) publishes the K-12 Audit Guide each year, adopted by reference into 5 CCR §19810. Section T of the current guide contains the Prop 28 audit procedures — five specific tests, numbered T-1 through T-5. Auditors run these procedures during each district’s annual K-12 audit for any fiscal year in which the LEA drew Resource 6770 (the Prop 28 resource code).

The two that matter most in practice:

T-4 — Expenditure Eligibility. Did the LEA spend Prop 28 dollars only on activities that qualify as arts education under §8820? If a district charged STEM programming, robotics, or coding-that-was-not-creative-expression to Resource 6770, T-4 catches it and requires return of unallowable expenditures.

T-5 — Supplement-Not-Supplant. Did the LEA use Prop 28 funds to supplement its existing arts programming, or to replace what it was already paying for? T-5 is the procedure that will decide the LAUSD case, and it is the one that has by far the biggest dollar exposure for districts.

A finding under either T-4 or T-5 requires repayment of the unallowable amount. Both procedures live in the same annual audit; there is no way to run Prop 28 without inviting them.

02 / The supplement-not-supplant test in plain English

The statutory anchor is California Education Code §8820(g)(2): the LEA must “certify that such funds received will be used to supplement funding for arts education programs and that funds received in the prior fiscal year were, in fact, used to supplement arts education programs.” That single sentence is what generates the audit test.

Operationally, T-5 asks a rolling year-over-year question. The auditor compares your non-Prop-28 arts spending in the audit year against your non-Prop-28 arts spending in the prior fiscal year. If audit-year non-Prop-28 arts spending is less than prior-year non-Prop-28 arts spending — after allowable subtractions for one-time funds like ESSER that were available in the prior year but not the audit year — the district failed the test. Prop 28 has replaced non-Prop-28 spending. That is supplant. Repayment follows.

The baseline is rolling — every year the district is compared against the year before. There is no fixed 2022-23 anchor year. A district that passes T-5 in Year 1 can still fail it in Year 3 if it quietly walked down its own non-Prop-28 arts budget while Prop 28 dollars grew. This is the specific pattern the Beutner plaintiffs allege LAUSD followed.

The T-5 test in one formula: Audit-year non-Prop-28 arts spending must be ≥ prior-year non-Prop-28 arts spending (adjusted for allowable one-time subtractions). Fall below, and the shortfall is the amount at risk of repayment.

03 / Mistake 1 — Backfilling existing arts positions with Prop 28 dollars

The most common T-5 finding, and the one at the heart of the LAUSD case. A district has a credentialed arts teacher on payroll — funded from General Fund or LCFF. Prop 28 dollars arrive. The district quietly re-codes that teacher’s salary to Resource 6770 (Prop 28) instead of the General Fund, and uses the freed-up General Fund dollars for something else. Non-Prop-28 arts spending drops. Prop 28 spending rises to fill the gap. On paper, arts programming looks the same. In reality, Prop 28 supplanted a General Fund position.

The Beutner complaint alleges LAUSD did exactly this at scale — $76.7 million worth — and adds a civil-rights framing that has drawn national attention: that the supplant “disproportionately impacted Black and Latino students” whose schools were promised additive arts programming but received a shell-game reallocation instead. That framing is why the case survived motion to dismiss. And it is why every CA business services officer needs to be able to defend the year-over-year math when the auditor asks.

How to avoid this finding: maintain — or grow — your non-Prop-28 arts spending line every year. Do not re-code existing arts staff to Resource 6770. If you hire a new arts teacher and want to fund them from Prop 28, make sure you are hiring a net-new FTE, not consolidating an existing position. Document the hire.

04 / Mistake 2 — Blowing the 80/20 split without a waiver

Ed Code §8820(g)(1) sets the second big trap. For LEAs with 500 or more pupils, at least 80% of Prop 28 funds must go to employing certificated or classified staff who deliver arts instruction. The remaining up to 20% can go to training, supplies and materials, and — this is where vendor programming lives — arts educational partnership programs. LEAs with fewer than 500 pupils are exempt from the split; CDE can also grant a waiver for good cause, but the waiver must be filed LEA-wide, not site-by-site.

Note on terminology: the “80/20” shorthand is what CDE and the audit guide use. Some early Kodely-adjacent content used “80/20/1” as a mnemonic — that is not statute. The “1” that appears in Prop 28 conversation refers to the fact that the entire Prop 28 allocation is roughly 1% of the state General Fund, not a spending category. Use “80/20” in board materials and in your annual arts plan.

The way this trap actually catches districts: a district that has not yet hired its Prop 28-funded arts teacher (or has been slow to recruit) will often lean on a vendor to run programming in the interim. The vendor spend racks up. Salary spend does not. By audit time, the ratio is 40% employee / 60% vendor. That is a T-4 finding — 80/20 violation — unless a waiver is on file.

How to avoid this finding: track your Resource 6770 spend by category every quarter. If employee spend is drifting below 80%, either accelerate hiring or file the LEA-wide waiver with CDE with the “good cause” documentation. Do not wait for audit season.

05 / Mistake 3 — Charging non-arts programming to Resource 6770

The third common finding lives in T-4 (expenditure eligibility), not T-5, but it hits with the same force: return of unallowable expenditures. Districts routinely misinterpret what Prop 28 covers.

Per CDE’s Prop 28 FAQ, the arts education categories eligible for Prop 28 funding are: dance, media arts, music, theatre, and visual arts. CDE’s expanded definition within those five categories explicitly includes animation, film, video, photography, graphic arts and design, music composition, ensembles, script writing, costume design, and computer coding only when taught as creative expression (e.g., generative art, procedural animation, algorithmic music, interactive media).

What Prop 28 does not cover: general STEM, robotics as engineering, coding as computer-science instruction, culinary, financial literacy, sports, PE, or academic tutoring. Charging any of these to Resource 6770 is a straight T-4 finding. Route them to ELO-P, CCSPP, Title IV-A, LREB, or general funds instead.

How to avoid this finding: maintain a written expenditure plan per site that maps every funded activity to one of the five §8820 arts categories. Do not stretch the definition — if the activity is not credibly one of the five, do not code it to Prop 28.

06 / The vendor and arts partnership rule — the 20% lane

Vendor programming is a legitimate use of Prop 28 — but only within the 20% partnership lane, and only when structured as a supplement. §8820(g)(1) authorizes “arts educational partnership programs” as an allowable use of the up-to-20% non-employee portion.

For a vendor arrangement to survive audit, four things must be true:

  • The vendor delivers programming in one of the five §8820 arts categories.
  • The vendor’s programming supplements existing credentialed arts staff — the vendor is not the school’s sole arts programming provider filling a permanent staffing gap.
  • There is a written MOU or scope of services on file with the LEA, naming the discipline, the teaching artists, and the schedule.
  • Vendor invoices are coded against Resource 6770’s partnership line — not against the 80% employee line, which is reserved for W-2 arts staff.

If any of those four are missing, the vendor arrangement is exposed. The most common failure is when a district lets a vendor become the entire arts program at a school because it has not hired a credentialed teacher — that starts to look like supplant of a position the district should be funding directly.

07 / The paperwork that saves you

Prop 28 audits are, in the end, paperwork audits. The three-year carryover window under §8820(f)(1) gives you time to spend down each annual allocation, but does not give you time to reconstruct documentation after the fact. What matters is that the following documents exist, are current, and are filed where the auditor can find them.

1. Board-approved annual arts education report. Required by §8820(g)(4). Must include the type of arts programs funded, FTE counts for teachers/classified/aides, number of pupils served, and school sites served. Must be board-approved, posted on the LEA’s public website, and submitted to CDE via the AMS Portal. CDE publishes an official template at cde.ca.gov/eo/in/documents/prop28annualreport.pdf.

2. Year-over-year non-Prop-28 arts spending record. The document that lets you win a T-5 challenge. A simple spreadsheet: prior-year non-Prop-28 arts spending, audit-year non-Prop-28 arts spending, allowable subtractions (ESSER, other one-time funds available in prior year), net comparison. If audit-year is at or above prior-year net, you pass T-5.

3. Per-site expenditure plan. Which schools are receiving Prop 28-funded programming, in which of the five §8820 disciplines, and mapped to the site-level allocation formula in §8820(c) (70% based on prior-year enrollment plus 30% based on prior-year unduplicated pupil count).

4. Vendor MOUs and invoices coded to Resource 6770 partnership line. Every partnership must have a written MOU on file, and every invoice must be coded to the 20% lane.

5. Encumbrance calendar. §8820(f)(1) gives each annual allocation a three-fiscal-year spend window. FY23-24 funds must be expended by June 30, 2026. Unexpended funds revert to CDE and are reallocated statewide. Track expenditure against carryover explicitly.

6. 80/20 quarterly ratio check. A running total of employee spend vs. non-employee spend against your annual allocation, refreshed quarterly. If the ratio drifts, you have time to correct — or to file the waiver — before audit.

08 / What to look for in a vendor that will not blow up your audit

Not every arts vendor is set up to support Prop 28 audit-defense. The ones that are share four characteristics.

1. They deliver programming in one of the five §8820 categories. If the vendor pitch is “STEAM” or “coding + engineering + design,” and you cannot clearly map it to dance / media arts / music / theatre / visual arts, that vendor should not be on Resource 6770.

2. They provide an MOU template with a supplement-not-supplant memo. A vendor that has done Prop 28 work before will hand you the memo. A vendor that has not will look at you blankly when you ask.

3. Their invoices code cleanly to the 20% partnership line. Line-item invoicing with the discipline named and the site named — not lump-sum billing.

4. They will produce credentials for every teaching artist on request. Because the auditor will ask.

09 / This post is for you if

You are a superintendent whose district is approving the 2026-27 annual arts plan and want to sign confidently.

You are a CBO or business services director coding Prop 28 invoices and worried about audit exposure.

You are an arts coordinator navigating the 80/20 split and unsure whether your vendor arrangement counts as supplement or supplant.

You are a district compliance officer preparing for a state visit or annual K-12 audit that will run T-4 and T-5 for the first time.

You are a board member being asked to approve a Prop 28 expenditure plan and want to know what the audit will actually test.

10 / What we’d love to do next

If you are building the 2026-27 Prop 28 plan and want a second read on the supplement-not-supplant math for your specific district, here is the specific ask.

Give us 20 minutes. On a call. That is it.

In that 20 minutes we will walk your year-over-year non-Prop-28 arts spending record, flag your T-5 exposure sites, review your vendor MOU coding, and share honestly how we would structure the 20% partnership lane if we were running the program. You leave the call with a one-page Prop 28 audit-readiness note in your inbox, yours to keep, use, or share with your board — regardless of whether we ever work together.

Book the 20-Minute Prop 28 Audit-Readiness Call →

Sources and further reading

This piece was published by The Kodely Blog. Kodely is a MWBE-certified K-8 enrichment provider serving 40+ California districts across ELO-P, Prop 28, CCSPP, and LRBG funding lanes. We deliver §8820-compliant arts programming — animation, film, photography, graphic design, creative coding as creative expression, music composition, theatre, visual arts — as a supplement to your credentialed arts staff, with MOU + supplement-not-supplant memo included in every scope of work. If you are building your 2026-27 Prop 28 plan and want a second read on your T-5 exposure, we are happy to have a conversation. This post is field-guide reference material, not legal advice.

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