How Education is Funded in California

California schools today receive the large majority of their funding from the State, primarily from income and sales tax revenues, but also from local property taxes that are collected at the local level and distributed by the State.  By their nature, income and sales taxes are more volatile revenue sources than property taxes.  California school districts therefore face dramatic cyclical funding variations as the economy rises and falls.  Further, California's Governor and State Legislature, whose vote on the State Budget Act determines how State funds may be spent, have enormous control over the ability of local school districts to utilize funding to meet the specific needs of their students.

The California Supreme Court in Serrano v. Priest ruled education a fundamental constitutional right.  The ruling challenged the traditional method of locally funding schools which resulted in wealth-based disparities throughout school districts in the state.

In response to the Serrano case, in 1972, the state legislature established the current revenue limit scheme composed of state aid and local property taxes to bring about statewide parity among districts. It established the base finance amount for all districts to ensure districts were within $100 per pupil of each other. It was the first time since 1910 that the state reversed course on having a limited role in education financing.

The California Supreme Court found that the state’s education finance scheme (based on local revenue generated by the value of property) violated the equal protection clause of the California constitution. It resulted in the Supreme Court requiring the state to reduce funding disparities among districts within $100 per pupil.

Proposition 13 limited local property taxes to 2% annual increases based on value of property and capped taxes on property purchased after 1979 to 1% of the purchased value. An important feature in this initiative was that it required all parcel tax measures to pass with a 2/3rds vote.

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Although Proposition 13 was a boon to property owners, the loss of revenue to localities and districts was staggering. It resulted in a 50% loss in revenue to both cities and school districts. The state passed legislation that shifted the majority of tax dollars to local governments and created a new state fund to support schools that had lost property tax dollars.

Voters approved the establishment of the California Lottery. It provided a guarantee of 34% of all collected funds to be distributed to k-12 schools, colleges and universities throughout the state. These funds can only be used for instructional purposes and are restricted from being used for non-instructional purposes, i.e. real estate acquisition, facilities maintenance, administration, etc.

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Voters approved Proposition 98 in November 1988 and amended in June of 1990 by Proposition 111. It provides a minimum funding guarantee (~40% of the state’s General Fund expenditures) for school districts, community college districts, and other state agencies that provide direct elementary and secondary instructional programs for kindergarten through grade 14 (K–14). The guarantee varies from year to year and changes throughout the year from the Governor’s initial proposal to when the budget is finalized based on April/May tax receipts.

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