State Funding of
K-12 Education
A Panel Discussion with Candidates for the
California 19th Assembly District




Questions from the Public

Background Information


Where the money comes from

Historically, local property taxes have been the major source of funding for public schools. Typically, the property tax rate was set by the local school board, other local officials, or directly by citizens. This local control led to dramatic differences in school funding, usually depending on the relative property wealth of the surrounding community. During the 1970s and 1980s, the courts in many states ruled that these wealth-related differences in school support needed to be eradicated. They called on state governments to come up with new ways to fund public schools more equitably.

As a result, school finance systems today look dramatically different from state to state. The general trend has been toward a larger portion of state funding and control, but the proportions and funding structures vary. New York and Massachusetts, as well as many other states, depend somewhat on state funds but still rely most heavily on local property taxes. A few states, most notably California and Michigan, have state-controlled school finance systems. Hawaii is unique in that it has one statewide school district.

California School Finance History

Over the past 30 years California's school finance system has changed significantly due to a variety of laws, court decisions, and ballot measures. This section provides a brief chronological summary of the legislative, court, and voter contributions that have had the most influence on the way schools are financed today.

Senate Bill 90 (1972)

In 1972, the Legislature established revenue limits for California public schools. These revenue limits placed a ceiling on the amount of tax money each district could receive per pupil. The 1972-73 general purpose spending level became the base amount in determining each district's annual revenue limit. This was the beginning of the shift from local to state control of school finance.

Serrano v. Priest (1976)

Serrano v. Priest is the 1976 California Supreme Court decision that found the existing system of financing schools unconstitutional because it violated the equal protection clause of the state Constitution. The court ruled that property tax rates and per pupil expenditures should be equalized and that, by 1980, the difference in revenue limits per pupil should be less than $100 ( Serrano band ). This difference in revenue limits has subsequently been adjusted for inflation and is currently about $350. In equalizing funding, districts are divided into three types: elementary, high school, and unified. They are then further broken down into small versus large districts to ensure that appropriate funding comparisons are made. Special-purpose or categorical funds are excluded from this calculation.

Assembly Bill 65 (1977)

In response to the Serrano v. Priest decision, the California Legislature passed Assembly Bill (AB) 65. It created an annual inflation adjustment based on a sliding scale in order to equalize revenue limits among districts over time. Higher inflation increases went to districts with low revenue limits, with lower (occasionally no) inflation adjustments for high revenue-limit districts. AB 65 also established the Early Childhood Education Program, predecessor to the School Improvement Program (SIP) and several other categorical programs.

Proposition 13 (1978)
This constitutional amendment approved by California voters in 1978 limits property tax rates to 1% of a property's assessed value. Increases in assessed value per year are capped at 2% or the percentage growth in the Consumer Price Index (CPI) , whichever is less. According to this law, new taxes, such as a parcel tax, must be approved by two-thirds of local voters.

Assembly Bill 8 (1978)
In response to Proposition 13, the Legislature established a formula for dividing property taxes among cities, counties, and school districts. This shielded schools from some of the measure's effects. In the process, the state replaced the lost property taxes and effectively took control of school district funding.

Gann Limit (Proposition 4, 1979)
In 1979 voters approved Proposition 4, a constitutional limit on government spending at every level in the state, including school districts. No agency's expenditures can exceed its Gann limit, which is adjusted annually for changes in population and the lesser of either the national Consumer Price Index (CPI) or California's per capita personal income. (The index was changed by Proposition 111 in 1990. See below.)

Senate Bill 813 (1983)

Senate Bill (SB) 813 in 1983 provided additional money to school districts through equalization of revenue limits and new categorical programs, more rigorous graduation requirements, longer school day/year, and higher beginning teachers' salaries. It also established statewide model curriculum standards.

Lottery Initiative (1984)

In November 1984, voters approved a constitutional amendment authorizing the California State Lottery. The provisions guarantee that a minimum of 34% of total lottery receipts be distributed to public schools, colleges, and universities. The money is to supplement, not replace, support for education; it must be used "exclusively for the education of pupils and students and no funds shall be spent for acquisition of real property, construction of facilities, financing of research or any other non-instructional purpose." Proceeds from the lottery add less than 2% to school district revenues.

Proposition 98 (1988)

This constitutional amendment, approved in November 1988, guarantees a minimum funding level from state and property taxes for K-14 public schools in a complex formula based on state tax revenues. Proposition 98 also requires each school to prepare and publicize an annual School Accountability Report Card (SARC) that covers at least 13 required topics, including test scores, dropout rates, and teacher qualifications. A two-thirds vote of the Legislature and a signature from the governor are required to suspend Proposition 98 for a year.

Proposition 111 (1990)

Included in this constitutional amendment was a change in the inflation index for the Gann limit calculation, effectively raising the limit. Additionally, the minimum funding guarantee for education (Proposition 98) was changed to reflect the growth of California's overall economy. Proposition 111 accomplished this by shifting the adjustment for inflation from the growth of per capita personal income, which historically has tended to be a lower amount, to the growth in state per capita General Fund revenues plus one-half percent.

Assembly Bill 1200 (1991)

In 1991, Assembly Bill 1200 established a system for school district accounting practices that specifies how districts must track and report their revenues and expenditures. This law requires that districts project their fiscal solvency two years out and provide the state with school-board-approved financial interim reports twice a year. County offices of education are responsible for monitoring and providing some technical assistance to their districts under this law.

For the full text of this law, go to:$18

Class Size Reduction, K-3 (Senate Bill 1777, 1996)

In 1996, the Legislature passed the Class Size Reduction (CSR) Program, which provided incentives for school districts to reduce K-3 classes to a pupil-teacher ratio of no more than 20 to 1. This legislation provided annual incentive funding of $650 for each student in a smaller class and an option of $325 for students in a staggered session in which the pupil-teacher ratio is no more than 20 to 1 for half the day. These incentives were later increased to $800 full day and $400 half day per student in CSR classes plus annual inflation adjustments. A one-time allocation of $25,000 per added classroom was also made available for full-day classes to improve facilities or acquire portable classrooms.

For the full text of this law, go to:

Class Size Reduction, 9th grade (1998)

Two years after the original K-3 Class Size Reduction (CSR), the California Legislature expanded the existing high school program to concentrate on high school freshmen. To qualify for the $135 per pupil incentive, high schools must offer one or two ninth-grade courses with an average of 20 students per teacher, with a maximum of 22 per participating class. This bill also requires that one of the courses must be in English and the other can be in mathematics, science, or social studies. Programs that are excluded from participating in this program include Special Education classes and Necessary Small Schools.

For the corresponding Education Code to this law, go to: You will need to select "education code" and search for the keywords "class size reduction."

Senate Bill 1468 (1997)

Senate Bill 1468 changes the way the Average Daily Attendance (ADA) for school districts is counted. Before 1997, ADA equaled the number of students in school plus those students who missed school but had a permissible excuse such as an illness, a doctor's appointment, or a death in the family. Instead, SB 1468 requires that schools calculate their ADA by counting only the students who are actually at school each day. In an attempt to ensure that school districts did not lose a large proportion of their revenue, state leaders recalculated the per pupil revenue limit to yield a higher amount per ADA.

For a full text of this law, go to:

Assembly Bill 1600 (1999)

Assembly Bill 1600 gave charter schools the option to receive funding directly from the state, instead of their local district, in the form of a block grant. This grant combines both general-purpose money and a large proportion of the categorical funds into a single per pupil amount that varies by grade level. Charter schools are also eligible for additional categorical program funding for which the school and individual students qualify. 

Contact: Dennis Paull for more info
Last Edit September 7, 2002