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A Guide to California's School Finance System (February 2007)
California’s system for funding public schools has been in place for 35 years—with additions and changes that range from major voter and judicial decisions to annual tinkering by lawmakers (see the Chronology). As a result, the system is extraordinarily complex and difficult to understand. Here is a simplified description of the basics. It shows where the money comes from and how it is distributed to school districts.

Since 1978 (Proposition 13), the decision about how much money school districts will receive, and where it will come from, has largely been made by the governor and Legislature. It’s up to local school boards to decide how best to use the resources they receive to educate their school population, within the considerable constraints of California's Education Code, money earmarked for specific students or programs, and local school districts' contracts with employees.

THE SOURCES OF FUNDING FOR SCHOOLS
 

 

• Funds from the federal government are about 11% of the K-12 education budget.

• About 61% of the total comes from the state’s budget: business, corporate and personal income taxes, sales taxes, and some special taxes.

• Local property taxes are about 21%, an amount that is determined within the state’s budget.

• Miscellaneous local revenues, about 6% of the total, include such items as fees on commercial or residential construction; special elections for parcel taxes; contributions from parents, businesses and foundations; cafeteria sales; and interest on investments by local school districts.

• The smallest amount at the bottom is the California Lottery, which provides 1.5% of the total, or about $125 per student annually.


These proportions, which are from the 2006-07 budget, vary slightly one year to the next. For example, the federal government’s share increased from about 8% in 1996-97 to 13% in 2004-05 and then dropped to 11% in 2006-07.

Public schools have no other revenue sources.

DISTRIBUTION OF THE MONEY FOR K-12 EDUCATION
 
About two-thirds of total funding is for general purposes, with the other third for special purposes or categories of students. The proportion of the total earmarked for specific purposes has grown in recent years.

Each district’s income is based on:

• the average number of students attending school during the year (average daily attendance, or ADA)

• the general purpose (revenue limit) money the district receives based on ADA

• special support (categorical aid) from the state and federal governments, earmarked for particular purposes.

The California Legislature set revenue limits for each district in 1972, roughly according to the district's expenditures on general education programs. The variation among revenue limits was great, and the Serrano v Priest court case eventually required the state to make districts’ general purpose money more nearly equal per pupil. By 2000, 97% of the state’s students were within a band (known as the "Serrano Band") of about $350.

The Legislature and governor almost always provide inflation (cost-of-living) adjustments to revenue limits. However, neither the school board nor local voters can increase the revenue limit. If local property tax revenues rise within a district, the increase goes toward the district’s revenue limit. The state’s share is then reduced by the same amount.

In 60 to 80 of the districts, property taxes exceed the revenue limit. In the past, these districts were allowed to keep the money and also get the constitutionally guaranteed state "basic aid" of $120 per pupil. Beginning in 2003-04 the state meets the requirement through categorical funding, and these "basic aid" districts are now called "excess revenue."

The other large portion of a school district’s income is categorical aid from the state and federal governments. It is based on categories of children, such as students with disabilities; characteristics of the district, such as low-income families; or programs, such as class size reduction (CSR). The program can be voluntary, such as CSR for grades K-3, or required, such as Special Education.

Categorical aid can be a very small portion or more than one-third of a district’s budget, depending on the population of students served. The money must be spent according to the state or federal guidelines for the qualifying program.

Miscellaneous income is a small percentage of most districts’ budgets, but (with a few exceptions) districts have discretion over how to spend the money.

A STATE-CENTRALIZED SYSTEM
 


Proposition 13 (1978) effectively removed school districts’ ability to exert substantial control over their revenues. Proposition 98, approved by voters in 1988, didn’t change that, but it did provide a measure of security to K-12 schools by guaranteeing a minimum amount of support for public education. Nonetheless, California fell behind other states in funding schools in the '80s and '90s. The boom of the late 1990s allowed the state to increase its investment in education relative to other states, but that was curtailed by the budget crises beginning in 2001. The fiscal crunch came at a time when both the state and federal government are emphasizing the need to improve the achievement of all students and to increase student and school accountability for academic performance. That emphasis is ongoing, and the fiscal outlook for California--and therefore K-12 education--has improved.

For More Information
EdSource's website (www.edsource.org) has a section that explains California's school finance system in detail, with summaries and data about public education.


Education Data Partnership
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All contents copyright © 2010, Education Data Partnership.
All rights reserved. Revised August 5, 2010.
URL: http://www.ed-data.k12.ca.us