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A Guide to California's School Finance System (before LCFF)

Last updated April 01, 2012

    Please note: California's new Local Control Funding Formula (LCFF), which was signed into law on July 1, 2013, significantly alters how the state funds its public schools and will eliminate most of the state's categorical programs. However this article explains the system as it worked through the 2012-13 school year. To learn more about the new funding system, see, Understanding the Local Control Funding Formula.

    Until the passage of LCFF in 2013, California's system for funding public schools had been in place for more than four decades—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 was extraordinarily complex and difficult to understand. Here is a simplified description of the basics. It shows where the money came from and how it was distributed to school districts.

    Since 1978 (Proposition13), 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

    Schools in California receive funding from five sources. The proportion of funding from each source can vary significantly from district to district and from year to year.

    On average, over the last ten years, the contribution of each has been as follows:

    Funds from federal government are about 10% of the K12 education budget.
    About 60% 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 slightly less than 23%, 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; lease income, and interest on investments by local school districts.
    The smallest amount at the bottom is the California Lottery, which provides less than 2% of the total, or about $125-$145 per student annually.
    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 but in 2008-09, lawmakers opened up previously earmarked funds from nearly 40 categorical programs to be used for any educational purpose. 

    Each district's income is based on:

    for general purposes, a set per-pupil revenue limit amount times the average number of students attending school during the year (average daily attendance, or ADA).
    special support (categorical aid) from the state and federal governments, earmarked for particular purposes.

    The California Legislature set the per-pupil revenue limit amount 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. Per-pupil revenue limits are now within about a $450 range (known as the "Serrano Band") for school districts.

    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 contribution is then reduced by the same amount.

    From 2008-09 through 2011-12, the state's budget problems resulted in district revenue limits being decreased instead of increased.

    In about 125 of the districts, property taxes now exceed the revenue limit. In the past, these districts were allowed to keep the money and also get a constitutionally guaranteed state "basic aid" amount of $120 per pupil. In 2003-04 the state began meeting that requirement through categorical funding, and these "basic aid" districts are now called "excess revenue" districts. (For more information on revenue limits, see this explanation from EdSource.)

    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 Child Nutrition or School Transportation. The program can be voluntary or required.

    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.

    In February 2009, to help districts deal with deep budget cuts, lawmakers made substantial changes to many of the state's categorical programs, allowing districts flexibility to use funds from about 40 state categorical programs for other educational purposes.

    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 create a minimum funding guarantee 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 state's unstable budget and various financial 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.

    As the state dealt with the fallout from the "great recession," including deep budget cuts to education, there was a move to provide more local control over how districts spend money. In 2008-09 the Legislature gave school districts the authority to decide how they used previously earmarked funds from some 40 categorical programs. In 2013, the Legislature passed and the governor signed into law a new Local Control Funding Formula (LCFF) that overhauls the state's school funding system and puts far more control over how the money is spent into the hands of school districts and the community. For more information on the new system, see: Understanding the Local Control Funding Formula

    All contents copyright © 2015, Education Data Partnership. All rights reserved.

    Ed-Data is a partnership of the California Department of Education, EdSource and the Fiscal Crisis & Management Assistance Team (FCMAT) designed to offer educators, policy makers, the legislature, parents, and the public quick access to timely and comprehensive data about K-12 education in California.