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Court of Appeal, Second District, Division 2, California.

Coordination Proceeding Special Title (Rule 1550(b)) School Finance Cases Coordinated Actions: SERRANO v. PRIEST.





Decided: May 15, 1986

Rutan & Tucker, and David C. Larsen, for plaintiff and appellant Placentia Unified School Dist. Mary S. Burdick and Richard A. Rothschild;  Memel, Jacobs, Pierno, Gersh & Ellsworth, and John E. McDermott;  Sidney M. Wolinsky and Armando M. Menocal, III, for plaintiffs and appellants Serrano and Gonzalez. Fekete, Carton, Velman, Hartsell & Chambers, and Peter C. Carton, for plaintiff and appellant Lucia Mar Unified School Dist. Mark M. Rosenthal, Robin M. Shapiro, Lawrence R. Lincoln, Morrison & Foerster, as amicus curiae on behalf of Ass'n of Low Wealth Schools. Ramona M. Vipperman, as amicus curiae on behalf of the Superintendents of Schools for the Counties of Alameda, Del Norte, Fresno, Kern, Napa, Riverside and San Bernardino. Remcho, Johansen & Purcell and Joseph Remcho, Robin B. Johansen, Kathleen J. Purcell, Barbara A. Brenner, Charles C. Marson, and Joseph Symkowick, Chief Counsel, California Dept. of Educ. for defendant and respondent Bill Honig. John J. Klee, Jr., Deputy Atty. Gen., and Lawrence Gercovich, Office of the Controller, for defendants and respondents.

In these coordinated proceedings, several plaintiffs have with varying approaches attacked the current state system of school financing.   That system was adopted in response to the decisions of the California Supreme Court in Serrano v. Priest (1971) 5 Cal.3d 584, 96 Cal.Rptr. 601, 487 P.2d 1241, and Serrano v. Priest (1976) 18 Cal.3d 728, 135 Cal.Rptr. 345, 557 P.2d 929.   The essential thrust of the plaintiffs' position is that there still exists unacceptable disparities between school districts in the money expended per pupil for public education.

The trial court, Judge Lester E. Olson, took evidence over a period of 27 days.   Testimony was presented by numerous experts in the field and many noted educators including the former and present State Superintendents of Public Instruction.   Voluminous documented evidence was presented.

At the conclusion of the trial Judge Olson issued a lengthy statement of decision which was not only a thorough and complete analysis of the issues and the evidence but was a scholarly and well crafted legal opinion amply supported by the evidence and the law.

We find ourselves unable to improve on or add to that statement of decision;  hence, with certain deletions of reference to the record and the table of contents, we adopt it as our own.


These proceedings arise in part out of the decisions in Serrano v. Priest I, 5 Cal.3d 584, 96 Cal.Rptr. 601, 487 P.2d 1241 (1971) (hereinafter cited as Serrano I ) and Serrano v. Priest II, 18 Cal.3d 728, 135 Cal.Rptr. 345, 557 P.2d 929 (1976) (hereinafter cited as Serrano II ).

Under the judgment affirmed by the Supreme Court in Serrano II, the trial court retained jurisdiction so that any party might apply for appropriate relief with respect to the duty of the legislative and executive branches of the state government to take the necessary steps to design, enact into law and place into operation, within a reasonable time, a public school financing system for elementary and secondary schools that would comply with the equal protection of the law provisions of the California Constitution.   Plaintiffs in Serrano II filed a Petition for Enforcement of Judgment on June 23, 1980, and this decision will resolve the issues raised by that petition.   For convenience it will be referred to as the compliance hearing.

By previous orders, cases pending in other counties raising issues concerning the constitutionality of California's public school finance system for grades kindergarten through the twelfth grade (hereinafter “school finance system”) were coordinated and were tried concurrently with the compliance proceedings in Serrano II herein.

During the closing phase of trial preparation for the compliance hearing in Serrano II, various contentions were made as to the issues that could be litigated.   Both defendant and plaintiffs wanted the court to have jurisdiction to receive all relevant evidence on the question of the constitutionality of the present California school finance system and to decide issues related to that question, whether appropriately joined by plaintiffs' Petition for Enforcement of Judgment or not.   Therefore, at the court's suggestion, an additional action was filed entitled Gonzalez v. Riles, Los Angeles Superior Court No. Ca 000 745 (hereafter Gonzalez ).   Gonzalez was then coordinated and tried in this proceeding.

The Serrano II issue, as presented in plaintiffs' Petition for Enforcement of Judgment, is whether the state has removed the following feature from the school finance system listed in the judgment as violative of the equal protection of the laws provisions of the California Constitution:

Wealth-related disparities between school districts in per-pupil expenditures, apart from the categorical aids special needs programs, that are not designed to, and will not reduce to insignificant differences, which mean amounts considerably less than $100 per pupil, within a maximum period of six years from the date of entry of this Judgment.

The Gonzalez claim, as presented in the complaint, asserts that the school finance system violates the equal protection provisions of the California and United States Constitutions because there is an unequal distribution of general purpose tax funds to similarly situated school districts resulting in disparities in per pupil expenditures without good cause.

Put more simply, under Serrano II, and the retained jurisdiction in the judgment, this court must decide whether the present school finance system complies with the requirement that wealth-related disparities in per pupil expenditures be reduced to insignificant differences, whereas under Gonzalez, this court must decide, based on the broad outlines of the law stated in Serrano II, together with all other applicable law, whether the current school finance system violates the equal protection provisions of the California or United States Constitutions in any respect.

The Placentia and Lucia Mar cases involve issues that are subsumed by Gonzalez․

The evidentiary trial proceedings commenced on December 10, 1982, and continued for 27 days.   Nineteen persons who qualified as experts in educational, statistical, economic and political fields testified.   Nineteen school superintendents and other persons active at various levels of the educational process testified.   Former Superintendent of Public Instruction Wilson C. Riles and the incumbent Bill Honig also testified.

The transcript of the trial proceedings consists of 3,736 pages.   Some 345 exhibits were received in evidence, many consisting of hundreds of pages.   The California Department of Education made its enormous computerized data base available for use by experts on both sides.   The statistical information available to both sides was monumental.  ․

The court recognizes that the system of school finance changes every year as new legislation is passed.   This court's task is to determine whether the system of finance that existed at the time of trial was in compliance with the Serrano judgment and otherwise met the requirements of the California and United States Constitutions.   To do more would require a court of permanent review whose task would be to pass on the constitutionality of every new piece of school finance legislation.   The opinion and judgment that follow, therefore, address only the system and the closure data that existed at the time of trial.   This court has not relied on the projections put forth by the defendant as to the effect of current legislation in future years.   Similarly, it has declined plaintiffs' motion to reopen trial to take evidence on the effect of new legislation passed after the close of trial.


HISTORY AND OPERATION OF THE CURRENT SYSTEM OF SCHOOL FINANCEA. The State System of School Finance Prior to the Passage of Proposition 13

Prior to Proposition 13 and at the time of Serrano II, the California system of school finance was based on a foundation program concept.

Under this concept, the State set a per-pupil expenditure level called the foundation program amount that was guaranteed to every school district in the State, provided the district levied a specified tax rate called the computational tax rate.   If local property tax revenues from the computational tax rate were insufficient to raise the foundation program amount per pupil, then the State made up the difference.   If local revenues from this tax rate equaled or exceeded the foundation program level, then the district received only “basic aid” from the State in the amount of $125 per ADA.1  Of this $125, $120 per pupil in aid to every school district was and is expressly mandated by Article 9, Section 6 of the California Constitution.   Districts that received minimal state aid were known as “basic aid districts.”   School districts whose assessed valuations were insufficient to meet the foundation program level through the computational tax rate were called “equalization aid” districts, because they received equalization aid from the state in addition to the minimum basic aid.   From the time this action was first filed in 1968 until Proposition 13 was passed in June 1978, the foundation program concept was the heart of the California system of school finance.

The school finance system which [was] ultimately declared unconstitutional in 1974 was known as SB 90 (Ch. 1406, 1972 as amended by AB 1267 (Ch. 208, 1973)).   That system introduced the concept of revenue limits, which are ceilings placed by the State on the amount of money a school district may raise, exclusive of state and federal categorical funds for special needs.   Each district's revenue limit was calculated by determining the amount of general purpose revenues available to the district in 1972 and adjusting annually for inflation.   The annual inflation adjustment was computed on a sliding scale basis so that the districts with higher revenue limits received smaller annual inflation adjustments and those with lower revenue limits received larger increases.

Under Senate Bill 90, a school district could exceed its state-imposed revenue limit through certain mechanisms for generating additional property tax revenues.   For example, districts could exceed their revenue limits with the approval of the voters of the district to levy additional taxes.   This additional property tax levy was known as a voted override.   Districts could also levy limited “permissive overrides” for certain specified purposes such as meals for the needy.2  Districts eligible for the declining enrollment adjustment were permitted on a temporary basis to increase their revenue limits.   Finally, districts were allowed to exceed their revenue limits for additional contributions to the State Teachers' Retirement System (STRS).

B. The State's Response to the Serrano Decision of the California Supreme Court—Assembly Bill 65

After the Serrano II judgment, the Department of Education and the Legislature developed a new approach to school financing.

AB 65, signed by the governor on September 17, 1977, was a comprehensive school finance measure which included four major components:  1) general purpose funding through the revenue limit, 2) special needs programs, 3) the School Improvement Program, and 4) variable cost provisions.   AB 65 was the Legislature's response to the California Supreme Court's December 1976 Serrano II decision.

AB 65 increased revenue limits and increased the low-revenue districts' financial capacity to raise funds above the foundation program level by means of the Guaranteed Yield Program, a form of what is known as district power equalization.3  Under the Guaranteed Yield Program, a district was guaranteed a certain amount of money if it taxed itself at a certain rate set by the state.   If the district recovered less than the scheduled amount when it levied that rate, the state made up the difference.

The measure contained two “squeeze” mechanisms that applied to high-revenue districts.   The first squeeze formula applied to all districts whose base revenue limits for the prior year were equal to or greater than the foundation program level for that year.   The higher a district's base revenue limit, the lower the inflation adjustment that the district received.   The second squeeze formula applied to some of the high-revenue districts, those whose prior year base revenue limits were 120% or more of the prior year foundation program level.   For all of these districts an additional squeeze factor was applied.   AB 65, Statutes 1977, Ch. 894, Sec. 16.5.

AB 65 also provided for transfers of revenues away from the high-revenue districts to the state for redistribution to low-revenue districts under the Guaranteed Yield Program discussed above.

C. The Effect of Proposition 13

The major tax equalization provisions of AB 65 were to have gone into effect on July 1, 1978.   On June 6, 1978, however, the voters approved Proposition 13, which limited property tax rates to 1% of the full cash value of real property subject to taxation.  Cal. Const., Art. 13A, § 1.   Proposition 13 also required a two-thirds vote of the Legislature in order to increase state taxes and absolutely prohibited imposition of a state-wide property tax.   Id. at § 3.   Finally, Proposition 13 required a two-thirds majority vote in order for cities, counties or special districts to impose any special taxes, a requirement which is generally recognized to be a practical impossibility.   In no event, however, could property taxes be raised.  Calif. Const., Article 13A.

The passage of Proposition 13 ․ resulted in an immediate shortfall of $2.8 billion in local funds, and required a totally new method of school finance heavily skewed toward state funding.   It nullified the structure for reform set out in AB 65, which relied primarily on provisions for redistribution of local property taxes from high to low revenue districts.

Due to the timing of Proposition 13, the state had only three weeks before the end of the fiscal year to establish a school finance plan for 1978–79.4  The result was Senate Bill 154 (Ch. 292, 1978), as amended by SB 2212 (Ch. 332, 1978).   SB 154 was a one-year measure popularly known as the “bail-out” bill.

Under SB 154, the state guaranteed every district from 85 percent (for high revenue districts) to 91 percent (for low revenue districts) of the revenues it would have received if the pre-Proposition 13 revenue limit formula of AB 65 had gone into effect.   To ease the cuts, districts were allowed to reduce their summer school and adult programs but to count the attendance in those programs for 1977–78 as part of their overall pupil population or ADA.   In addition, districts were given credit, in figuring their projected pre-Proposition 13 revenues, for the revenues they received in 1977–78 from permissive overrides and for voted overrides authorized to be levied in 1977–78, including unused voted overrides that met certain limited criteria.   Once the projected pre-Proposition 13 revenues were determined and the 9 percent to 15 percent cuts made, the state made up the difference between that amount and the amount of post-Proposition 13 property taxes allocated to the district.   The state contribution was known as the state “block grant”.

Despite its emergency nature, SB 154 succeeded in preserving some of the equalizing features of AB 65.   This was because the SB 154 revenue limits were based on the revenue limits set by AB 65 for 1978–79.   The AB 65 revenue limits, of course, were subjected to the “squeeze” formula whereby low revenue districts received larger increments to their revenue limit levels than did high revenue districts.   Additionally, SB 154 imposed larger financial cuts on high revenue districts (up to 15%) than on low revenue districts (as little as 9%).   This process resulted in what amounted to a double squeeze.

D. The Current System of School Finance:  Assembly Bill 8

SB 154 was a temporary measure, and was superseded by Assembly Bill 8, Stats. 1979, Ch. 282, which established the system of school finance that was the subject of this [litigation].5  AB 8 was a comprehensive fiscal relief bill designed to lessen the impact of Proposition 13 on local governments.   The school finance provisions of AB 8 achieved Serrano compliance without destroying local school districts already hard hit by inflation, declining enrollment, and cutbacks due to Proposition 13.   The inflation increase formula contained in AB 8 was known as the Serrano closure formula.   Under AB 8, high revenue districts received only very small inflation increases in their revenue limits, whereas low revenue districts received much larger inflation increases each year.6  Under this formula, districts are categorized by size and type in order to determine the extent to which a district is a “high revenue limit” or “low revenue limit” district.7

In addition to establishing a long term Serrano closure formula, AB 8 continued to refine the revenue limit by excluding components which were designed to serve pupils with special needs or to compensate districts with variable costs.   The basic funding element came to be called the base revenue limit.   AB 8's refinement is incomplete because independent funding formulas could not be developed for all differences in costs and all special needs.   However, as a result of this refinement process, the base revenue limit has come close to reflecting truly general purpose revenues that are comparable from district to district.

Assembly Bill 8 became effective only four weeks before the start of the new school year.   In order to avoid unnecessary disruption of school district planning, AB 8 contained special provisions for the 1979–80 school year.   The long-range financing mechanisms of AB 8 therefore did not go into full effect until the 1980–81 school year.8

1. The Serrano closure formula

The Serrano closure formula includes an annual inflation adjustment with a “squeeze” mechanism whereby low revenue limit districts receive larger dollar per ADA increases than higher revenue limit districts.   The result of this provision is to further close the revenue gap between the high and low spending districts.   The term “squeeze” was adopted to describe the fact that the higher revenue limit districts were forced to “squeeze” their budgets because their annual inflation allowances reduced their purchasing power.9

The Serrano closure formula for the 1980–81 school year and subsequent school years is based on “breakpoints” for each year.   See Ed.Code § 42238.   These breakpoints are revenue per ADA amounts which are used to determine the variable inflation adjustments for school districts.   For example, during the 1980–81 school year, inflation adjustments permitted under the Serrano closure formula ranged from $85 to $175 per pupil, depending upon the district's 1979–80 base revenue limit.   For 1980–81, large unified districts with 1979–80 base revenue limits of $1500 or less per pupil received the “maximum” inflation adjustment of $150 per pupil.   Large unified districts with 1979–80 base revenue limits of $2000 or more received inflation increases of only $85.   Large unified districts with 1979–80 base revenue limits of between $1500 and $2000 received inflation increases of between $150 and $85.   Ed.Code, § 42238.

Although the $150 increase was referred to as the “maximum” inflation increase, for 1980–81, AB 8 provided that districts with revenue limits below $1500 per pupil received an additional inflation adjustment of up to $25 per ADA.   For these districts, the Serrano closure formula provided inflation adjustments of up to $175, and the per pupil revenue gap between them and the high revenue districts was closed by as much as $90 per year.10  Id.   Beginning in 1981–82, the lower breakpoints approximate the average base revenue limit for each category of district.

In summary, then, the current system works as follows.   All districts with base revenue limits per ADA in excess of the upper breakpoint in any given year received the minimum inflation adjustment prescribed by Ed.Code § 42238(f).  Ed.Code § 42238(h)(3).   Districts with base revenue limits less than the upper breakpoint but greater than the lower breakpoint received inflation adjustments between the minimum and maximum inflation adjustments.   Districts with base revenue limits less than the lower breakpoint for their size and type of district received inflation adjustments greater than the maximum inflation adjustment specified in Ed.Code § 42238(f) but not to exceed fifteen percent more than their prior year base revenue limit.   Ed.Code § 42238(h)(1) and (2).

Subsequent legislation modified and refined AB 8 in various details.   For example, AB 777, Stats. 1981, Ch. 100, allowed districts to pull unreimbursed home-to-school transportation costs out of the base revenue limit to be funded separately.   The revenue limit breakpoints were simultaneously adjusted downward to account for the pullout.   This pullout served to improve the comparability of base revenue limit figures as a basis for assessing funding equity from district to district.

In the face of an escalating fiscal crisis, the Legislature in 1982–83 attempted to balance the state budget by eliminating the K–12 inflation adjustments.   AB 21, Stats. 1982, Ch. 326, Item 6100–101–001, Provision 6.   This action suspended further Serrano closure for one year.   The Legislature did grant the schools an $11.90 per ADA increase, but specified that the funds could not be used for salary adjustments.   SB 1326, Stats. 1982, Ch. 327, § 247.

2. Special need and categorical aid programs

In addition to the base revenue limit, the current school finance system includes various special funding programs and formulas.   Several special programs, including special education, were excluded from consideration by stipulation among the parties prior to trial or were never challenged․  [Plaintiffs have] abandoned challenges to other programs and formulas, including the continuation high school program, unemployment insurance and miscellaneous adjustments, by conceding that the amounts involved in these programs make no practical difference in the issues before the court․  Consequently, the only special programs that remain subject to challenge herein are (1) minimum guarantee funds, (2) the declining enrollment adjustment, (3) meals for needy pupils, (4) deferred maintenance, (5) the School Improvement Program, (6) home-to-school transportation, (7) small school district aid, (8) a one-time payment of interest on unsecured property taxes and (9) court and other mandates.11

Each of the special programs or formulas at issue is designed to address special costs and needs experienced to varying degrees by different school districts and school children.   The particular operations and aims of these programs as disclosed by the evidence are as follows:

1) Minimum guarantee funds —The concept of a minimum guarantee was first established by AB 8, Stats. 1979, Ch. 282, § 31 (current version at Ed.Code § 42238(k)).   Originally the minimum guarantee assured districts 102% of the revenue obtained from their prior year's base revenue limit plus the declining enrollment plus the prior year's minimum guarantee, if any.   In AB 777, Stats. 1981, Ch. 100, § 8, Ed.Code § 42238(k), the minimum guarantee was reenacted;  it was reduced to a 100% guarantee for any district with a revenue limit equal to or greater than $3,000 per ADA.   The 1982 Budget Act reduced the guarantee to 100% for all districts.   Stats. 1982, Ch. 326, Item 6100–101–001, Provision 6.

The minimum guarantee is designed to help districts with rapidly decreasing revenues adjust to their new financial circumstances.   It is one of the few mechanisms in the system of school finance that assures the modicum of budgetary stability necessary to program planning.   As a practical matter, the minimum guarantee generally comes into play in cases in which declining enrollment is so severe that, despite the declining enrollment adjustment, a district would find it necessary to make immediate and drastic expenditure reductions that would be disruptive to the educational needs of its students.

It is undisputed that prior to 1982–83 the guarantee had little or no effect on closure.   In the 1982–83 fiscal crisis, approximately one-half the districts in the state, including both high and low revenue districts, received minimum guarantee money.   The sharp increase in the number of districts receiving the guarantee in 1982–83, when constraints on educational financing were most severe, demonstrates ․ the importance of this mechanism in providing districts some year-to-year financial stability so that they may sustain the quality of education at some reasonable level while adjusting to other changes in educational financing.

2) Declining enrollment —The declining enrollment adjustment is designed to cushion the effect of losses in enrollment.   It provides school districts that experience declining enrollment in excess of 1% with a two-year transition period in which to reduce their expenditures to reflect decreasing ADA.   The benefits of the program are available only for the two years following any covered decline in enrollment, with funding on the basis of 75% of the lost ADA the first year and 50% of the lost ADA the second year.

The declining enrollment adjustment is designed to address the inelasticity in costs that declining enrollment districts face.   For example, a district cannot automatically or immediately adjust for the loss in revenue due to loss in ADA by cutting its staff or reducing its fixed costs.   This inelasticity severely limits any discretion a district might otherwise exercise in the expenditure of declining enrollment funds.   The evidence with respect to the importance of declining enrollment funds in meeting fixed costs that continue despite decreases in enrollment was uncontradicted.

The ․ testimony of school administrators as well as the plaintiffs' computer runs demonstrate that districts vary tremendously in the extent to which they experience declining enrollment.

They also vary, of course, in their inelastic costs, which will tend to be a percentage of overall costs.   Due to legal requirements that layoffs occur in reverse order of seniority (Ed.Code § 44955), districts that are higher spending in part because they have more senior teachers at the high end of the salary scale will have a particularly high percentage of inelastic costs accompanying declining enrollment, resulting in a sometimes substantial and unavoidable higher cost per pupil after a decline in enrollment.   The evidence shows that many higher spending districts in fact experience this problem, although both high and low revenue districts experience declining enrollment and inelastic costs.   The declining enrollment adjustment addresses these problems without a burdensome and expensive district by district assessment of the effects of declining enrollment.

3) Meals for needy pupils —The parties on various occasions have referred to plaintiffs' challenge to the funding for the meals for needy pupils program.   However, [during trial] it became apparent that plaintiffs' challenge is really to only one component in such funding.   That component is currently known as the meals for needy add-on.   Other unchallenged sources of funding for a district's meals for needy program include federal funds as well as other state funds.

Meals for needy programs, regardless of their mix of funding sources, are programs through which school districts provide free and reduced price meals to children from low income households.   From the evidence, it is apparent that the numbers of needy children and consequently the need for such programs vary tremendously from district to district.   Additionally, as noted above, the state meals for the needy add-on which plaintiffs have challenged is not the only source of funds for the meals for the needy program.   For example, Lucia Mar, which receives no state add-on revenues, funds its program from a combination of general purpose revenue and federal funds, with the “vast majority” being federal funding.   Other districts, such as Roseland, receive both state add-on and federal funding.   No comparative data was presented as to the level of overall funding, from all sources, that districts receive for this program or as to the level of other state and federal funds received for this purpose.

The current meals for the needy add-on, which began in 1978–79, took as its starting point the level of meals for the needy funds that districts levied by means of a meals for the needy permissive override tax in 1977–78.   This permissive override was an additional tax which districts could levy specifically for meals for the needy programs and not to exceed $.05 per $100.   It was eliminated in 1978.   Stats. 1978, Ch. 292, § 31.   However, any 1978–79 meals for the needy money that a district received was reduced, as part of a district's block grant, by a reduction factor of as much as 15% in high spending districts and as little as 9% in low spending districts.   In subsequent years, the meals for the needy add-on has been adjusted annually for pupil participation and inflation.   Stats. 1979, Ch. 282, § 31, previously Ed.Code § 42237 (current version at Ed.Code § 42241.2).

The meals for needy permissive override tax, like other permissive override taxes, was abolished in 1978.   Stats. 1978, Ch. 292, § 31.   There is currently no link between the meals for the needy add-on and district property wealth.   Nor do districts any longer have the option of raising more money for these programs based upon local property wealth, tax rates, or a combination thereof.

4) Deferred maintenance —The deferred maintenance program provides state matching funds for the repair and maintenance of school buildings and facilities.  Ed.Code §§ 39618–39619.   The evidence disclosed that some of these facilities have been deteriorating for as many as 15 years.   Deferred maintenance funds may not be used for any purposes other than those identified in a district's deferred maintenance plan.

By the mid-1970's, the cost of necessary but deferred school maintenance in California was estimated at $600 million.

The deferred maintenance program was established in 1979 to meet the problem of losses in capital investments and property values arising from districts giving low priority to the maintenance and repair of their facilities.   AB 8, Stats. 1979, Ch. 282, §§ 18–21 (current version at Ed.Code §§ 39618–39621).

This funding program is designed to insulate school district maintenance funds for necessary major repairs and critical maintenance, such as plumbing, heating, roofing and floor systems.   Historically, repair and maintenance needs had lost in the competition for such funds to personnel compensation demands and the financial needs of other district programs.

Despite the great need, funds for deferred maintenance are limited.   It was undisputed that deferred maintenance needs vary considerably from district to district.   Consequently, use of a statewide average to distribute deferred maintenance funds makes no sense and virtually assures inequity.   It was also undisputed that any district-by-district assessment of maintenance needs would be burdensome, inefficient and uneconomical.   William Whiteneck, who in his capacity as Deputy Superintendent for Administration, served on the State Allocation Board at the time that Board was making recommendations on deferred maintenance, testified that in developing a formula, “the most reliable data for statewide commonality happened to be the reports filed on the district's general fund.”   In order to distribute the limited funds available without the burden and expense of complex analyses, the formula places a cap of 1/212% of a district's general fund on state matching funds for deferred maintenance.   At the same time, a special emergency fund that has no matching requirement nor funding maximum for an individual district assures that districts caught in hardship or emergency situations can have their special needs funded.  Ed.Code § 39619.5.   Five percent of the annual appropriation for deferred maintenance is set aside for this emergency fund.

5) School Improvement Program —The School Improvement Program (SIP) is an innovative program implemented in 1977 and designed to encourage the systematic improvement of pupil performance at the school site level.   AB 65, Stats. 1977, Ch. 894, § 46 (current version at Ed.Code § 52000–52046).   See generally Ed.Code § 52014 et seq.   SIP grew out of the Early Childhood Education Program established in the early 1970s and expanded its concepts of school site reform to grades 4 through 12.   Numerous witnesses called by both plaintiffs and defendant testified to the value and importance of SIP.

By statute, SIP funds must be used pursuant to the school improvement plan developed by a school site council which includes parents, teachers, school administrators and, in secondary schools, students as well.   The plan must address the educational needs of the pupils at the school, specify the school's improvement objectives, indicate the methods by which the objectives are to be achieved, and include a staff development component as well as a method for evaluating whether the school has met its objectives.  Ed.Code §§ 52014–52017, 52019.   These funds must be used at the school sites identified and may not be used to pay for the salaries of teachers already employed by the district, to raise teachers' salaries, or to reduce class size district-wide.

It is undisputed that SIP funds are distributed in equal per pupil amounts to all similarly situated schools that qualify.   As of the time of trial, schools received a $30 per pupil planning grant for one year and annual implementation grants at levels of $148 per pupil for grades K through 4, $90 per pupil for grades 4 through 8 and $65 per pupil for grades 9–12.  Ed.Code § 52046.

The enthusiasm of the various witnesses for this program and the details of their testimony are persuasive evidence that SIP has an established track record of improving education and involving parents in the process of educational planning.

6) Home-to-school transportation —The current formula for state home-to-school transportation aid should be considered in the context of the history of such aid over the past two decades.   The following facts regarding the history and current operation of state home-to-school transportation aid are undisputed.

For over 20 years state aid for home-to-school transportation equalized districts' ability to provide home-to-school transportation.  Ed.Code 1959, § 18055, Stats. 1959, Ch. 2, p. 1194, § 18055 and subsequent amendments.   Prior to the 1981–82 school year, the state aid for transportation was based upon a formula whereby districts with lower tax bases could receive proportionately more state aid, depending on their transportation costs.   See former Ed.Code § 41856 (repealed, Stats. 1981, Ch. 100, p. 238, § 2) and Ed.Code § 41857 (repealed, Stats. 1981, Ch. 100, § 4).

Under this formula, the state gave no transportation aid to the wealthiest districts, but might pay for a significant portion of a low wealth district's transportation costs.   This formula created an inverse relationship between a district's property wealth and the amount of state transportation aid it received.  Id.

After the passage of Proposition 13, districts could no longer levy property taxes for transportation.   A new formula was established in AB 777 to take account of the changed circumstances and alleviate the encroachment into districts' instructional funds that had been occurring as transportation costs rose without any concomitant ability to raise local tax revenues.   Stats. 1981, Ch. 100, § 3 (current version at Ed.Code § 41856).   For the 1981–82 school year, districts were permitted to pull out and add to the transportation reimbursement formula an amount not to exceed the amount by which their 1979–80 approved transportation costs exceeded what would otherwise have been their 1981–82 state transportation aid.  Ed.Code §§ 41856, 42241(e).12  This amount represented the extent to which home-to-school transportation costs were encroaching on the general instructional program and is commonly referred to as the home-to-school transportation encroachment.   This sum was a more accurate measure of actual transportation costs and became the basis for state transportation aid in 1981–82 and succeeding years.  Ed.Code § 41856.   Additionally, when the transportation pullout occurred in 1981–82, the base revenue limit averages were recomputed and the schedule for base revenue limits adjusted downward to account for the pull-out.

Home-to-school transportation aid is a reimbursement.   Consequently, as a practical matter, these funds are tied to and used only for actual transportation costs.   Additionally, any tendency towards excessive transportation cost claims is limited by the fact that approved costs—the only costs for which reimbursement is available—are and historically have been limited to 125% of statewide averages.

Plaintiffs' contention that higher spending districts have more expensive and elaborate transportation systems is unsupported in the evidence.   Indeed, some of the plaintiffs' documentary evidence suggests that lower base revenue districts spend more per pupil for transportation.

Transportation needs and costs vary widely from district to district, and the transportation aid formula properly relies on districts' historical costs.

7) Small school district aid —This is a program that the plaintiffs refer to as small school transportation, but it is not, in fact, transportation aid.   Rather the evidence shows that small school district aid is a program whereby small school districts' transportation costs serve as a proxy to identify and fund districts with special problems related to size and geography—problems such as higher utility rates, small classes and other special costs and needs relating to fewer students and geographic isolation.   These specific costs and needs vary both in quantity and in type from district to district.   They are difficult to measure and are not the subject of regular or reliable reports.   They are, however, reflected in transportation costs, which are readily available in data routinely provided to the State Department of Education by school districts.   Small districts whose transportation costs exceed 3% of their budget are eligible for this aid.

8) Payment of interest on unsecured property taxes —Payment of interest on unsecured property taxes has no bearing on the current school finance system or the status of education funding in the 1982–83 fiscal year, during which this matter was tried.   The parties agree that this was a one-time only payment in 1981–82 to districts a portion of whose unsecured property taxes for 1978–79 had been withheld pending litigation.   See AB 777, 1981 Stats., Ch. 100, § 39.   The only school finance figures that might in any sense be affected by this distribution are those for the 1981–82 fiscal year.   Consequently, the relevance of this program to plaintiffs' case is doubtful.   Additionally, the evidence presented on this issue was insufficient for the court to draw any conclusions about the actual distribution or impact of these funds.   The theory of distribution—that interest earned on funds to which only certain districts were entitled should go only to those districts—does not appear to be either unreasonable or improper.

 9) Court and other mandates —Since January 1, 1978, state law has provided a formula for funding school districts for costs mandated (1) by the courts pursuant to final court orders issued after January 1, 1978, (2) by the federal government through federal statutes or regulations enacted or issued after January 1, 1978, or (3) by initiative statutes or amendments adopted or enacted after January 1, 1978.  Ed.Code § 42243.6.   In short, the legislation was prospective.   When first enacted in 1977, the legislation would have allowed school districts to meet such mandated costs by raising their revenue limits.   Stats. 1977, Ch. 1135, § 2.   Before such increases could be implemented, however, Proposition 13 passed and, as a practical matter, mooted the new authorization.   In 1979, legislation providing for state reimbursement for mandated costs, also with a January 1, 1978 starting date, was enacted.   Stats. 1979, Ch. 282, p. 988, § 31 (current version at Ed.Code § 42243.6).   Before any mandated cost reimbursements are made, the State Controller is required to review the reimbursement request to insure that costs were, in fact, necessary to meet the requirements of a court order, federal or state regulation, or initiative and that the amount requested is not excessive or unreasonable.  Ed.Code § 42243.6.



Resolution of the Serrano and Gonzalez cases requires the court to determine the proper legal standards that must govern each case, as well as to choose among several analytical tools for assessing whether the current system of school finance complies with those standards.   The Serrano case requires interpretation of the judgment and determination of whether principles of res judicata and collateral estoppel bar certain claims raised by defendant.   The Gonzalez case requires the court to choose a standard of review for equal protection analysis and, accordingly, to determine who bears the burden of proof.

A. Serrano v. Priest

 The Serrano II compliance hearing addresses one part of the 1974 judgment:


1.  That the California Public School Financing System ․ is invalid as a violation of ․ the equal-protection-of-the-laws provision of [the California] Constitution.


3. That the following features of said California Public School Financing System, including the SB 90 and AB 1267 legislation pertaining thereto, are violative of said equal-protection-of-the-laws provisions of the California Constitution.


c) Wealth-related disparities between school districts in per-pupil expenditures, apart from the categorical aids special needs programs, that are not designed to, and will not reduce to insignificant differences, which mean amounts considerably less than $100.00 per pupil, within a maximum period of six years from the date of entry of this Judgment.

All other provisions of Paragraph 3 of the judgment have been mooted or resolved by intervening events and changes in the school finance system.

The meaning of the judgment cannot be determined in a vacuum.   The court in 1982–83 had available to it a number of witnesses who testified at the 1973 trial, as well as others familiar with the California school finance system at the time.   In addition, [the trial] court heard many witnesses who are experts in the details of the system from 1973 through the date of trial.

Given that the system of school finance and the overall economic picture have changed dramatically since the 1974 judgment, a determination as to the meaning of the judgment requires analysis of the language from two perspectives.   First, the language must be read from the perspective of the court's intent at the time.   That is, how did the court's language fit the particular factual situation that it then confronted?   Second, in light of today's changed circumstances, what is the most logical and common sense reading of the language which will give effect to the goals of the trial court and the decisions of the California Supreme Court?

Resolution of these issues is not a purely legal matter.  [Based upon the evidence adduced at trial, we are] convinced ․ beyond a doubt that the meaning of the judgment, both in terms of the trial court's intent and how it must be read today, are, at least in part, factual matters.   The meaning of the judgment cannot be divined or implemented by a mere incantation of phrases from the judgment.   That meaning becomes clear, however, from the record in the 1973 trial, from the record developed [in this action], particularly from the testimony of experts who have studied the California system of school finance over the years and from school officials and administrators who have worked and continue to work in the system.

[Firstly, we find] that the term “wealth-related disparities” means disparities caused by differences in assessed valuation.   In the context of the 1973 school finance system this term had a discernible meaning and import.   Although there was never a direct causal link between a school district's assessed valuation and its funding levels, the court found in 1973–74 that disparities were “largely”, though not totally, the result of variations in assessed valuation.   The trial court properly inferred that statistics showing what was presented to it as a high correlation between assessed valuation and per-pupil spending did in fact represent a causal link because the system was characterized by great freedom to use high assessed valuation to support schools.   It was therefore reasonable to require reduction of disparities caused by wealth—“wealth-related disparities”—to insignificant differences.   And, in light of the legal theory of this case, it remains both reasonable and necessary to interpret wealth-related disparities as those caused by differences in property wealth․

Second[ly], given the character of school finance data available, it is apparent that the term “per pupil expenditures” in the 1974 judgment is used interchangeably with per pupil revenues, as [used here].

Third[ly], [this] court finds that the term “categorical aids special needs programs”, in the context of the evidence in the 1973 trial and in the 1982–83 compliance hearing, means programs measured by or designed to address variable special student needs or district needs and costs.

Finally, the clause “insignificant differences, which mean amounts considerably less than $100 per pupil” contains the language most disputed between the parties.   The question, simply put, is whether [this] court should focus on “insignificant differences” or on the $100 figure.

[In our opinion], based on the record of the first trial and the decision of the California Supreme Court as well as the extensive evidence presented [in this action], that the language requires that disparities in per-pupil expenditures caused by district property wealth must be reduced to insignificant differences.   Whether those differences are significant can only be ascertained by looking at the current school finance system as a whole to determine whether any wealth-related funding differences which do exist, other than those used to pay for categorical aid special needs programs, are significant.

[We also hold] that even if a $100 figure is to be the standard, that standard has been met․  [T]he factual findings supporting [our] conclusion that the focus should be on “insignificant differences” [is] discussed, [infra. ]  Preliminarily, however, [we address] plaintiffs' assertion that legal principles bar [us] from doing anything other than strictly applying a $100 standard regardless of intervening events.

The plaintiffs argue that the $100 standard is the law of the case and that principles of res judicata require absolute adherence to the $100 standard.   Although these legal theories overlap, [we] address them separately.

1. Res judicata

 Plaintiffs argue that because of res judicata the $100 figure as presented in 1974 governs any analysis of California school finance.   The $100 figure is found only in the paragraph of the judgment that sets forth the unconstitutional features of the system as it existed in 1974.13  Much of the testimony at that trial concerned the length of time it would take for SB 90 to achieve closure.   See Serrano v. Priest, 18 Cal.3d 728, 744, 135 Cal.Rptr. 345, 557 P.2d 929 (1976).   In that context, the Supreme Court's meaning is clear.   It was concerned that SB 90 would never reduce wealth-related disparities to insignificant differences for the simple reason that it permitted tax overrides outside the revenue limit system.   The $100 figure may have made sense as a means of controlling those overrides in the absence of more sophisticated ways of measuring equity.

Paragraphs 5, 6, 8, 9 and 10 of the judgment each say in slightly different ways that the Legislature must “design, enact into law, and place into operation” a system that fully complies with the equal protection of the laws provisions of the California Constitution.   Nowhere does the judgment say that disparities in excess of $100 would be an unconstitutional feature of a system other than the one before the court in 1974.

The propriety of the $100 figure as a lasting measure of equity or constitutionality was not “decided” in the usual sense by the 1974 judgment.   Neither plaintiffs nor anyone else presented expert testimony in 1973 as to what permissible spending disparities should be, nor how to measure them, either in 1974 or as projected into the future.  [An] examination of the records of the first trial as well as the evidence now before the court compel the conclusion that the 1974 language cannot be read to bind California forever to a $100 figure regardless of intervening events.

Finally, this proceeding is based on the continuing jurisdiction maintained by the superior court.   The invocation of that jurisdiction by plaintiffs belies the finality of the previous judgment for these purposes.   So long as [our holdings are] consistent with the California Supreme Court decision, the specific prior language of the judgment is not carved into stone by the doctrine of res judicata.

2. Law of the case

Witkin describes the principle of law of the case as follows:

The decision of an appellate court, stating a rule of law necessary to the decision of the case, conclusively establishes that rule and makes it determinative of the rights of the same parties in any subsequent retrial or appeal in the same case.  [9 Witkin, California Procedure (3d Ed.1985) § 737 (emphasis added).]

 The doctrine of law of the case does not extend to facts.   People v. Shuey, 13 Cal.3d 835, 842, 120 Cal.Rptr. 83, 533 P.2d 211 (1975).   Thus, additional evidence essentially different from that received at the first trial, presenting new substantive facts is not subject to the doctrine.   See Estate of Baird, 193 Cal. 225, 245, 223 P. 974 (1924).

 The $100 standard is not a rule of law, nor was it necessary to the decision on the first trial or appeal in Serrano.   The evidence presented by the defendant here concerning various equity measures and the implications of their use is essentially different from that presented [in 1974].  Indeed, plaintiffs concede that “one measuring the equity of a school finance system for the first time would not look exclusively at the range.” 14  In addition, the evidence concerning the operation of AB 8/AB 777 presents new substantive facts that are not governed by the law of a case that arose out of an entirely different set of facts.

As discussed above, the $100 figure is not a rule of law.   It was simply an unconstitutional feature of SB 90.   The rule of constitutional law to which it relates is that equal protection requires that wealth-related disparities in school expenditures not exceed insignificant differences, that is, they cannot be such as to substantially affect the quality of education.  18 Cal.3d at 747–48, 135 Cal.Rptr. 345, 557 P.2d 929.   That the $100 figure was not necessary to the determination of that constitutional mandate is clear from the absence of any discussion of the standard in the trial court's findings or conclusions, or in the Supreme Court's opinion in Serrano II.   Nothing in the Supreme Court's opinion in Serrano II suggests that the $100 figure was necessarily presented to and decided by that tribunal.   See Felder v. Felder, 247 Cal.App.2d 718, 721–22, 55 Cal.Rptr. 780 (1967).

Application of the rule of the law of the case is subject to the qualifications that

the point of law involved must have been necessary to the prior decision, that the matter must have been actually presented and determined by the court, and that application of the doctrine will not result in an unjust decision.

People v. Shuey, supra, 13 Cal.3d at 842, 120 Cal.Rptr. 83, 533 P.2d 211, quoting Pigeon Point Ranch, Inc. v. Perot, 59 Cal.2d 227, 231, 28 Cal.Rptr. 865, 379 P.2d 321 (1963).

See [also] Selby Constructors v. McCarthy, 91 Cal.App.3d 517, 522, 154 Cal.Rptr. 164 (1979).   In this case, none of the above criteria applies.   The $100 figure is not a point of law.   It was neither necessary to the prior decision nor “actually presented and determined” by the California Supreme Court.   Most importantly, rigid adherence to a $100 standard will result in an unjust decision.

The $100 figure may have been suited to the problem faced by the court in 1974.   The judgment was drafted to deal with that economy, with that balance of state, federal and local funds, in that teacher market and in those days of expanding enrollment, rising expectations, and local funding control.

Today, spending increases are tightly controlled—and constrained—by the state.   The system is no longer one in which every district may set its own spending level.   Local control has been replaced by centralized state control.

The world in which California schools operate has changed.   Undue emphasis on the $100 figure would be inappropriate.   Rather, both fact and law lead this court to interpret the judgment to require elimination of all but “insignificant differences”.  [We find, however,] that the $100 figure, adjusted for inflation, should be used together with other measures to determine whether the state has complied with the judgment.

3. The standard for measuring compliance with the judgment

 [This] court must choose a legal standard for resolving whether the state has complied with the Serrano judgment—i.e., whether wealth-related differences in school spending have been reduced to insignificant differences.   The most useful precedent available to the court in choosing that standard is Crawford v. Board of Education, 17 Cal.3d 280, 130 Cal.Rptr. 724, 551 P.2d 28 (1976).

In Crawford, the court held that school boards bear a constitutional obligation to undertake “reasonably feasible” steps to alleviate racial segregation in the schools, regardless of its cause.   The Crawford court emphasized the complexity of school desegregation and the tendency of some solutions to spawn more problems than they solve:

In light of the realities of the remedial problem, we believe that once a court finds that a school board has implemented a program which promises to achieve meaningful progress toward eliminating the segregation in the district, the court should defer to the school board's program and should decline to intervene in the school desegregation process so long as such meaningful progress does in fact follow.   A court should thus stay its hand even it if believes that alternative techniques might lead to more rapid desegregation of the schools.   We have learned that the fastest path to desegregation does not always achieve the consummation of the constitutional objective;  it may instead result in resegregation.  Crawford, supra, 17 Cal.3d at 286, 130 Cal.Rptr. 724, 551 P.2d 28 (emphasis added).

The court cautioned lower courts to defer to the local school board if the board demonstrates “its commitment to the necessity of immediately instituting reasonable and feasible steps to alleviate school segregation.”  17 Cal.3d at 306, 130 Cal.Rptr. 724, 551 P.2d 28.   The court concluded:

If such a commitment is translated into an ongoing desegregation program which produces meaningful progress in the elimination of segregated schools, a court has reason to be confident that the constitutional rights of minorities are not being ignored and that a quality, desegregated education for all of a district's school children will be provided.  17 Cal.3d at 306, 130 Cal.Rptr. 724, 551 P.2d 28.

The Court recently confirmed the continuing applicability of the Crawford standard in McKinny v. Board of Trustees, 31 Cal.3d 79, 181 Cal.Rptr. 549, 642 P.2d 460 (1982), noting that the Crawford case “structured a limited role for the courts in overseeing the desegregation process.”  31 Cal.3d at 94, 181 Cal.Rptr. 549, 642 P.2d 460.   See also Inmates of Sybil Brand Inst. for Women v. County of Los Angeles, 130 Cal.App.3d 89, 103, 181 Cal.Rptr. 599 (1982) (“However, in requiring an end to any alleged equal protection violation, the court may consider relative financial as well as social ‘costs' in weighing alternative approaches to a solution”, citing Crawford ).

It is this court's view that the proper standard for testing compliance with the judgment is whether the Legislature has done all that is reasonably feasible to reduce disparities in per-pupil expenditures to insignificant differences.   As is discussed, ․ the state has met this standard and surpassed it.   Disparities have, by any measure, including the $100 band, been reduced to insignificant differences in 1983.

B. Gonzalez v. Riles

 The court must decide the proper standard for equal protection review in Gonzalez v. Riles.   All parties agree that education is a fundamental interest.   It does not follow, however, as plaintiffs argue, that every statute that touches upon education should be subject to strict scrutiny nor that the Legislature should be required to justify every educational classification with a necessary and compelling state interest.   Indeed, to do so would seriously impair the right itself.

Unlike other fundamental rights such as the right to privacy or the right to freedom of speech, education is an area in which the state is and must be intimately involved.   The Education Code of the State of California contains tens of thousands of provisions.   There are 1,041 school districts in the state, in each of which countless decisions are made every day that affect the education of the state's 4 million school children.   To apply strict scrutiny to every provision and decision that affects some child's educational interest would thrust the judiciary into the impossible and unwarranted task of virtually operating the public school system, converting the courts into the school administrator of last resort.   In addition, it would seriously impede the legislative and administrative experimentation and innovation that are necessary for the education system to keep pace with new technology and a changing student population.

The California Supreme Court has never held that the fundamental interest in education is sufficient, standing alone, to trigger strict scrutiny.

In Serrano II, the California Supreme Court consistently and repeatedly linked wealth and education:

Concluding on the basis of the complaint that the case before us involved both a “suspect classification” (because the discrimination in question was made on the basis of wealth) and affected a “fundamental interest” (education), we proceeded to apply the latter standard [strict scrutiny].  18 Cal.3d at 761, 135 Cal.Rptr. 345, 557 P.2d 929 (emphasis added).

Because the school financing system here in question has been shown by substantial and convincing evidence produced at trial to involve a suspect classification (insofar as that system, like the former one, draws distinctions on the basis of district wealth), and because that classification affects the fundamental interest of the students of this state in education, we have no difficulty in concluding today, as we concluded in Serrano I, that the school financing system before us must be examined under our state constitutional provisions with that strict and searching scrutiny appropriate to such a case.  18 Cal.3d at 766, 135 Cal.Rptr. 345, 557 P.2d 929 (emphasis added;  footnote omitted).

The classification here in question, which is based on district wealth, clearly affects the fundamental interest of the children of the state in education, and we hold here, as we held in Serrano I (see especially [5 Cal.3d] pp. 614–615, [96 Cal.Rptr. 601, 487 P.2d 1241] ).  that this combination of factors warrants strict judicial scrutiny under our state equal-protection provisions.  18 Cal.3d at 766, n. 45, 135 Cal.Rptr. 345, 557 P.2d 929 (emphasis added).

For the reasons above stated, we have concluded that the state public school financing system here under review, because it establishes and perpetuates a classification based upon district wealth which affects the fundamental interest of education, must be subjected to strict judicial scrutiny in determining whether it complies with our state equal protection provisions.   18 Cal.3d at 768, 135 Cal.Rptr. 345, 557 P.2d 929 (emphasis added).

Since such system before the court was shown on substantial evidence to involve a suspect classification (based on district wealth) and to touch upon the fundamental interest of education, the trial court properly followed Serrano I in subjecting it to the strict scrutiny test ․ 18 Cal.3d at 776, 135 Cal.Rptr. 345, 557 P.2d 929 (emphasis added).

Although Serrano is cited on occasion for the general proposition that education is a fundamental right, see San Diego Teachers Assn. v. Superior Court, 24 Cal.3d 1, 18, 154 Cal.Rptr. 893, 593 P.2d 838 (1979) (Richardson, J., dissenting), only cases involving both that right and a suspect classification such as wealth or race have been subjected to strict scrutiny by California courts.  Serrano II, supra;  Crawford v. Board of Educ., supra, 17 Cal.3d 280, 130 Cal.Rptr. 724, 551 P.2d 28 (1976) (school desegregation);  see also Tinsley v. Palo Alto Unified School District, 91 Cal.App.3d 871, 154 Cal.Rptr. 591 (1979) (interdistrict school desegregation).

To apply strict scrutiny to every statute that affects education would mean that every legislative classification—from the length of the school day to the level of funding for every categorical program—would be presumptively unconstitutional unless the state proved a compelling state interest.   A simple example illustrates how inappropriate it would be to impose such a burden of justification whenever a plaintiff raises a claim based on education.

 The current system of financing draws distinctions based in part on the size and type of school districts.  Ed.Code § 42238.   Thus some spending differences among different sizes and types of districts are directly related to the fact that the Legislature has determined, for example, that it is more costly to educate high school pupils than to educate elementary school pupils.   Not all educational policy makers agree with that general proposition, however.   For example, plaintiffs' expert John Leppert testified that “rational people will even disagree whether or not primary schools should be given more money than a high school should.”   Absent a showing that this distinction is linked to a compelling state interest, this classification would fall under the strict scrutiny test.

Mr. Leppert, testifying for plaintiffs, summed up the difficulty of requiring a compelling state interest for every difference in educational spending:

Q. Is it your opinion, as an educator, that it's important for a state legislature to be able to make such choices?

A. Yes.

Q. Why?

A.  There are few absolute truths in this world, and the area of financing education is hardly one of them.

For a court to subject funding differences to strict scrutiny would involve the court in legislative decisions for which it is institutionally ill-suited.   In the face of the resulting uncertainty, experimentation necessary to meet changing educational needs might cease for fear of the inability to show the requisite “necessity”.

The standard of review applicable to Gonzalez is therefore whether the funding disparities challenged by the plaintiffs bear a rational relationship to a “realistically conceivable legislative purpose.”  Grimshaw v. Ford Motor Co., 119 Cal.App.3d 757, 835, 174 Cal.Rptr. 348 (1981).

 Under this test, as under a strict scrutiny approach, the plaintiffs bear the burden of showing, as a threshold matter, that their right to education has been substantially impaired.   An insubstantial burden on plaintiffs' rights will not trigger an inquiry into the state interests served by the Legislature's approach.   Additionally, under the rational relationship test, unlike the strict scrutiny test, the burden of proof remains with the plaintiffs throughout.

The rational relationship test by no means insulates the statute from review.   California law requires the court to conduct “a serious and genuine judicial inquiry into the correspondence between the classification and the legislative goals” behind it.  Newland v. Board of Governors, 19 Cal.3d 705, 710–11, 139 Cal.Rptr. 620, 566 P.2d 254 (1977).15  [The trial] court conducted such an inquiry.  [T]he reasonableness of the classifications contained in the current system of school finance and their correspondence to legitimate state goals are [discussed], infra.

C. Placentia v. Riles and Lucia Mar v. Graves

The thrust of these two cases is the same as that presented by the Serrano and Gonzalez plaintiffs.  [Our] conclusions with respect to Serrano and Gonzalez apply to both Placentia and Lucia Mar.

The Placentia plaintiffs presented a further issue.   Citing the California Constitution, Article XVI, § 8, they argue that current school funding levels are not “adequate” and that at a minimum schools must have first call on state revenues.   The plaintiffs did not present evidence sufficient to demonstrate that school funding was so low as to be inadequate within the meaning of the Constitution.

 The Placentia plaintiffs also argue that imposing any deficits on lower revenue limit districts violates the Constitution.   When state revenues are less than expected, the state applies deficits to school districts using a flat across-the-board percentage.   This has the tendency to make higher revenue districts absorb a greater share of the deficit than lower revenue districts and is an appropriate and legitimate way of achieving substantial state interests.

On June 23, 1982, the Superior Court of Orange County issued a preliminary injunction requiring the Department of Education to set aside $270,000 in order to repay Placentia for deficits in the event that Placentia prevailed in this action.   That preliminary injunction will be and is dissolved by the judgment in this case.

Lucia Mar included a claim that small school districts were being treated inequitably as a class.   No evidence was offered by plaintiffs on this point and the facts are to the contrary.



Much of the trial testimony centered around two issues:  what unit of measure should the court use in assessing school finance equity and how should it be measured?

With one exception, all witnesses on both sides agreed that some types of funding should be excluded from analysis because they are directed at special needs or costs of either school districts or students.16  Beyond that general consensus, however, there was little agreement between the parties as to how much of the system should be “equalized” in order to attain an equitable system of finance.

The parties likewise disagree on the appropriate measuring device.   The evidence at trial revealed nearly a score of statistical techniques that could be and have been used to measure school finance equity.   The plaintiffs focused their attention on a single measure—the $100 band used to assess the system in 1974.   The defendant opted for a variety of measures, an approach this court finds far more helpful than use of one measure to the exclusion of others.

The [trial] court's choice of the base revenue limit as the unit of measure and its decision to use a variety of measures to assess equity [is] based on the testimony of expert witnesses and school officials as to the correct definition of general purpose revenues, the structure of the school finance system, the proper definition of a categorical aid, and the way in which special needs encroach upon the allocation of general purpose revenues.

A. Base Revenue Limit Per ADA as the Unit of Measure

 Before [it can be assessed] whether school spending differences have been reduced to insignificant differences, it must [be] determine[d] what portion of school spending to review.   The Serrano II judgment expressly excluded from its reach “categorical aids special needs programs”.   The plaintiffs argue that the proper unit of analysis is what they term “general spending”, which they define as the base revenue limit plus several special funding programs.   Yet the parties generally agreed that special needs programs should not be “equalized” because it would be inequitable to treat unequals equally—i.e., students or districts that have special needs require more money than those that do not.17

 After reviewing all the evidence, [we conclude], for the reasons set forth herein, that the base revenue limit per pupil is the most appropriate unit of analysis for measuring the equity of the California system of school finance.   In reaching this conclusion, [this] court has determined that all of the special funding programs that plaintiffs seek to include in the unit of measurement are “categorical aid special need programs” as that phrase is used in the 1974 judgment.18

 [This] court adopts the definition of “categorical aid” articulated by Professor Garms:  a categorical aid is either money given as a measure of a special need and proportionate to that need, although not necessarily spent for that purpose, or money given for a special need that must be spent on that special need, without necessarily basing the amount of aid on the extent of the special need.   The [term ․ [“]Special needs[”], for purposes of defining special needs programs, include both student needs and district needs.

This definition fits all of the funding programs beyond the base revenue limit which plaintiffs or their witnesses propose[d] to include in the unit of measure for assessing equity.

Although there was persuasive testimony that even the differences remaining in base revenue limit income reflect differing costs and needs of districts, the base revenue limit is the fundamental element of school funding that all school districts receive.   Therefore, [we conclude] that the base revenue limit per ADA is the proper unit to examine in comparing districts for equity purposes.

B. Exclusion of Categorical Aids, Special Needs Programs

Categorical aids, special needs programs are not covered by the Serrano judgment.   For the reasons that led the court to exclude them in 1974, this court [now] finds that categorical aids, special needs programs should not be included in calculating closure figures to measure equity.   These programs are not wealth-related, and they are not, in any event, discriminatory.   They serve substantial and, indeed, compelling state ends in an appropriate, rational and legitimate fashion.

[We have] examined each of these programs and find[] that they independently comply with the requirements of the California and United States Constitutions.   The major programs and the [trial court's] findings with respect to each are discussed below.

1. Minimum guarantee funds

 As noted earlier, the minimum guarantee is designed to assure districts a minimum level of revenue from year to year based on their prior year's base revenue limit, plus minimum guarantee, if any, plus declining enrollment adjustment, if any.   Under AB 8, the minimum guarantee was a temporary and limited provision created after Proposition 13 in the midst of, and to address special needs arising from, financial upheaval and uncertainty.   It is perhaps the only element of the school finance system that allows districts to engage in any sort of long term planning.

As a practical matter, except for 1982–83 when the Legislature suspended base revenue limit increases, the guarantee has operated only when a district's declining enrollment is so severe that the district faces substantial and immediate program reductions despite the declining enrollment adjustment and any inflation increase.   Whether this special need exists and to what extent will vary from district to district.   Both Professor Benson and Professor Guthrie concluded that this is a special need program that should not be included in equity analysis.  [We agree.]

[We also conclude] that the minimum guarantee is reasonably designed to minimize disruption of the quality of education during times of economic turmoil while the state simultaneously pursues the school financing closure mandated by Serrano II.

2. Declining enrollment

 The declining enrollment adjustment is also a temporary, special need measure, designed to provide a two-year period in which a school district may adjust to the loss in revenues due to lost ADA.19  A district must wait, for example, until it has lost enough students in the same grade to eliminate a class or, on a larger scale, close a school.   This inelasticity of fixed costs severely limits any discretion a district might otherwise exercise in the expenditure of declining enrollment funds.

The evidence convincingly demonstrates that districts vary tremendously in the extent to which they experience both declining enrollment and cost inelasticity.   Professor Benson and Professor Garms agreed that the declining enrollment adjustment should not be included in measuring horizontal equity.   [We are] persuaded that they are correct.

Based on the weight of the evidence, [we] further conclude[] that the formula for computing the declining enrollment adjustment is a reasonable one.   It is designed to alleviate financial disruption and accompanying erosion of educational programs without either the burden and expense that would arise from detailed district-by-district analysis or the inequity that would result from use of statewide averages.

3. Meals for needy pupils

 The evidence clearly demonstrates that the meals for the needy add-on is a special need program aimed at particular children.   The extent of the need varies depending upon the number of needy children in any given district and the availability of other state and federal funds.   This special need program is reasonably designed to advance the important state interest in assisting children from low income households and improving their learning environment.   As a special need program, it should not be included in the unit of equity measure.20

4. Deferred maintenance

 Mr. Rhoads was the only witness to suggest that this special need program should be included in the unit of analysis.   Even Mr. Wilson, whose computer runs include virtually all school funding, excluded deferred maintenance as a matter of policy.  [We therefore conclude] that the deferred maintenance program is a special needs program and is reasonably related to the need to preserve school facilities for educational purposes as well as to protect the state and school districts' capital investment in such facilities.   The particular formulas and procedures involved in the program strike a reasonable balance between fairness, feasibility and efficiency while advancing the underlying state interests described above.   For these reasons, deferred maintenance funds should not be included in equity analysis.

5. School improvement program

 Plaintiffs' and defendant's witnesses agree that the School Improvement Program is a categorical aid.   It permits school districts to do what they otherwise might not be able to do, and meets the specific needs of children.

Ms. Peterson explained why School Improvement monies were not included in defendant's closure figures.   Funding for the school improvement program, once earned:

․ must be spent in a specific way according to a plan that is developed by a local school, not a district but a school, and the plan is meant to address the specific needs of the children at that school.

The system of distribution of school improvement funds is eminently fair in that schools receive the same amount per pupil at any given grade level.   The program is reasonably related to the important state interests of improving the quality of education and involving parents as well as teachers and school administrators in that process.

6. Home-to-school transportation

 Transportation is another categorical program.   There is no question that the transportation needs of districts vary tremendously.   Some districts bus 95% of their pupils and some provide no home-to-school transportation;  some districts cover huge mountainous areas while others are spread out over the flatlands;  some districts must transport their students through heavy snow, while others fight blinding fog.   The evidence was overwhelming that the state aid for transportation is designed—and is used—to meet these varying needs.   The formula for distributing the state aid is reasonable, equitable, realistic, and designed to prevent abuse.21  It would be highly inappropriate to include these special need funds in assessing equity.

7. Small school district aid

 The evidence convincingly demonstrates that small school districts, particularly those that are geographically isolated or whose population is dispersed, suffer particular problems and costs, many of which are difficult to identify and measure.   Small school district aid, as described [, supra,] is a reasonable and appropriate response to this situation.   Funds for these special and extremely variable costs and needs should not be included in assessing equity.

8. One-time payment of interest on unsecured property taxes

 The evidence at trial was insufficient to demonstrate that the 1981–82 one-time payment of interest on unsecured property taxes should be included in the unit for measuring equity.   Indeed, the evidence was that these revenues were not reported in any reliable or regularized fashion, thus making their inclusion likely to be inaccurate and misleading.   This 1981–82 payment certainly has no effect on the current 1982–83 equity picture.   Moreover, precisely because these were one-time-only funds—a fact on which all parties agree—they could not have had any significant effect on the ongoing instructional program in any given district.

9. Court and other mandates

 Funds to satisfy court and other mandates clearly fall within the definition of a categorical aid.   They are specifically and reasonably designed to meet a special need.   Before any reimbursement can be made, the State Controller must review the request to insure that the costs were in fact necessary to meet the mandate and that the amount is not excessive.  Ed.Code § 42243.6.   They should not be included for purposes of measuring closure.

Elimination of the programs discussed above leaves the base revenue limit, and the court finds that it is the proper funding unit for measuring equity.   The base revenue limit is the fundamental element of school funding that all school districts receive.   It is the only ongoing element of school finance that does not expressly relate to the varying special needs of either districts or students.   It is the common denominator.22

C. Statistical Techniques

1. Modern, generally accepted measures of equity

 The evidence is compelling that no single measure of disparity permits accurate and comprehensive conclusions to be drawn about the equity of California's school finance system.   The plaintiffs urge [this] court to rely solely on the $100 band measure, a method of analyzing equity that functions almost precisely like the better-known range measure of disparities.   The range is expressed as the difference in spending between the highest and lowest revenue districts.   While the range has the advantage of being relatively easily explained, it ignores the realities of scarce resources and high inflation that have plagued California's school finance system since the judgment in Serrano II and the passage of Proposition 13.23  Since the range is calculated by subtracting the lowest revenue level per pupil from the highest, a few districts with extreme spending levels have an influence on the result that they would not have if all districts were considered.   Using this or any other single measure of equity poses the hazard that the value judgments it incorporates will unduly influence the conclusion drawn.   Numerous defense witnesses expressly recognized this danger and testified that it is, therefore, important to use a variety of disparity measures incorporating different value judgments.24  Plaintiffs' witnesses, with the notable exception of Stephen Rhoads, recognized the value of using a number of measures.   Thus, ․ the great weight of the evidence supports the need to use a variety of measures.

The court heard detailed expert testimony about the proper statistical approach to measuring school finance equity.   There was no agreement among the experts about which group of equity measures is appropriate for evaluating the California school finance system.   When plaintiffs' witnesses focused on measures other than the $100 band, they indicated a strong preference for those that respond the way the range does to equal proportional and absolute changes in the distribution of school funds, i.e., the restricted range and the variance.   Walter Garms, testifying for the defense, proposed the use of the restricted range or interquartile range, the coefficient of variation, the McLoone Index, and the Gini Coefficient.   E. Gareth Hoachlander and Susan Choy used the standard deviation, the coefficient of variation, and constant variation over time to measure the equity of California's school finance system.   Dr. Robert Berne used no fewer than eleven different equity measures.  ․ [A] wide variety of statistical measures are used to assess the equity of California's school finance system.   This approach is consistent with all of the credible evidence presented on the subject of equity measures.

2. The $100 band adjusted for inflation

 Plaintiffs urge this court to use exclusively a $100 band.  [We have] determined that exclusive use of such a band is not appropriate to effectuate the purposes of the judgment and constitutional requirements.   Nonetheless, because the judgment refers to the band and in order to provide a complete record, [we examine] the equity of the current system, using a $100 band.  [Our conclusions] are set forth [, infra.]  [We] preliminarily [note] that if a $100 band is to be used at all, it must be adjusted for inflation.

It takes $198 today to buy what $100 bought in 1974 and the experts generally agree that this inflation must be taken into account.   Most experts testified, as did Professor Garms, that it would not only be appropriate but that “it would be essential” to adjust for inflation.   As Professor Guthrie put it:  “It is altogether clear that $100 today does not buy what it bought in 1973 or '74 or '75․  The world has changed quickly in that period of time.''   Charles Benson was of the same view.   In short, $100 in 1974 is only relevant in terms of what it can buy today.

Such an approach is not inconsistent with a reasonable reading of paragraph 3(c) of the judgment.   Up until the past decade, modern business history had not seen great rates of inflation.   The Serrano II judgment does not specify any approach toward inflation, and this court has no way of knowing whether [the trial court in 1974] intended to account for inflation or not.   In the absence of any such guidance, Professor Rubinfeld's analysis in response to questioning by plaintiffs' counsel is persuasive:

Q BY MR. ROTHSCHILD:  Are you saying, then, if the policy-maker doesn't say anything about inflation, that means that the policy-maker could not have taken it into account?

A Well, again, I can't be sure a hundred percent of exactly what is in the mind of any one policy-maker, but usually when one is talking about policy—planning for policy, one thinks in terms of what the current dollar is worth․

So the easiest way to do those analyses, it seems to me, is for any policy-maker to think in terms of current dollars and assume that when inflation occurs it will be accounted for.

Professor Rubinfeld's view comports with that of the other experts and makes the most sense:  if the $100 band language of the judgment is to be meaningful, it means that the state must reduce disparities to the level of purchasing power represented by $100 in 1974.25

 The experts presented four methods of adjusting for inflation:

1. Mitchell Polinsky, for the [defense], presented data based on the California and U.S. Consumer Price Indices and on the U.S. Elementary & Secondary School Index.   He testified that of the three, the California Consumer Price Index was the most appropriate because it took into account the special circumstances of California.

2. Dr. Polinsky offered an additional index, however, which he called the California Elementary & Secondary School Index.   He calculated this index from the federal Elementary & Secondary School Index, corrected for California inflation.   Dr. Polinsky testified that this index was the most useful and appropriate because it took into account both the special concerns of schools and specific California inflation.

3. Dr. Hoachlander offered a third measure that dealt with inflation in the context of changes in district revenues, part or all of which may have been due to inflation.   He reasoned that changes in the distribution of base revenue limits are best taken into account by viewing the $100 figure as a percentage of the mean base revenue limit in 1974.   Thus, for unified districts a $100 band would be plus or minus 4.7% around the 1974 mean base revenue limit.   This method accounts for inflation, as well as increases in the base revenue limit that may result from other factors, such as an infusion of state money in a particular year.   Although Dr. Winkler offered a different means of accounting for inflation, neither he nor any other of the plaintiffs' witnesses disputed the appropriateness of this method.

Dr. Winkler, plaintiffs' econometrics expert, agreed with Dr. Polinsky that the CPI was an appropriate index generally, but he would discount that rate for the period prior to 1980 by correcting for the amount of inflation he assumed the trial judge anticipated in 1974.

Dr. Winkler's method, which produces very different results, is not only speculative, but subject to justifiable criticism by other expert economists.   Dr. Winkler asks this court to assume that Judge Jefferson meant to correct for inflation in 1974 and that he had in mind a precise anticipated percentage figure for inflation at the time.   He then calculates a figure for “unanticipated” inflation and would have the court apply that figure.   The adjustment only for “unanticipated inflation” is not supported by compelling economic analysis or by common sense.   Finally, in calculating his inflation figures, Dr. Winkler ignored certain well-established mathematical effects of compounding and made other errors that cast serious doubt on the validity of his conclusions.

There was general agreement that the California CPI or the California Elementary & Secondary Index should be used.   In any event, the California CPI and the California Elementary & Secondary School Index offer almost identical inflation figures for 1982–83 and also for 1983–84.   Thus, use of either inflation figure gives similar results.

Under Dr. Polinsky's method, the adjusted $100 figure equals $198 in 1982.   Because Dr. Polinsky's method has the advantage of simplicity and uses inflation indexes tailored to the field of education, [we conclude that] it is the most appropriate for use in this case.



Having determined the preliminary issues of how and what to measure in assessing school finance equity, as well as the proper legal standards for review, [we] now [apply] those standards to the California system of school finance.

A. The Numbers

 The California Department of Education made its enormous computerized data base available for use by experts on both sides of this case.   Experts for both parties used that data base in computing the results of a variety of equity measures.   In those instances where the parties calculated the same equity measures under the same set of assumptions, the results obtained were identical.   The [trial court found, and we concur] that results presented by the Department of Education are accurate.  [Based upon the foregoing] in 1982–83, 93.2% of the state's ADA [were] in districts within a $100 band adjusted for inflation.   The comparable figure for 1974 was 56%.

In the words of Dr. Charles Benson, the degree of closure is a “remarkable accomplishment”.26

The results using other measures of equity are even more revealing.   Dr. Robert Berne calculated various disparity measures for all districts, using the 1982–83 base revenue limit as the unit of measure and the pupil as the unit of analysis.   With the exception of McLoone's Index, the Gini Coefficient, and Atkinson's Index, which never exceed one (1.0), there is no limit to the highest possible value for the reported disparity indices.27  And for all of the measures except McLoone's Index and Atkinson's Index, for which a result of one (1.0) indicates perfect equity, zero (0) represents perfect equity.   Dr. Berne's results were as follows: 28

Absolute equality is not possible from a practical standpoint, nor is it required by Serrano II.   The foregoing results support the court's conclusion, consistent with that of defense expert Dr. Walter Garms, that California's system of school finance is now equitable.29

The results of the equity measures over time support the conclusion, ․ consistent with that of defense expert Dr. Charles Benson, that the progress toward equitable financial treatment of students since 1974 is a remarkable accomplishment.

Where the revenue limit alone is the unit of measure, Dr. Berne's figures show a trend of improvement since 1974 in California that is unique in his extensive experience in measuring equity in school finance.   Despite the observed tendency of measures like the range and restricted range to show less equity over time while other measures show improvements in equity, even these two measures indicate progress in California.   Between 1974–75 and 1982–83, the range between the highest and lowest large unified districts decreased by 42%, from $1740 to $1004.   The restricted range—the difference between the BRL per student at the 5th and 95th percentiles—declined by 67%, from $519 to $169.

 The California system of school finance has improved dramatically over the last eight years.30

B. Insignificant Differences and Legitimate State Interests

 Given the enormous progress that has been made in California, are the remaining disparities educationally significant, or are they justified by legitimate state interests?  [We conclude] that the remaining differences, whether wealth-related or not, are both insignificant and justified by legitimate state interests.

First, no more than 10 to 30 percent 31 of the differences in 1982–83 base revenue limits were even arguably related to property wealth.32  Dr. Stephen Carroll demonstrated that many school districts that had nearly the same property wealth spent different amounts.   The differences in spending therefore had to be due to some factor other than wealth.

Donald Winkler testified for plaintiffs that the statistical approach described in the Carroll Report does not maximize the relationship between wealth and spending.   Dr. Carroll conclusively showed, however, that Dr. Winkler's testimony was incorrect.

Second, ․ the differences in spending that exist today are justified by the need for an orderly transition from the old wealth-related system to the new state-funded system.   As discussed ․, supra, the state used historical spending patterns as a starting point for the equalization process.   The use of historical spending figures served the following genuine and substantial state interests:

a) to facilitate, with the least overall harm to education, the transition from the local funding system to the statewide funding system required by Proposition 13;

b) to reduce differences in per-pupil expenditures without doing needless and irreparable injury to the education programs of California school children;

c) to deal with the effects of inflation and recession in the midst of the Proposition 13 and Serrano II transitions in such a manner that the least harm was done to education in California.

Third, ․ the remaining differences in spending largely reflect differences in costs and needs among school districts.   It has been amply demonstrated that the same amount of money does not buy the same services throughout the state.   For example, the cost of heating or cooling school buildings varies greatly between extreme desert climates and the moderate weather of the California central coast.

The defendant concedes that the current base revenue limit system is not expressly designed to take into account differing needs and costs.  [It is argued,] however, that over the years the state has identified, where possible, areas of differential costs, such as transportation, and funded them separately from the base revenue limit.

[We conclude, as did the trial court] that the Legislature's program over the past decade of identifying and specially funding differential needs where possible has been both reasonable and effective.   The state's failure to fund every difference in costs and needs across its 1,041 school districts is justified by the lack of precise methods to do so.   For example, differences in teacher costs may be due to local geographic, housing or general economic conditions, or to the relative strength of union or management or to a host of other factors which cannot be precisely identified and funded.   The evidence shows that the differences in teacher costs among districts have been reduced, notwithstanding the inability of the Legislature to set up a uniform system of salary schedules that would be satisfactory for a state as diverse as California.   The testimony at trial fully demonstrates that the Legislature has identified costs where it could and gradually and substantially reduced spending differences in the general base revenue limit money.

Fourth, [as the trial court found], educational offerings are [generally] about the same among similar types of school districts statewide.   There are exceptions, of course.   The curriculum in the Beverly Hills schools surpasses anything else presented to the court.33  But Beverly Hills is neither the norm nor even the “wealthiest” school district in the state.34

The court heard testimony from 17 school superintendents concerning everything from teacher salaries to class size to the state of maintenance in their districts.   Teacher salaries are relatively equal across the state.  [The evidence showed] an $800 difference in maximum teacher salaries.   Nor have plaintiffs demonstrated that class sizes differ significantly across the state.  [Plaintiffs' exhibits showed] differences in average class size of approximately two students between high and low revenue limit districts.35  Finally, the parties presented testimony and exhibits regarding course offerings at the various school districts represented at trial.   The [trial] court was able to discern no pattern of disparity among high and low revenue limit districts with regard to course offerings.

[We think it clear] that the state's efforts to “level up” low revenue limit districts have measurably improved the quality of educational opportunity in those districts.   For example, throughout this long litigation, Baldwin Park Unified School District, a largely minority district located in Los Angeles, has epitomized the low-spending, low-income urban district.   In 1974, it was truly low-spending.   Its base revenue limit of $907.10 was $145.90 below the statewide average for large unified districts.   In other words, its base revenue limit would have had to increase by 16% in order to reach the 1974 statewide average.

[At the time of trial], Baldwin Park's base revenue limit of $1841.9 [was] only $20 below average.36  If this court were to order that the base revenue limits of all districts be brought to within $100 of other districts of the same type and size without any increase in funding, Baldwin Park would receive no additional funds.   Most importantly, the situation in Baldwin Park has improved tremendously since 1973.   Course offerings, teacher salaries, teacher morale and achievement test scores all have improved.37

The improvement in base revenue limits is not limited to Baldwin Park.   Of the 91 districts that belong to the Association of Low Wealth School Districts, 11 have revenue limits above the statewide average for their size and type;  41 of the 91 members' revenue limits were within $50 of the average.

By contrast, the effect of equalization on high revenue districts—particularly when combined with severe declining enrollment and high inflation—has been severe.   Although the present Serrano equalization formula is generally described as one of “leveling up” low spending districts, the reverse is actually true due to the hidden cost of inflation.   Between 1974–75 and 1981–82, districts that were formerly high revenue districts suffered an average 16% decline in purchasing power at the elementary level, a 24% decline at the high school level, and a 19% decline among unified districts.38  Over the same time period, low revenue elementary districts experienced an average 8% increase in purchasing power, high school districts an average 5% decline, and unified districts an average 2% increase.   The San Francisco, Oakland and Berkeley districts have suffered losses in purchasing power of 32%, 15% and 35% respectively.

The actual and potential effects of such losses in purchasing power are far reaching, including the need to reduce teaching, administrative and maintenance staff, the curtailment of important student services, and the reduction and elimination of education programs.   With the exception of Beverly Hills, the former high-spending districts represented at trial were all compelled to make severe budget reductions over the last four years.   San Francisco eliminated 1,141 teaching positions, reducing its teaching staff by 25%.   Oakland laid off 205 regular teachers and 142 special needs teachers in one year alone.

Eastern Sierra Unified, with a student population of 647 spread over 2,615 square miles of mountain and desert, reduced its vehicle fleet 21% and eliminated payments to parents who transported their children to school.

Newport-Mesa has cut its classified support staff by 27 and reduced its counselors from 30 to 19.   The superintendents from high-revenue limit districts described the state of maintenance in their districts as less than adequate.

Districts that must cut their budgets have very few options.   Nearly 85% of most school districts' budgets are made up of personnel costs.   There are, however, practical and legal limitations on the way a district may reduce its personnel costs.   Salary reductions are extraordinarily difficult to make, both because of the legal requirement that districts bargain collectively with their staffs (Govt. Code § 3540 et seq. ) and the fact that teacher salaries are lower than salaries paid to other professionals.   Moreover, districts may not lay off teachers at the high end of the salary schedule in order to reduce costs.   Rather, they must lay off in inverse order of seniority.  Ed. Code § 44955.   By laying off the lowest paid teachers first, districts actually increase their educational costs per student.   Finally, the Education Code permits districts to lay off teachers under only two conditions.   First, a district may lay off teachers in order to compensate for declining enrollment that has already occurred.  Ed. Code § 44955.   Second, a district may lay off in order to reduce a particular program or level of service.   In the first case, a district does not realize any actual savings because of the concomitant loss in revenue caused by the loss of students.   Thus, in order to achieve any real savings, a district must cut or reduce actual programs or levels of service.

But see California Teachers Assn. v. Board of Trustees of the Goleta Union School District, 132 Cal.App.3d 32, 182 Cal.Rptr. 754 (1982), allowing districts to characterize a consolidation of classes as a reduction in services under Ed. Code § 44955.   Even then, a district's savings from program cuts are not proportionate to its loss in staff, due to the requirement that layoffs be made by inverse order of seniority.

The adverse consequences of years of effective leveling down have been particularly severe in high spending districts with large concentrations of poor and minority students.   Some of the state's most urban districts, with high concentrations of poor and minority students, are high-revenue districts.   San Francisco (80.3% minority), Oakland (85.4% minority), Berkeley (53.9inority) and Emery Unified (89.2% minority) are examples.  Others, like rural McFarland with a 76.4% minority composition, are also technically “high-wealth”—that is, their base revenue limits are above the statewide average.  This court finds that poor and minority children require special services and attention and that districts with high concentrations of such children have special costs and needs associated with those children.  The court further finds that categorical funds directed at the special needs of poor and minority children do not adequately compensate districts for the extra costs of meeting those needs.  These districts must therefore use general purpose funds to meet those needs.  Districts that have received little or no inflation increase over the last four years and that have been forced to restrict their budgets severely find it very difficult to meet the special needs of their poor and minority students.  The state has a leg%mate interest in preventing further harm to the educational programs of poor and minority children in high-revenue districts.

The state's efforts to equalize school district spending have improved educational opportunity for students in low spending districts while at the same time limiting the educational offerings available in high spending districts.   Whether intended or not, the effect has been salutary for the low spenders and harmful for the high.   The result is a school system in which educational offerings are roughly uniform, if not uniformly excellent.

 [We conclude, as did the trial court,] that remaining differences in spending are not significant, either mathematically or educationally.   Even if they were, they are justified by the following compelling state interests:

a.  To balance the need to reduce spending differences against the need to minimize disruption to the educational programs of high revenue limit districts;

b. To avoid further harm to poor and minority students with special educational needs;

c. To provide some measure of stability in a time of fiscal crisis;

d. To create a system of school finance that can be administered uniformly across the state's 1,041 school districts;

e.  To take account implicitly of differing costs and needs;

f. To provide an educational system that is equitable, efficient and effective, while at the same time satisfying the other competing demands on the state's budget.39

․ [T]he current system of school finance, viewed in the context of the fiscal pressures confronting the state and other demands on the state budget, is equitable․  [Moreover,] the current system of school finance satisfies all of the legitimate and, indeed, compelling state interests set forth above and that it therefore not only satisfies the rational relationship test but would also satisfy the strict scrutiny standard of equal protection review․  [T]he current system was [not, of course,] the only alternative available to the Legislature in response to the decision in Serrano v. Priest․  [It is], however,] ․ the most effective plan available ․ for coping with Proposition 13, the Serrano mandate, and a state fiscal crisis.40


It is important ․ to note what [these compliance proceedings have reviewed.]

First, the [trial] court ․ found that a wide variety of statistical measures must be used in looking at equity and that those measures demonstrate full compliance with the Serrano judgment and with the state and federal Constitutions.

Second, the [trial] court [concluded] that even if a $100 band were the sole criterion, the band must be adjusted for inflation and that, so adjusted, the figures show full compliance with the Serrano judgment and the state and federal Constitutions.

 Third, the [trial] court [did not use] nor set any de minimis standard or rigid guidelines as to the use of any specific measure of equity or the point at which differences are insignificant and the system constitutional.   An analysis of the school finance system cannot be made with numbers alone.   The parties properly presented far-ranging and diverse testimony from experts and school officials across this state.   The court's [findings] with respect to the measures of equity [are] not made in a vacuum.   [They are] made in the context of the history of California schools in the last decade and a detailed examination of the real, day-to-day practical situation in the state's schools.   In other factual situations it is conceivable that [it] might [be found] that the same levels of disparity reflected in the equity measures might have indeed been significant.  [The trial court did] not hold as a matter of law, for example, that having 93% of California school children in districts within a $100 band adjusted for inflation is an indication that differences are insignificant.   The holding is that on the facts of this case—and at the time of the hearing in this case—having 93% of the children within a $100 band adjusted for inflation has reduced per-pupil expenditures, wealth-related or not, to insignificant differences.   The differences are insignificant in purely numerical terms and, more important, they are insignificant in their effect on the educational quality offered California students.   Finally, the remaining differences are sufficiently small and the cuts experienced by the high revenue districts so severe that further leveling down would produce far more harm than good.   Significantly, that harm would fall most heavily on urban districts with large numbers of minority and disadvantaged children.

Fourth, the [trial court] found a substantial and successful good-faith effort on the part of the state to achieve Serrano equity.   The ․ judgment [herein] is based on the system as of the time of trial.   Because the state has complied with the judgment, there is no further need for [the superior] court to retain jurisdiction over the matter.41

[We end our quotation from the statement of decision of the trial court at this point.]

At the conclusion of trial, the court exercised its discretion pursuant to Code of Civil Procedure section 1032, subdivision (c) and directed both plaintiffs and defendants to bear their own costs.   Neither party attacks this order on appeal.

The judgment is affirmed.



1.   “ADA” stands for average daily attendance.   In this [opinion] the terms “per ADA” and “per pupil” are used interchangeably, as they often were in the trial testimony.

2.   Proposition 13, passed by the California electorate in June 1978 eliminated the use of both voted overrides and permissive overrides.  [See Arvin v. Ross (1985) 176 Cal.App.3d 189, 221 Cal.Rptr. 720.]

3.   Essentially, under district power equalization a school district, no matter how poor, would be guaranteed a certain amount of revenue if it taxed itself at a certain rate.   The idea was to eliminate the effect of differences in the assessed valuation of property from one school district to another.   Because high wealth districts had higher assessed valuations, the tax rate produced excess funds which were subject to recapture by the state for redistribution to low wealth districts.

4.   School finance was not the only government service affected by Proposition 13, of course.   The Legislature was required to provide for dozens of municipal, county and state-wide services that would suffer funding cuts as a result of the measure.

5.   Assembly Bill 8 must be read in conjunction with the yearly Budget Acts, which set specific yearly figures for the funding categories established in AB 8․  [T]he current system, here referred to generally as AB 8, is referred to in some of the evidentiary materials as AB 777 or AB 8/AB 777.   AB 777 (1981 Stats., Ch. 100) and AB 61 (1981 Stats., Ch. 1093) are further refinements of AB 8.   In 1983, the Legislature passed SB 813, which changed many of the provisions of AB 8.   SB 813 is prospective only and is not the subject of these proceedings.

6.   Although this is referred to as an “inflation allowance” or “inflation increase”, as is discussed below, these increases, particularly the smaller increases received by above-average revenue districts, have not kept pace with inflation.

7.   The categorization of districts by size and type was established in recognition of the differential costs associated with the size and type of districts, i.e., small and large elementary, small and large high school, and small and large unified.   For the 1980–81 school year and each year thereafter, these district size and type categories are as follows:Elementary school districts with less than 101 ADAElementary school districts with greater than 100 ADAHigh school districts with less than 301 ADAHigh school districts with greater than 300 ADAUnified school districts with less than 1501 ADAUnified school districts with greater than 1500 ADAEd. Code § 42238(b)–(e).The plaintiffs have not challenged these categories.   Meaningful comparisons of relative revenue limit levels can only be made when districts are categorized by size and type.

8.   For the same reasons that portions of AB 65 had delayed implementation dates, it was appropriate to delay the effect of these new requirements to allow school districts an opportunity to plan for them.

9.   For 1979–80, district base revenue limits were determined by the relationship between a district's base revenue limit for the previous year, 1978–79, and a statewide average base revenue limit for that size and type district for that year.   Districts at the average base revenue limit received an inflation increase of 8.6%.   Those below the average received larger increases, while those above the average received less.  Ed.Code § 42237(b).   After 1979–80, the system moved away from percentage increases to absolute dollar increases.   See Ed.Code § 42238.

10.   This $25 provision was eliminated by AB 777, Stats. 1981, Ch. 100, and replaced by a provision which allowed districts with base revenue limits below the average for their size and type to receive inflation adjustments in excess of the maximum with the only limitation being that the increase cannot exceed 15% of the prior year base revenue limit.

11.   Even if plaintiffs had not abandoned their challenges to all special programs except those listed, such challenges fail due to lack of evidence to support plaintiffs' position with respect to those programs.   Indeed, plaintiffs' evidence as to certain of the above-listed programs, particularly small school district aid, the one-time payment of interest on unsecured property taxes and court and other mandates, is less than complete.   However, ․ these programs [will be discussed] to the extent possible on the basis of the evidence presented.

12.   Although the pullout was not mandatory, most districts had no incentive to leave ongoing transportation costs in the base revenue limit.

13.   Paragraph 3 of the judgment begins:3.  That the following features of said California Public School Financing System, including the SB 90 and AB 1267 legislation pertaining thereto, are violative of said equal-protection-of-the-laws provisions of the California Constitution:  ․

14.   The range is a measure of equity expressed as the difference in spending between the highest and lowest revenue districts.   The $100 figure is a range-type measure.

15.   The mandate, under Newland and Cooper v. Bray, 21 Cal.3d 841, 847–48, 148 Cal.Rptr. 148, 582 P.2d 604 (1978), to engage in meaningful scrutiny has been carefully observed since 1978.   The “serious-and-genuine-inquiry” standard has been expressly applied in Hays v. Fair Political Practices Commission, 25 Cal.3d 772, 787, 160 Cal.Rptr. 102, 603 P.2d 19 (1979);  Farmers Insur. Exchange v. Cocking, 29 Cal.3d 383, 389, 173 Cal.Rptr. 846, 628 P.2d 1 (1981);  Talley v. Municipal Court, 87 Cal.App.3d 109, 114, 150 Cal.Rptr. 743 (1978);  Grimshaw v. Ford Motor Co., 119 Cal.App.3d 757, 835, 174 Cal.Rptr. 348 (1981);  Barme v. Wood, 122 Cal.App.3d 395, 402, 176 Cal.Rptr. 42 (1981);  and Hooper v. Deukmejian, 122 Cal.App.3d 987, 1009, 176 Cal.Rptr. 569 (1981).

16.   The exception was Jack Wilson, who testified for plaintiffs and sought to include virtually the universe of school spending, including numerous special needs programs, within his unit of measure.   Although Mr. Wilson appeared as plaintiffs' witness, plaintiffs do not appear to suggest that the court adopt his all-encompassing unit of measure.

17.   A related question is whether to measure equity according to dollars per district or dollars per pupil.   Use of the district unit of analysis assumes that all districts contain identical numbers of students so that each district affects the equity measure result similarly.   The pupil unit of analysis weights a given district's revenue by the number of students in the district, so that districts with larger student populations have a greater effect on the result of equity measure than do smaller districts.  Id.Though Stephen Rhoads testified that use of both units of analysis is appropriate, others who testified for the plaintiffs indicated that the pupil unit of analysis is the correct one in the context of assessing equity.   Defense witnesses concurred.  [Our] concern, like that of these witnesses, is properly with children, not with districts.   Failure to weight the observed revenue limit by the number of students at that limit distorts the results obtained from equity measures by giving undue influence to districts with high revenues per pupil but very few pupils.   The pupil unit of analysis is therefore the appropriate one.

18.   Even if the Serrano judgment had not specifically excepted categorical aids special needs programs, it would not be appropriate to include these programs in the unit of measure because they address special needs and costs that vary among school districts and school children and do not provide a legitimate basis for comparison in assessing equity.   Additionally, on the basis of facts [presented at trial we find] that each of these programs is rationally related to legitimate state interests.

19.   A district's basic revenue consists of its ADA multiplied by its base revenue limit.

20.   Moreover, because the meals for the needy add-on is based upon the number of meals served, it is misleading to spread these funds over a district's entire ADA so as to add them to the calculation of funds per ADA for equity analysis.   These, however, were the only type of calculations provided to the court by plaintiffs on this issue.   Consequently, even if [this] court were inclined to include this factor, it would have no legitimate evidentiary basis for doing so.

21.   Under the home-to-school transportation reimbursement formula, the state reimburses school districts for costs actually incurred in transporting children from their homes to school.   Reimbursement is limited by a provision that the Department of Education will approve—and thus allow reimbursement—for costs up to 125% of statewide averages and no more.

22.   The base revenue limit has not contained all the same elements from 1973 to the present.   In order to establish a basis for comparing the base revenue limit over time, defendant, after substantial research to develop appropriate assumptions and formulas, recomputed base revenue limit figures for the years prior to 1979–80 so as to make them comparable with later years' figures․  [T]hese adjusted figures are comparable and provide a fair basis for measuring equity over time.

23.   [Omitted.]

24.   [Omitted.]

25.   The importance of adjusting the $100 figure becomes particularly evident if one considers what would have happened if U.S. dollars had increased in value (e.g., by revaluation) instead of decreased in value.   Unthinking deference to the $100 figure in that instance would allow an increase in real disparities despite apparent compliance with the $100 band.   Just as the court would adjust the $100 band to effectuate the overall intent of the judgment in those circumstances, so, too, it must make the necessary adjustments to account for inflation since 1973.

26.   The additional consideration of minimum guarantee funds using the $100 band adjusted for inflation shows that in 1982–83 86.6 percent of all students are within the band.   The figures support only one conclusion:  the current California school finance system distributes funds in an equitable manner.

27.   The magnitude of the numbers on the following chart are determined to some extent by the statistical properties of the measurement formulae.   The variance is relatively large in most distributions, (variance of 2500 when all districts within $100 band, unadjusted for inflation).   The results of other measures tend to be relatively small in most distributions.

28.   Although [this data] was created using district size types that are erroneously defined in that, for example, small elementary districts are defined as those with less than 100 pupils when, in fact, such districts are statutorily defined as those with less than 101 pupils, the results for “all districts” would be the same using correctly defined district sizes and types.   Berne, 15 RT 2160.   The range and restricted range are excluded here for two reasons.   First, the value judgments inherent in them are reflected in the $100 band adjusted for inflation which has already been discussed.   Second, they misrepresent the effects of inflation and scarce resources on equity.   The variance shares with the range and restricted range the property of reflecting as a decrease in equity equal percentage increases in revenues that do not exceed the inflation rate.   In light of the high inflation that has affected the school finance system as well as the rest of the economy over the last ten years, the variance is entitled to little weight in any conclusions drawn from the statistical figures presented at the compliance hearing.

29.   Inclusion of minimum guarantee funds as part of the unit of measure in calculating these measures would not change the court's conclusion that California's system of school finance distributes funds equitably.   This conclusion is based on the equity measure results listed below, which are for all districts, using the base revenue limit plus minimum guarantee as the unit of measure.Perfect EquityName of MeasureC2Actual ValueValueFederal Range Ratio    0.32280.0Relative Mean Deviation    0.05880.0McLoone's Index    0.95331.0Variance30179.150.0Coefficient of Variation    0.09180.0Standard Deviation of Logarithms    0.08500.0Gini Coefficient    0.04450.0Theil's Measure    0.00410.0Atkinson's Index (E=.20)    0.99931.0Atkinson's Index (E=.95)    0.99481.0Atkinson's Index (E=2.50)    0.99141.0Atkinson's Index (E=8.00)    0.97661.0Atkinson's Index (E=50.00)    0.90821.0Atkinson's Index (E=100.00)    0.85991.0Atkinson's Index (E=200.00)    0.82741.0

30.   The plaintiffs argue that the Legislature impermissibly suspended the Serrano equalization formula in 1982–83․  [T]he extent of the fiscal crisis in 1982–83 was such as to fully justify the Legislature's decision not to fund inflation increases for 1982–83.   Additionally, since 1978, the combination of Proposition 13 and the economy virtually required the Legislature to use a gradual rather than an immediate leveling to achieve the substantial equity which has now been achieved.   To do otherwise would have seriously impaired and perhaps destroyed the ability of high revenue districts to provide an adequate education to their students.   Finally, because the differences in 1982–83 are not significant, no further reduction was or is constitutionally required.

31.   The twenty-five percent figure represents the maximum reduction in 1982 base revenue limit disparities that would result from the elimination of differences associated with 1979 property values, while the thirty percent figure reflects the maximum reduction from exclusion of differences associated with 1974 property values.   The relevant figure depends upon whether the concern is with 1974 or 1979 property values.Since the 1978 passage of Proposition 13, Cal. Const., Art. XIIIA, changes in school district property tax rates have no bearing whatsoever on spending.   If the concern is with BRL differences in the most recent year when property values and base revenue limits had some possible connection, the 1979 figure of 10 to 25 percent should control.   The 10 to 30 percent figure is appropriate if the concern is with the possible continuing effects of property values as they stood at the time of the 1974 judgment.   Regardless of which figure is used, [our] conclusions remain the same.

32.   In order to assess the maximum possible relationship between wealth and spending, Dr. Carroll's report assumes that the observed association that existed between district wealth and school spending in 1974 exists today.   As [previously pointed out,] school spending is a matter determined entirely by state law today.   The influence of local property wealth, if there is one, is solely due to the fact that the state rationally and properly used historical spending patterns as a starting point for determining a district's base revenue limit.

33.   It is misleading to compare Beverly Hills' program with the courses available in any of the districts described in plaintiffs' case.   The testimony at trial makes clear that Beverly Hills is in no way representative of high-spending districts.   James Guthrie described it as “quite a bizarre example” and “an exception”.   Kenneth Hall described it as an “aberration”.   The San Francisco and Newport-Mesa Unified School Districts are far more representative of high revenue limit districts.

34.   The McKittrick Elementary School District in Kern County has a base revenue limit over twice that of Beverly Hills.   McKittrick, however, contains only 40 pupils.   Each of the districts whose base revenue limits are over $3000 contains 850 pupils or less.

35.   Genuine controversy exists as to the importance of small class size.   Opinions differ as to what extent class size makes a difference in the quality of instruction.   There is no unanimity even among all of plaintiffs' or all of defendant's witnesses.   Dr. Benson for defendant and Mr. Holland for plaintiffs agree that reducing class size should be a lower priority than resolving other problems.   On the other hand, Dr. Alioto for defendant agreed with Dr. Anton for plaintiffs that class size is extremely important.   Even if the benefits of smaller class size were undisputed, plaintiffs have failed to demonstrate that class sizes differ significantly across the state among high and low revenue limit districts.

36.   The number of districts, as well as the number of students, below the statewide average base revenue limit has greatly decreased since 1974.   Although some districts have not made as much progress as Baldwin Park, most low revenue districts have been brought much closer to the statewide average than they were in 1974.

37.   The list of improvements is impressive.   Baldwin Park's Superintendent testified that the reading and math programs had improved greatly since 1973, that supplies were no longer inadequate, that the bilingual program is now considered one of the best in the state, that teacher salaries are in the top 25% in the area, that teacher morale is higher than ever, that the overall high school program has improved since 1973, and that the district now has solid administrative support at the school site level.   Baldwin Park is not without its problems, however.   Like virtually every other school district in the state, Baldwin Park has been hard hit by inflation and increasingly limited state funds.

38.   The statistics on purchasing power were derived by taking the 1974 adjusted base revenue limit of each district, increasing that revenue limit by 91%—the increase in the California Consumer Price Index from 1974–75 through 1981–82—and then comparing the district's actual 1981–82 base revenue limit with the hypothetically increased revenue limit.   If the actual revenue limit were lower, a decrease in purchasing power was recorded;  if it were higher, an increase was recorded.

39.   Public education receives approximately one-half of the state's budget.   Out of the other half, the state must meet competing claims for important state interests such as welfare and medical assistance, roads and parks and public safety.   Any system of school finance must be compatible with the other interests for which the state must provide.   It must also satisfy all of the interests that must be met by a statewide educational system.   That is, the system must be equitable, but it must also be efficient and effective.

40.   In any system of this magnitude there are individual programs which [may have been administered] differently than the [approach taken by the] Legislature.   Looking at some programs in isolation, however, is more likely to be misleading than instructive.   Plaintiffs attack funding for county schools, for example.   Because those funding mechanisms are part of interrelated and flexible county funding programs, plaintiffs have not and apparently cannot show that the obvious disproportion in allocated funds results in disproportion of either actual funds spent on children or in services provided.   In the absence of such a showing, this court cannot hold those programs unconstitutional.

41.   [Fn. omitted.]


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