California limits the ability of state and local governments to raise revenues for schools, first through the court-ordered school finance equalization mandate known as the Serrano decision, and then by voters’ approval of Proposition 13, a tax limitation measure.
Existing research on court-mandated school finance reforms similar to California’s Serrano decision indicate that such reforms do not lead to increases in spending that might substitute for education spending. This is both because finance reforms of this type generally do not reduce education spending substantially and because individuals’ responses
to the financial constraints tend to be small.
Similarly, the extent of public sector substitution in the aftermath of a tax or expenditure limit such as Proposition 13 is likely to be limited
because after most such limits, state aid increases to compensate for lost local tax revenue, as was the case in California.