The national reform effort in school finance is several years old. The Lawyers' Committee has been actively involved since 1968. Since November 1970, a School Finance Project in the national office has served informally as a clearinghouse and coordinator of school finance suits throughout the country and has:

Provided or arranged for technical assistance in school finance suits in a number of states, including Minnesota, Texas and New Jersey;

Supported Amicus curiae briefs in the Serrano case and in two Texas school finance cases, Rodriquez v. San Antonio Independent School District and Guerra V. Smith;

Helped to forge a coalition of private groups at Columbia University to study and litigate school finance reform issues in the State of New York;

Conducted a major school finance litigation conference attended by more than 100 attorneys from throughout the country interested in school finance reform; Developed a comprehensive set of litigation materials for circulation to attorneys contemplating challenges to state aid formulae;

At the request of the U.S. Senate Select Committee on Equal Educational Opportunity, provided technical assistance and testified at hearings on finance issues in October 1971; and

Assisted and testified before the President's Commission on School Finance. In an effort to reduce or eliminate intra-city (as well as intra-state) funding disparities the Lawyers' Committee has also:

Conducted regional Title I conferences designed to inform community groups and parents of disadvantaged children of their rights under the Elementary and Secondary Education Act and under HEW guidelines providing for expenditure "comparability" and parent advisory groups;

Filed a lawsuit in Chicago challenging intra-city funding inequities, and assisted similar lawsuits in other cities; and

Monitored performance under Title I comparability standards.

AN EXPANDED EFFORT FOR 1972-73

The Lawyers' Committee will expand its School Finance Project for 1972–1973, with the assistance of grants from The Ford Foundation, The New World Foundation, the Potomac Institute and the National Urban Coalition. The expanded project will include two full-time attorneys working in the national offices in Washington, D.C. The project will continue to serve as a back-up resource for attorneys who are challenging state school financing schemes and, where appropriate, it will also serve directly as counsel to groups seeking legal representation. Among other things, the project will:

Assist with legal tactics and theories, including such questions as: selection of state or federal court; the appropriateness of multi-city lawsuits; individual or public plaintiffs; the elements of proof and the use of expert witnesses; supportive resources (e.g., ACIR, universities, NEA); appropriate forms of relief;

etc.;

Sponsor or conduct meetings and seminars to enlist more attorneys and legal scholars in directing their skills toward school finance problems and to advance The knowledge of those already involved; and

Prepare model case materials, law journal articles, model legislation and other legal documents and publications in an effort to educate the legal community and the public about the problem and to stimulate well-directed legal action toward reform.

SPECIAL ISSUES

The development of a constitutional standard to eliminate disparities between "property-rich" and "property-poor" districts involves a number of difficult subissues that will receive special attention from the Lawyer's Committee's project. These include:

The shaping of remedies that will benefit central city school districts, taking into consideration "municipal overburden" and the costs of compensatory education for disadvantaged children;

Means of assuring equitable property tax assessment and collection procedures; and

Methods to insure that school finance reform does not result in "equal but eparate" school districts.

Lawyers' Committee staff is working on these issues with groups who have traditionally been concerned with one or more of these special issues, such as: the National Urban Coalition on urban school problems; the Public Interest

80-973-72- -13

Research Group on property tax reform; and the Center for National Policy Review and the NAACP Legal Defense Fund on issues pertaining to metropolitan desegregation; and the National Committee for Support of Public Schools on Title I and other issues.

IN THE SUPREME COURT OF THE State of California, in BANK

JOHN SERRANO, JR., ET AL., PLAINTIFFS AND APPELLANTS

บ.

IVY BAKER PRIEST, AS TREASURER, ETC., ET AL., DEFENDANTS AND RESPONDENTS

(Filed August 30, 1971; G. E. Bishel, Clerk)

We are called upon to determine whether the California public school financing system, with its substantial dependence on local property taxes and resultant wide disparities in school revenue, violates the equal protection clause of the Fourteenth Amendment. We have determined that this funding scheme invidiously discriminates against the poor because it makes the quality of a child's education a function of the wealth of his parents and neighbors. Recognizing as we must that the right to an education in our public schools is a fundamental interest which cannot be conditioned on wealth, we can discern no compelling state purpose necessitating the present method of financing. We have concluded, therefore, that such a system cannot withstand constitutional challenge and must fall before the equal protection clause.

Plaintiffs, who are Los Angeles County public school children and their parents, brought this class action for declaratory and injunctive relief against certain state and county officials charged with administering the financing o the California public school system. Plaintiff children claim to represent a class consisting of all public school pupils in California, "except children in that schoo district, the identity of which is presently unknown, which school district afford the greatest educational opportunity of all school districts within California. Plaintiff parents purport to represent a class of all parents who have childre in the school system and who pay real property taxes in the county of thei residence.

Defendants are the Treasurer, the Superintendent of Public Instruction, an the Controller of the State of California, as well as the Tax Collector an Treasurer, and the Superintendent of Schools of the County of Los Angeles. Th county officials are sued both in their local capacities and as representatives o a class composed of the school superintendent, tax collector and treasurer c each of the other counties in the state.

The complaint sets forth three causes of action. The first cause alleges in sul stance as follows: Plaintiff children attend public elementary and secondar schools located in specified school districts in Los Angeles County. This publ school system is maintained throughout California by a financing plan or schem which relies heavily on local property taxes and causes substantial dispariti among individual school districts in the amount of revenue available per pup for the districts' educational programs. Consequently, districts with small tax bases are not able to spend as much money per child for education as di tricts with larger assessed valuations.

It is alleged that "As a direct result of the financing scheme . . . substanti disparities in the quality and extent of availability of educational opportuniti exist and are perpetuated among the several school districts of the State. [Par.] The educational opportunities made available to children attending publ schools in the Districts, including plaintiff children, are substantially inferi to the educational opportunities made available to children attending publ schools in many other districts of the State. . . ." The financing scheme th fails to meet the requirements of the equal protection clause of the Fourteen Amendment of the United States Constitution and the California Constituti in several specified respects.1

1 The complaint alleges that the financing scheme:

"A. Makes the quality of education for school age children in California, includi Plaintiff Children, a function of the wealth of the children's parents and neighbors, measured by the tax base of the school district in which said children reside, and "B. Makes the quality of education for school age children in California, includ:

In the second cause of action, plaintiff parents, after incorporating by reference all the allegations of the first cause, allege that as a direct result of the financing scheme they are required to pay a higher tax rate than taxpayers in many other school districts in order to obtain for their children the same or lesser educational opportunities afforded children in those other districts.

In the third cause of action, after incorporating by reference all the allegations of the first two causes, all plaintiffs allege that an actual controversy has arisen and now exists between the parties as to the validity and constitutionality of the financing scheme under the Fourteenth Amendment of the United States Constitution and under the California Constitution.

Plaintiffs pray for: (1) a declaration that the present financing system is unconstitutional; (2) an order directing defendants to reallocate school funds in order to remedy this invalidity; and (3) an adjudication that the trial court retain jurisdiction of the action so that it may restructure the system if defendants and the state Legislature fail to act within a reasonable time.

All defendants filed general demurrers to the foregoing complaint asserting that none of the three claims stated facts sufficient to constitute a cause of action. The trial court sustained the demurrers with leave to amend. Upon plaintiffs' failure to amend, defendants' motion for dismissal was granted. (Code Civ. Proc., § 581, subd. 3.) An order of dismissal was entered (Code Civ. Proc., § 581d), and this appeal followed.

Preliminarily we observe that in our examination of the instant complaint we are guided by the long-settled rules for determining its sufficiency against a demurrer. We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.) We also consider matters which may be judicially noticed. (Id. at p. 716.) Accordingly, from time to time herein we shall refer to relevant information which has been drawn to our attention either by the parties or by our independent research; in each instance we judicially notice this material since it is contained in pubilcations of state officers or agencies. (Board of Education v. Watson (1966) 63 Cal.2d 829, 836, fn. 3; see Evid. Code, $452, subd. (c).)

I

We begin our task by examining the California public school financing system which is the focal point of the complaint's allegations. At the threshold we find a fundamental statistic-over 90 percent of our public school funds derive from two basic sources: (a) local district taxes on real property and (b) aid from the State School Fund."

By far the major source of school revenue is the local real property tax. Pursuant to article IX, section 6 of the California Constitution, the Legislature has authorized the governing body of each county, and city and county, to levy taxes on the real property within a school district at a rate necessary to meet the district's annual education budget. (Ed. Code, § 20701, et seq.) The amount of revenue which a district can raise in this manner thus depends largely on its tax base-i.e., the assessed valuation of real property within its borders. Tax bases vary widely throughout the state; in 1969-1970, for example, the assessed Plaintiff Children, a function of the geographical accident of the school district in which said children reside, and

"C. Fails to take account of any of the variety of educational needs of the several school districts (and of the children therein) of the State of California, and

"D. Provides students living in some school districts of the State with material advantages over students in other school districts in selecting and pursuing their education goals, and

"E. Fails to provide children of substantially equal age, aptitude, motivation, and ability with substantially equal education resources, and

"F. Perpetuates marked differences in the quality of educational services, equipment and other facilities which exist among the public school districts of the State as a result of the inequitable apportionment of State resources in past years.

"G. The use of the 'school district' as a unit for the differential allocation of educational funds bears no reasonable relation to the California legislative purpose of providing equal educational opportunity for all school children within the State.

"H. The part of the State financing scheme which permits each school district to retain and expend within that district all of the property tax collected within that district bears no reasonable relation to any educational objective or need.

"I. A disproportionate number of school children who are black children, children with Spanish surnames, children belonging to other minority groups reside in school districts in which a relatively inferior educational opportunity is provided."

California educational revenues for the fiscal year 1968-1969 came from the following Sources: local property taxes, 55.7 percent; state aid, 35.5 percent; federal funds, 6.1 percent; miscellaneous sources, 2.7 percent. (Legislative Analyst, Public School Finance, Part I. Expenditures for Education (1970) p. 5. Hereafter referred to as Legislative Analyst.)

'Hereafter, unless otherwise indicated, all section references are to the Education Code.

vstolom per unit of average daily attendance of elementary school children' equent from a low of $108 to a peak of $952,156 a ratio of nearly 1 to 10,000. Foudative Aumlyst, Public School Finance, Part V, Current Issues in EducaBest Actrummen (1971) p. 7.)

Plus other factor determining local school revenue is the rate of taxation wildn the district Although the Legislatiure has placed ceilings on permissible art be entes (§ 20751, et seq.), these statutory maxima may be surpassed Ps override" election if a majority of the district's voters approve a dolor entp 18 0803 et seq.) Nearly all districts have voted to override the wurutus Bmits Thus the locally raised funds which constitute the largest poortboy of school revenue are primarily a function of the value of the realty with a particular school district, coupled with the willingness of the district's fudents to fax themselves for education.

shot of the remaining school revenue comes from the State School Fund parent to the foundation program." through which the state undertakes to eugdpumput heat taxes in order to provide a "minimum amount of guaranteed angcor to all districts ..$173000 With certain minor exceptions, the Kangtokom program ensures that each school district will receive annually, stop wwwt nesds $80 for each elementary school pupil (§§ 17656, and was the pet tied wool student. § 17665.)

"

!

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is stored in two principal forms. "Basic state aid" a district of $125 per pupil per year, regardless NFRING (Cat Censt, art. IX. § 6, par. 4: Ed. Code, vand is distributed in inverse proportion to the

ze equalization aid to which a district is entitled. Public Instruction first determines how much local wenig, de generated if the district were to levy a hypoon each $100 of assessed valuation in elementary $100 in high school districts. $17702.) To that per pupil basic aid grant. If the sum of those two reundation program minimum that district, the Terence. (§§ 17901, 17902.) Thus equalization funds www.e districts a basic minimum reve, while wealthier A sach assistance.

egram of "supplemental aid" is able to subsidize hool districts which are willing to make in extra local tax

strict with an assessed valuation of $22.500 or less per $125 more for each child if it sets its local tax rate above For level. A high school district whose assessed valuation does not 20. pupil is eligible for a supplement of up to $72 per child if its lutty high. (§§ 17920-17926.)"

ald determinations are based not on total enrollment, but on "average (ADA), a figure computed by adding together the number of students on each school day and dividing that total by the number of days school LE52, 11301, 11401.) In practice, ADA approximates 98 percent of (Legislative Analyst, Public School Finance, Part IV. Glossary of Oren Used in School Finance (1971) p. 2.) When we refer berein to figures on per child" basis, we mean per unit of ADA.

The period November 1970 to January 1971 the legislative analyst provided to 1ture a series of five reports which "deal with the current system of public nino from kindergarten through the community college and are designed to Working knowledge of the system of school finance. (Legislative Analyst, 1) The series is as follows: Part I. Expenditures for Education: Part II. School Fund: Its Derivation and Distribution: Part III. The Foundation ProPart IV, Glossary of Terms Most Often Used in School Finance; Part V, Current In Educational Finance. a which maintain "unnecessary small schools" receive $10 per pupil less in pton Cands. (§ 17655.5 et seq.) En types of school districts are eligible for "bonus" foundation funds. Elementary eceive an additional $30 for each student in grades 1 through 3: this sum is to reduce class size in those grades. (8 17674 Unified school districts get an 0 per child in foundation support. (§§ 17671-17673.)

is simply a "computational tax rate used to measure the relative wealth of the for equalization purposes. It bears no relation to the tax rate actually set by it in levying local real property taxes. Some further equalizing effect occurs through a special area wide foundation program ricts included in reorganization plans which were disapproved at an election. 1.050 et seq.) Under this program, the assessed valuation of all the individual dis in an area is pooled, and an actual tax is levied at a rate of $1 per $100 for utary districts and 8.80 for high school districts. The resulting revenue is disbuted among the individual districts according to the ratio of each district's founda level to the areawide total. Thus, poor districts effectively share in the higher tax of their wealthier neighbors. However, any district is still free to tax itself at te higher than $1 or $.80; such additional revenue is retained entirely by the taxing trict.

Although equalization aid and supplemental aid temper the disparities which result from the vast variations in real property assessed valuation, wide differentials remain in the revenue available to individual districts and, consequently, in the level of educational expenditures. For example, in Los Angeles County, where plaintiff children attend school, the Baldwin Park Unified School District expended only $577.49 to educate each of its pupils in 1968-1969; during the same year the Pasadena Unified School District spent $840.19 on every student; and the Beverly Hills Unified School District paid out $1,231.72 per child. (Cal. Dept. of Ed., Cal. Public Schools, Selected Statistics 1968-1969 (1970) Table IV-11, pp. 90-91.) The source of these disparities is unmistakable: in Baldwin Park the assessed valuation per child totaled only $3,706; in Pasadena, assessed valuation was $13,706; while in Beverly Hills, the corresponding figure was $50,885-a ratio of 1 to 4 to 13. (Id.) Thus, the state grants are inadequate to offset the inequalities inherent in a financing system based on widely varying local tax bases.

Furthermore, basic aid, which constitutes about half of the state educational funds (Legislative Analyst, Public School Finance, Part II, The State School Fund: Its Derivation, Distribution and Apportionment (1970) p. 9), actually widens the gap between rich and poor districts. (See Cal. Senate Fact Finding Committee on Revenue and Taxation, State and Local Fiscal Relationships in Public Education in California (1965) p. 19.) Such aid is distributed on a uniform per pupil basis to all districts, irrespective of a district's wealth. Beverly Hills, as well as Baldwin Park, receives $125 from the state for each of its students.

For Baldwin Park the basic grant is essentially meaningless. Under the foundation program the state must make up the difference between $355 per elementary child and $47.91, the amount of revenue per child which Baldwin Park could raise by levying a tax of $1 per $100 of assessed valuation. Although under present law, that difference is composed partly of basic aid and partly of equalization aid, if the basic aid grant did not exist, the district would still receive the same amount of state aid-all in equalizing funds.

For Beverly Hills, however, the $125 flat grant has real financial significance. Since a tax rate of $1 per $100 there would produce $870 per elementary student, Beverly Hills is far too rich to qualify for equalizing aid. Nevertheless, it still receives $125 per child from the state, thus enlarging the economic chasm between it and Baldwin Park. (See Coons, Clue & Sugarman, Educational Opportunity: A Workable Constitutional Test for State Financial Structures (1969) 57 Cal. L. Rev. 305,315.)

II

Having outlined the basic framework of California school financing, we take up plaintiffs' legal claims. Preliminarily, we reject their contention that the school financing system violates article IX, section 5 of the California Constitution, which states, in pertinent part: "The Legislature shall provide for a system of

Statistics compiled by the legislative analyst show the following range of assessed valuations per pupil for the 1969-1970 school year:

(Id. at p. 8.)

Elementary High school

Unified

$407
672

$722

$612

898

766

1,767

2, 414

2,586

Similar spending disparities have been noted throughout the country, particularly when suburban communities and urban ghettos are compared. (See, e.g., Report of the National Advisory Commission on Civil Disorders (Bantam ed. 1968) pp. 434-436; S. Commission on Civil Rights, Racial Isolation in the Public Schools (1967) pp. 25-31 Cant, Slums and Suburbs (1961) pp. 2-3; Levi, The University, The Professions, and the Law (1968) 56 Cal. L. Rev. 251, 258-259.)