The State of California has a highly-centralized public school system in which property taxes for education are gathered into a single pot at the state level and redistributed to local school districts.
The Serrano v. Priest decision, in 1971, found that there were inequalities in per-student spending among various California school districts. Serrano v. Priest was in appeal for several years, but by 1978 the California Supreme Court ruled that the per-student spending inequality violated the California constitution's equal protection clause, and that the state must take control of the collection of property taxes earmarked for school funding and distribute them so that there would be no more than $100 in variation in per-student spending across all K-12 school districts in the state. (This limit has since been adjusted to a requirement of no more than $350 in variation.)
Serrano v. Priest contributed to the passage of Proposition 13 in 1978. The state legislature was about to pass a large property tax increase to pay for increased per-student spending state-wide, but voters in school districts which had directly benefited from higher public school taxes no longer saw a reason to support higher taxes.
Proposition 98 is the third big piece of the puzzle. It guarantees a base level of educational funding. Today, a little over half of the state budget is spent on public education.
Over the years, in addition to the basic per-student allocation, a system of additional "categorical" allocations has evolved.
In the last few years, the state has been experimenting with charter schools. The state limits the number of charter schools that are allowed to exist, but this limit is increased every year. Charter schools are exempted from many of the regulations that regular public schools are subject to, but are held to higher performance standards. However, regulation of charter schools is growing.
Mike Laursen: "The Importance of Education" [PDF 405 KB], Santa Clara Libertarian, May 2004
Mike Laursen talks about how the California public school system has become too centralized and proposes a moderate libertarian approach to reform.
CPEC: California Parents for Educational Choice
An excellent source for parents, or anybody else, interested in increasing parental choice in California schools. This is the non-partisan group that broke the story, buried in California Department of Education statistics, that California has a 33% public high school dropout rate (23% in Santa Clara County).
This article by a CPEC director, Carl L. Brodt, analyzes what it would take to pass a school voucher initiative in California:
"After the Derailment: A Californian looks at the Future of School Vouchers in his State" [PDF 232 KB]
Deb Kollars: "Paying for Schools: A series on how California pays for its schools", The Sacramento Bee:
This series of articles is a good place to start if you want to understand California's public education system.
Ed-Data: California's School Finance System: A Guide
This primer gives basic facts about the California K-12 system.
Summarizes Federal expenditures on the "No Child Left Behind" Act.