Several events have shaped California’s school finance system since the early 1970s when schools received most of their revenue from local property taxes. In 1972 voter demands for property tax relief led to a state plan to freeze the perpupil amount that each school district could collect for general spending. That became known as a district’s "revenue limit."

Concurrently, the landmark Serrano v. Priest court case required the state to sever the close link between local assessed property value and total school district spending. The court focused only on general-purpose operating expenditures, ignoring categorical aid and construction funds. In response to the Serrano decision, state leaders decided in 1976 to force district equalization by adjusting districts’ revenue limits, increasing them faster for low-spending districts so the gap would close over time.