If you are asking where California taxes go, the short answer is that education and health care take the two biggest bites, followed by prisons and public safety, transportation, pensions for state workers and teachers, interest and principal on past bonds, and a growing set of climate and environmental programs. The personal income tax alone supplies more than 67 percent of General Fund revenue, and that money, together with the sales tax and corporation tax, is what pays for almost everything the state does.
Education Is the Largest Single Category
More state money goes to schools than to anything else. Proposition 98, passed by voters in 1988, sets a minimum funding level each year for K-12 schools and community colleges based on a formula tied to General Fund tax revenue, per-capita personal income, and enrollment. For the 2026-27 fiscal year, the Governor’s budget estimates that guarantee at roughly $125.5 billion, combining about $89.9 billion from the General Fund with $35.6 billion in local property tax revenue. That is a 9.5 percent increase over the prior year.1Legislative Analyst’s Office. The 2026-27 Budget: Proposition 98 Guarantee and K-12 Spending Plan
Most K-12 money flows through the Local Control Funding Formula, which pays a base grant per student that varies by grade. For 2025-26, base grants range from about $10,400 per student in grades 4 through 6 up to roughly $12,750 per student in high school.2California Department of Education. Funding Rates and Information, Fiscal Year 2025-26 Districts with more low-income students, English learners, and foster youth receive supplemental and concentration grants on top of that, so per-pupil spending varies by district.
Higher education draws from a mix of sources. Community colleges share in the Proposition 98 guarantee. The California State University system gets most of its operating revenue from the General Fund plus tuition and fees. The University of California combines state appropriations, tuition, federal research grants, and its own endowment and hospital revenue.
Health Care and Social Services
Medi-Cal, California’s Medicaid program, is the other giant. As of late 2025, about 14.5 million Californians were enrolled, down from a pandemic-era peak above 16 million.3DHCS. Medi-Cal Monthly Eligible Fast Facts It covers doctor visits, hospital stays, mental health treatment, long-term care, prescription drugs, and more for low-income residents, children, pregnant women, seniors, and people with disabilities.
Total Medi-Cal spending for 2024-25 was budgeted at roughly $174.6 billion, which is larger in raw dollars than the education budget. The reason the state’s share is smaller than that number suggests is federal matching: Washington reimburses California 50 percent of most Medi-Cal costs, and 90 percent of costs for people covered by the Affordable Care Act’s Medicaid expansion.4MACPAC. Federal Medical Assistance Percentages by State FYs 2023-2026 A cut to that federal match would force California to either put up billions more in state money or shrink coverage.
State tax dollars also fund CalWORKs, which provides cash assistance and job training to low-income families, In-Home Supportive Services for elderly and disabled residents, and the Supplemental Security Income/State Supplementary Payment program. Each is much smaller than Medi-Cal, but together they account for a meaningful share of General Fund spending.
Prisons and Public Safety
State prisons are expensive. The Governor’s 2026-27 budget proposes about $14.2 billion for the California Department of Corrections and Rehabilitation, with $13.8 billion coming from the General Fund.5California Budget. 2026-27 Budget Summary – Criminal Justice and Judicial Branch That pays for staff, inmate health care (a court-ordered obligation that eats a large portion of CDCR’s budget), rehabilitation programs, and facility operations.
Not all public safety money runs through the state budget. In 2011, California shifted responsibility for people convicted of lower-level, non-violent offenses from state prisons to county jails and supervision programs. To pay for that, the state redirected a share of sales tax revenue and vehicle license fees into a Local Revenue Fund that flows to counties.6California Department of Justice. 2011 Public Safety Realignment Fact Sheet That stream is now constitutionally protected and totals an estimated $10.7 billion for 2025-26, roughly $4 billion of it earmarked for county-level public safety. The California Highway Patrol also receives state funding, and cannabis tax proceeds under Proposition 64 have supplied over $25 million in grants to local law enforcement and crime labs for impaired-driving work.
Transportation
Roads, bridges, and transit are paid for through state fuel taxes, vehicle fees, federal grants, local sales tax measures, and bond money. The biggest recent commitment is Senate Bill 1, the Road Repair and Accountability Act of 2017, which puts roughly $5.4 billion a year into fixing roads, freeways, and bridges and expanding transit.7Caltrans. Senate Bill 1 (SB1) Those dollars are split evenly between state highway projects run by Caltrans and local projects run by cities and counties.
On top of state money, federal transit grants add billions more. The Federal Transit Administration requested $14.6 billion nationwide in formula grants for fiscal year 2026 covering capital improvements, vehicles, rural service, and transportation for seniors and people with disabilities.8Department of Transportation – Federal Transit Administration. FTA Fiscal Year 2026 Budget Estimates California, with the country’s largest population and some of its biggest transit agencies, pulls a substantial slice of that pool.
Pensions and Retiree Health Costs
A large and growing share of state spending never reaches a current service at all. It goes to retirement benefits for former and current state employees and teachers. CalPERS, the California Public Employees’ Retirement System, manages pensions for more than 2 million members and reported a funded ratio of 96 percent as of June 30, 2024, meaning it has about 96 cents on hand for every dollar of future benefits owed.9CalPERS. CalPERS Actuarial Valuation That is strong by national standards, but it still leaves billions in unfunded liability that the state has to chip away at.
CalSTRS, the California State Teachers’ Retirement System, covers educators. Its employer contribution rate has held at 19.1 percent of payroll since 2021, so school districts have to add roughly a fifth of each teacher’s salary toward pension costs on top of the salary itself. The state also makes a direct annual contribution to CalSTRS from the General Fund. These are fixed obligations that limit how much of each tax dollar is available for direct services, and when investment returns miss their targets, required contributions climb.
Paying Off Past Bonds
Some of your taxes go to paying back money the state borrowed years ago. As of June 30, 2025, California had about $80.8 billion in outstanding General Fund-supported bond debt: $71.9 billion in general obligation bonds and $8.9 billion in lease revenue bonds. Debt service for 2025-26 is estimated at about $8.2 billion, nearly all of it from the General Fund.10California State Treasurer. State of California Debt Affordability Report October 2025 That is money that cannot go to schools, Medi-Cal, or anything else. Each bond measure voters approve adds to the fixed obligation.
Debt service currently runs at roughly 2.5 to 3 percent of General Fund expenditures, below the historical average of about 4 percent.11Legislative Analyst’s Office. Overview of State Bond Debt Service That share could rise as new bonds for housing, climate, and school construction come onto the books.
Climate and Environmental Programs
California’s cap-and-trade program requires companies that emit greenhouse gases to buy allowances at quarterly auctions. The proceeds flow into the Greenhouse Gas Reduction Fund, projected at $3.5 billion for 2025-26.12Legislative Analyst’s Office. Cap-and-Invest: November 2025 Auction Update and 2026-27 Budget Context
Starting with 2026-27, Senate Bill 840 sets fixed-dollar appropriations for specific programs instead of the percentage splits used before. The main annual allocations are:
- High-speed rail: $1 billion
- Affordable Housing and Sustainable Communities: $800 million
- Transit and Intercity Rail Capital Program: $400 million
- Community Air Protection Program: $250 million
- Wildfire and forest resilience: $200 million
- Low Carbon Transit Operations: $200 million
- Safe and Affordable Drinking Water: $130 million
Fully funding every statutory allocation under SB 840 takes roughly $4.3 billion in auction revenue a year, so when auctions underperform, lower-priority programs get cut first. The California Air Resources Board also draws from the Air Pollution Control Fund for air quality monitoring and enforcement, and the State Water Resources Control Board runs loan and grant programs for drinking water, wastewater, and groundwater, often financed through revolving funds and voter-approved bonds. State parks run on a mix of General Fund money, user fees, and special funds, and consistently need more than they receive.
When Collections Exceed the Cap
California also has a constitutional ceiling on how much tax revenue the state can spend. Proposition 4, passed in 1979, added Article XIIIB to the State Constitution and capped appropriations from tax proceeds. If revenue exceeds the cap over two consecutive years, the excess has to be split between taxpayer rebates and extra funding for schools and community colleges.13Legislative Analyst’s Office. The State Appropriations Limit The limit, known as the Gann Limit, adjusts each year for population growth and either per-capita personal income growth or per-capita General Fund revenue growth. It has rarely been binding in recent decades, but it remains a mechanism that can send tax dollars back to residents when collections run ahead of what the state is allowed to spend.