Categorical education programs provide state funding to schools and local education agencies for the purchase of specific types of local services, such as transportation, subsidized meals, and supplemental instruction. California has at least 57 separate categorical programs. This document provides an overview of California's experience with categorical programs and offers recommendations for reform of such programs. Following the executive summary and introduction, chapter 1 defines categorical programs. Chapter 2 provides information on each of the existing categorical programs in K-12 education in California. The third chapter presents a brief history of categorical programs over the last 30 years. Problems with the existing system of categorical programs are identified in chapter 4. Chapter 5 outlines the principles for reform of the state's categorical programs, and the final chapter offers seven recommendations. These recommendations take two general forms: the first four propose to create specific new programs by consolidating or redirecting funds from existing categorical programs; and the last three propose a broad rethinking of major state programs and strategies. Six figures are included. (Contains 68 references.) (LMI)