In an unpublished opinion, the 1st District Court of Appeal in San Francisco dismissed the appeal, which was led by the California School Boards Association. The judges wrote that "there unquestionably is no effective relief that can be granted."
The opinion was signed Tuesday and sent to the governor's administration late Tuesday night.
The coalition had argued that lawmakers violated the state constitution by shortchanging schools and community colleges in the 2011-12 fiscal year budget. It said the state diverted about 1 percentage point of the sales tax for local public safety programs in such a way that it would not count toward the state's education funding formula under Proposition 98, the state's minimum funding guarantee for schools.
The shift away from the general fund meant about $2 billion less to schools that year.
The appellate court affirmed the trial court's decision to deny the petition. The trial court had aid, "Nothing in the language of Proposition 98 or its ballot materials precludes the Legislature from assigning revenue to a special fund that previously had been deposited in the general fund.
The appellate court also found the issue moot after voters in November approved Proposition 30, increasing the statewide sales tax for four years and raising income taxes on high-earners for seven years. The ballot initiative was part of Gov. Jerry Brown's pledge to send more money to schools and guarantee money to local governments for public safety.
It included retroactive language allowing the portion of sales tax revenue dedicated for public safety to be excluded from calculating minimum funding for schools.
"We're certainly pleased that the appellate court upheld the initial ruling," said H.D. Palmer, spokesman for the administration's finance department. "We are sending more money to schools, and that's what Proposition 30 was all about."
The school board association did not immediately return a request for comment Wednesday.