Overall, the statewide dropout rate went up to nearly 22 percent.
Among Latino students, the numbers are worse. They inched up to about 27 percent and among African-Americans, almost 37 percent.
The outgoing superintendent of public schools partially blames the $21 billion in state funding cuts over three years for the rise.
"We have seen the largest disinvestment in public education we've seen in generations. Clearly, that's not helping us address the dropout rate," said Jack O'Connell, the California state superintendent of public instruction.
High school senior Eddie George thought about dropping out at one time because of the pressure to do well, but he says classes were also too boring.
"They don't have a lot of equipment at school, not a lot of sports going on," said George. "They focus more on your education."
But the mayor of California's largest city says budget cuts aren't the only factor contributing to the dismal numbers. He points the finger at the powerful teachers union.
At an education forum, Los Angeles Mayor Antonio Villaraigosa, who once worked for the teachers union, said some California schools have become "dropout factories" for minorities and called union leadership an "unwavering roadblock" to reform that could help turn the dropout rate around.
"They are the most powerful defenders of a status quo that's not working for our kids," said Villaraigosa.
The teachers union fired back.
"You've got to stop doing this finger-pointing, this blame game," said David Sanchez, Calif. Teachers Association president. "Let's start talking about real solutions to solving and working together to provide the best possible education for our children."
The dropout report also noted the graduation rate went up to slightly more than 70 percent.
With thousands of kids opting to get a GED or moving out of state, that decreases the total number of students, making it possible for both the graduation and dropout rates to increase.