Governor May Seek to Repeal Prop. 98 in Bid for Fiscal Cure

Gov. George Deukmejian may propose repealing parts of Proposition 98, the landmark school-funding measure approved by voters Nov. 8, along with sweeping budget “reforms,” Deukmejian Chief of Staff Michael R. Frost said Wednesday.

“All of those things are on the table,” Frost said, looking toward the legislative session that begins Jan. 3.

Deukmejian’s views are an outgrowth of his efforts in recent weeks to balance the new state budget proposal he will send the Legislature on Jan. 10. Frost said that although the budget will grow 7% to 8%, bringing it roughly to the $46-billion range, Deukmejian feels hamstrung by laws and constitutional amendments such as Proposition 98 requiring that some programs be given substantial annual budget increases.

Frost said health, welfare, higher education and financial aid to counties are among the programs the governor is considering cutting, in large part because of Proposition 98, which requires that about 40% of the state general fund budget be spent on public schools and community colleges.

As part of the budget savings, Deukmejian may also ask the Democratic-controlled Legislature to suspend automatic increases in monthly living allowances for welfare recipients, something Democrats traditionally have refused to do.

Passage of Proposition 98 means that school budgets will be increased about $200 million during the current fiscal year, with a boost of as much as $400 million next year over what schools normally would have received. Frost said Californians are “not going to be very happy to see some of the cuts that we have to make in order to put this additional money into (schools).”

State Supt. of Public Instruction Bill Honig, a sponsor of the ballot measure, said if Deukmejian tries to tamper with the voter-approved measure, “We are going to have a knock-down, drag-out fight.”

Honig added: “We will protect Proposition 98. The people just passed it. We have to give it a chance to work.”

Honig, calling Frost’s comments part of a public relations campaign to lay the Deukmejian Administration’s budget woes at the doorstep of Proposition 98, said:

“Their argument that Proposition 98 is causing us major financial and fiscal problems doesn’t make sense. All Proposition 98 does is restore our budget to the level it was at two years ago.”

Deukmejian hinted at working to amend Proposition 98 in his weekly radio address Saturday.

The governor called next year’s budget “the most difficult one I have faced, except for my first year, when I inherited a $1.5-billion deficit.”

Deukmejian said statutory requirements of Proposition 98 and other measures “mandate huge increases in some areas of government, even if it means cutting other areas or offering them no increases at all.”

Deukmejian vowed to “faithfully implement Proposition 98” this year. But he also said he is “going to propose that we reform the budget process so that we can prevent many of the reductions caused by Proposition 98 and provide more flexibility in future years.”

Deukmejian complains that about 92% of next year’s available revenues are already spoken for, leaving him only 8% to finance the rest of state government. He said that simply isn’t enough money to go around.

The Administration’s view of the general fund budget breakdown goes like this: 40% of next year’s budget revenues must go to schools under Proposition 98; an additional 2% must be spent on school-related expenses, such as contributions to the teachers retirement system; 47% must go to meet other requirements, such as mandatory spending on welfare allowances and the Medi-Cal program; and 3% must go into the budget reserve set aside for unforeseen fiscal emergencies. That leaves just 8% for everything else that is not financed out of a “special fund” or bonds.

While Deukmejian and his aides have been lamenting the statutory requirements that burden their budgeting, the governor does have direct influence over some major costs.

One major expense under the governor’s control is the budget reserve. This year the reserve was $600 million, but the governor has said he wants to increase it to $1 billion. This is money that could be spent at Deukmejian’s discretion to finance increases in health, welfare and other programs.

Deukmejian also is committed to giving counties an additional $430 million next year as part of his desire to have the state take over financial support of local trial courts. Deukmejian helped forge the trial court funding agreement.

Another major expense is finding money to give state employees what will amount to an 8% raise next year. Deukmejian, in return for asking state employees to go along with what amounts to a 1% raise this year, moved the bulk of the salary increase into the next fiscal year.

The Republican governor earlier had said he would consider amending or even repealing the voter-approved constitutional amendment that limits the growth of state government budgets. It was passed as Proposition 4 in 1979. Deukmejian’s earlier comments elated opponents of the limit.

But the governor previously had not mentioned that he also wanted to discuss changes in Proposition 98, as well as an end to all automatic annual increases for welfare recipients, guaranteed boosts in programs such as Medi-Cal and various other entitlement programs.

“We are looking at a reform in the budget process that would include all these things,” Frost said, without offering details.

Repeal of Proposition 98 would require another vote of the people. But Frost said Wednesday the governor will try to build a consensus before he undertakes any moves to put an initiative before the voters, and this would require getting the support of other Republicans and various interests with a stake in county government, or health and welfare programs.

Although voters approved Proposition 98, Frost said he believes they might change their minds once they see the governor’s proposed budget.