Accord on State Budget Plan OKd : 2 Prop. 98 School Bills Approved and Signed by Governor

With time running out, Gov. George Deukmejian and legislative leaders reached a last-minute agreement Friday on a complex and far-reaching budget plan to guide state spending through the 1990s.

Pushing up against an inflexible midnight deadline, the Assembly and Senate in rapid-fire order passed a series of bills implementing the plan.

Key elements of the plan, the product of months of negotiations, include:

-- An $18.5-billion, 10-year transportation plan requiring a 9-cent-a-gallon gasoline tax increase.

-- A proposed constitutional amendment to relax the rigid limit on government spending approved by voters in 1979 and to repeal key provisions of Proposition 98, the landmark school funding initiative enacted by voters last year.

Financed by Windfall

-- A two-year, $1.4-billion school spending plan to implement Proposition 98, financed by a $2.5-billion tax windfall.

The two Proposition 98 implementation bills received final approval on a 63-5 vote in the Assembly and by a 38-0 margin in the Senate. The bills were immediately sent to Deukmejian, who said he would sign them prior to the midnight deadline.

“I think we’ve done what the people sent us up here to do on these kinds of major problems,” Deukmejian said at a press conference just before signing the measures.

The proposed constitutional amendment relaxing the 10-year-old spending limit was passed by the Assembly 63-5. A short time later, the Senate passed the measure 34-2. The measure, if approved by voters in the primary election next June, would substantially ease spending restrictions that have kept a lid on state spending for the last three years.

Midnight Deadline

Lawmakers had to enact legislation temporarily easing the spending limit before midnight in order to use $1 billion in surplus revenues from the current 1988-89 fiscal year to help balance the state budget.

Working out the agreement with Deukmejian were the Legislature’s two top Democrats, Senate President Pro Tem David A. Roberti of Los Angeles and Assembly Speaker Willie Brown of San Francisco, and their Republican counterparts, Sen. Ken Maddy of Fresno and Assemblyman Ross Johnson of La Habra.

Late Friday, state Superintendent of Public Instruction Bill Honig withdrew his opposition to the proposed constitutional amendment on the spending limit, saying Deukmejian and the Senate and Assembly leaders did not approve the more objectionable amendments they were considering for Proposition 98.

“They did not propose making the very extreme changes in Proposition 98 that were being considered. Basically, we were successful in beating back efforts to gut 98,” Honig said.

Honig, teachers union officials, school administrators and PTA leaders had threatened to oppose the proposed constitutional amendment in next June’s primary election. Honig was not immediately available for comment on the agreement announced Friday.

Roberti, in announcing the agreement, said legislators kept the key provision of Proposition 98--a guarantee that 40% of state tax revenues would be spent on public schools and community colleges--intact.

Maddy said, “The schools got an unprecedented” guarantee of funding. “I don’t know of any Legislature in the country who has guaranteed a segment of their budget a percentage of general fund revenues.”

The problem for school interests is that Proposition 98 gives them an even better deal: a 40% share of state revenues, plus the lion’s share of all future state tax surpluses. Honig has estimated that the provision giving schools surplus revenues could mean an additional $5 billion to $6 billion for education programs over 10 years.

Roberti, putting the best face on the compromise plan to revise Proposition 98, said legislative approval of the 40% guarantee “institutionalizes what was a weak victory” at the polls. Proposition 98 won by a margin of 135,355 votes, less than 2% of the total votes cast on the measure.

Under the deal cut by Deukmejian and legislative leaders, the proposed constitutional amendment would relax the spending limit so much that fiscal experts say there probably will be little chance of a surplus for at least five or six years.

Pressure to change the spending limit--the product of a grass-roots campaign mounted in 1979 by tax crusader Paul Gann--originally developed because state leaders were frustrated by their inability to put more money into highway construction and mass transit projects.

While polls showed that voters might be willing to support a gasoline tax increase if the money was spent on the state’s overcrowded and underfunded transportation system, funds from a tax hike could not be spent under current law because of the spending limit.

The state currently is operating about $100 million below the spending ceiling, and any significant infusion of money would quickly put it over the limit.

Acute Problem

The problem of finding a way around the limit became even more acute when state officials realized that they would have $2.5 billion more in tax revenues to spend because of surprisingly healthy tax collections.

Faced with the possibility that they would have to turn over the bulk of the surplus to schools or return it to taxpayers, state leaders began negotiating in earnest in May.

What resulted was the plan linking transportation funding, school finance and proposed changes in the spending limit.

Brown described the negotiations as “a long and painful process.”

The package assembled by the veteran political leaders seemed to have a little for everyone.

Key elements of the school finance package, pressed by Assembly Republicans, would put into law new funding formulas that would direct a larger share of surplus tax revenues to rural and suburban school districts. These districts had complained that big city school districts had been getting a disproportionate share of state funds.

Deukmejian and Senate Republicans forced the rollback on Proposition 98, believing that provisions of the measure would increasingly eat up an ever bigger share of the state budget in the future unless amended.

Both Republicans and Democrats put together the transportation funding plan, and that helped rally support for the proposed changes in the spending limit.

Democrats were especially interested in an immediate relaxation of the spending limit because it would free up roughly $1 billion to be spent on health, welfare and other programs that otherwise face sharp reductions in funding.

One Democratic budget writer warned his colleagues that unless they acted by midnight, Deukmejian would be forced to veto $1.5 billion from the $49.4-billion budget sent to him by the Senate Thursday. Deukmejian Administration officials say $1.5 billion is a high estimate but warned that the budget would have to be reduced probably by at least $1 billion if no action were taken.

Deukmejian’s role in organizing the negotiations that led to the agreement was praised by Democrats, who over the years have often been at odds with the governor on budget issues. Sen. Gary Hart (D-Santa Barbara), the author of one of the school finance bills, said, “On this issue, the governor and his staff members . . . played a very constructive role in helping us reach a solution.”