Tinkering Their Way to a Deal

In all of Hollywood, F. Scott Fitzgerald once wrote, only a tiny handful of studio executives could keep the full equation of a movie locked in their minds. The complexity and subtleties of the process were beyond the reach of most mortals.

You can say the same about a California budget crisis. It is symptomatic of this process that the now-famous figure of $12.6 billion--our announced “deficit”--does not apply neatly to the current budget year or the next. It spans both years, covering a period that some claim is 18 months and others 15 months. You can get arguments on this last point.

So the $12.6 billion actually is highly ambiguous. No less threatening. Just slightly unfocused, and elastic.

These ambiguities are not accidental. They are engineered to provide the process with room for maneuver. They keep the unwashed from tinkering, and reserve the field to those few who have mastered the equation.

Take, for example, the very core of this year’s struggle. The governor has demanded, repeatedly and with vitriol, that the Legislature suspend the public schools’ right to collect 40% of the state’s revenues. This is the guarantee established by Proposition 98.

Understand that school leaders regard a suspension of 98 as an affront to the whole idea of the initiative. It was passed as a revenge vehicle after the state government spent most of the ‘80s starving the education budget into emaciation. A suspension amounts to an admission that Proposition 98 cannot provide the protection that was promised.

When the school leaders refused to roll over, Pete Wilson enlivened the debate by describing them as “union bosses” and “repugnant.” The schools responded by trotting out Jesse Jackson to bark at the governor from the Capitol steps.

It’s an impasse that no one can win. Wilson must have a suspension of 98 to solve his crisis. The schools must maintain their shield against financial disembowelment.

Enter the budget engineers, who know how to turn an impasse into a negotiation.

Let’s begin with the General Fund. It’s where the schools go to pick up their 40%. In years when this fund grows, the schools’ share grows. When it shrinks, their take goes south with it. But what if the state used certain, ah, accounting techniques to shrink artificially the size of the General Fund?

Answer: the schools’ take would go down, the same as if it had shrunk in reality.

Then there’s the matter of an appropriation that doesn’t really count. The schools get paid regularly throughout the year, based on estimates of the state’s revenues. If the estimates are off, an adjustment is made. Usually, these adjustments are small. But what if the error is huge, and in favor of the state?

Answer: the state just might possibly be owed a whopping refund. From the schools.

Last week, even while Jesse Jackson was haranguing the governor, the budget engineers were making their adjustments. They understood the equation, and took full advantage of what they knew.

Now most likely, at this point, you are assuming these engineers work for Wilson.

They do not. They work for the schools. And they have concluded that these two changes would produce a decline of $1 billion in school revenues over the next year. This weekend, the good news was conveyed to Wilson’s staff.

Why would the schools engineer their own financial loss? Because it’s far better than accepting the precedent of a suspension of Proposition 98. And because this loss, couched in the hidden technicalities of the budget, totally lacks the bite of a public surrender. Considerable face has been saved.

The school leaders, see, don’t even have to admit they are making Wilson an offer. And they haven’t. They are simply bringing certain technical matters to the governor’s attention.

Such as an accounting change in the General Fund, already authorized by law, that would reduce school revenues by $450 million.

And a current overpayment to the schools that could result in a refund of $500 million to $600 million for the upcoming budget year.

This does not mean the fight with the schools is over. Wilson has said he wants $2 billion, not $1 billion, from his suspension of Proposition 98. The school plan only gets him half way to his goal.

What has happened is this: each side has now defined their first offer. They are a billion dollars apart. The answer, obviously, lies somewhere in between.

Maybe a deal will emerge from this, maybe not. But this plan has its advantages. It does not emasculate the schools by forcing a suspension of 98. And it still turns over some big bucks to the state. There are worse ways to solve an impasse.