NEWS ANALYSIS : Recession Undermines Promise of Prop. 98

Gov. Pete Wilson says he is willing to preserve Proposition 98, the constitutional provision that guarantees schools a percentage of state revenues. He has agreed to give the schools every penny they are entitled to under the landmark measure passed by voters in 1988.

So why isn’t the education Establishment, which has demanded all year that Proposition 98 be preserved, dancing in the streets? Because, some educators believe, Proposition 98 has failed to live up to its expectations.

The measure, as amended by voters in 1990, no longer provides schools everything they say they need to keep up with enrollment increases and inflation. It leaves them vulnerable to the whims of a declining economy--like the one that has ravaged the state budget this year.

So the education lobby’s own use of “Keep Proposition 98” as a mantra has come back to haunt it. Wilson’s deal allows him to keep Proposition 98--and reap all the political benefit of doing so--and still shortchange the schools, in the view of educators.

While many education leaders, including state Supt. of Public Instruction Bill Honig, say the compromise is “reasonable,” they still insist that the bargain will leave them $400 million short of what they need for the fiscal year beginning July 1--even if they freeze all teacher salaries as Wilson has suggested.

In short, Proposition 98, once seen as the schools’ savior, has become more of a symbol. It was supposed to be a floor through which education spending could not fall. It has turned out to be more of ceiling above which school funding cannot climb.

“Everyone is saying, we’ve fulfilled the Proposition 98 guarantee,” Honig said in an interview. “That guarantee has slipped so much over two years that it is way below inflation. We’re falling further behind the rest of the nation.”

Meeting the demands of Proposition 98 should not be the only barometer by which education funding is measured, said Mary Bergan, president of the California Federation of Teachers.

“The focus on Proposition 98 compliance, to the exclusion of other, more telling factors, creates a facade that lets the governor and the Legislature off the hook,” Bergan said. “While the Legislature may have reached the best agreement they believed could be made, neither they nor the governor should delude themselves or the public by proclaiming this deal a victory for California education.”

Here’s how the deal--elements of which are still being negotiated--would work:

On paper, the schools get the entire $18.42 billion to which they are entitled under Proposition 98.

But before the schools spend a dime, the state takes back $1.2 billion. That is the amount the schools received in the current fiscal year over and above what Proposition 98 guaranteed them. The overpayment occurred because the budget for schools was based on state revenue projections that were too optimistic. When tax revenues came in below estimates, the portion guaranteed to schools declined.

Rather than cut the money from the schools late in the current fiscal year, which would have devastated many districts, Wilson proposes letting them keep the $1.2 billion this year and then pay it back out of the money they get next year.

Budget writers describe this maneuver as a way to “recapture” $1.2 billion that would have gone to schools and use it instead to help reduce the state’s projected $14.3-billion budget gap.

This accounting would leave the schools with $17.22 billion to spend next year. On top of that, Wilson has two proposals that together would save the schools about $400 million. This is money the schools would have been required to spend on non-education expenses but now would have available to put into the classroom.

Part of the $400 million saving would come from repealing a law that requires schools to pay counties $100 million a year to collect the property tax. The other $300 million would be generated by allowing schools to skip one year’s payment into the state pension fund for non-academic employees.

The deal, then, leaves the schools $822 million better off than they were under the budget Wilson originally proposed, which would have allocated $16.8 billion to the schools. But they are still $1.2 billion short of what they say they need to keep up with inflation.

Freezing all salaries at their current levels would save $800 million, Honig estimates. That leaves $400 million to come out of programs--layoffs, bigger classes, fewer supplies. Statewide, it has the effect of a 2% cut, but it is likely to be deeper in urban districts with higher costs.

What made all this possible was a change in Proposition 98 that was negotiated by legislators and then-Gov. George Deukmejian and ratified by the voters last June when they passed Proposition 111, better known as a gasoline tax increase to pay for transportation projects.

Originally, Proposition 98 guaranteed schools about 40% of the state’s general fund or the amount needed to keep pace with enrollment and inflation, whichever was greater.

The 1990 measure tied that inflation factor to the per-capita growth in the state’s general fund revenues, allowing the state to reduce education funding in lean years. As it turned out, the current fiscal year was about as lean as they come, with per-capita revenues dropping by nearly 4%. As general fund revenues declined, so did the Proposition 98 guarantee.

Despite this year’s events, many educators still believe the measure will pay off in the long run. That is because even though the state takes $1.2 billion from next fiscal year’s allocation, the schools get that money back in their budget the following year. The measure also prodded Wilson to come up with significantly more than he originally proposed.

“If it weren’t for Proposition 98, we’d have been cut even more,” said Sandra Silva, a budget analyst for the state Department of Education.