Schools May Be Loser in Budget Fight : Finances: Education official concedes that a cut is likely. A lawmaker says Proposition 98 allows trimming state funding by $1.5 billion.
As Gov. Pete Wilson and the Legislature struggle to find their way out of the state’s fiscal forest, it appears that the big loser may be the public schools, which could see their budgets chopped by as much as $1.5 billion before a deal is done.
That is the amount many believe could be taken from the schools without suspending Proposition 98, the voter-approved Constitutional provision that was supposed to protect education spending from cuts during bad economic times but has not entirely lived up to its billing.
With the economy still in the doldrums and tax receipts falling far below expectations, Democratic and Republican lawmakers and the governor face cutting at least $2.5 billion from the $55.4-billion budget Wilson proposed in January. And if the Democrats persist in their opposition to Wilson’s proposal to slash welfare benefits by 25%, they will have to find another $1 billion elsewhere to balance the budget for the fiscal year beginning July 1.
Assembly Democrats are to unveil a budget Monday that they claim will be balanced without new taxes. They contend that it will include sufficient cuts to account for the deterioration in the state’s financial condition since Wilson proposed his spending plan Jan. 9.
But one education insider who has talked to key lawmakers said he expects Democrats to accept a cut of $1 billion from the $18.5 billion Wilson proposed in January for kindergarten through community colleges.
“There seems to be general agreement that education is going to have to take its share of cuts,” said Joe Holsinger, who monitors the Legislature for the Department of Education. “Our biggest fear is that they are so overwhelmed by the size of this thing that they’re going to go along with it.”
The only lawmaker to come out publicly for such a cut is state Sen. Frank Hill (R-Whittier), who serves on the Assembly-Senate conference committee that drafts the Legislature’s version of the budget. Hill proposes that Wilson’s education budget be cut by $1.5 billion.
That may be the maximum the Legislature could take from schools under Proposition 98, which was passed by voters in 1988 to protect education from the fiscal roller coaster. Although the measure generally guarantees education about 40% of the state’s general fund budget, when revenue growth slows to a standstill, as it has in this recession, Proposition 98 allows budget writers to trim education spending to help balance the budget.
That is what Hill wants to do. About $525 million of his proposed cut would come by recalculating the amount schools were guaranteed for the current fiscal year by Proposition 98. With state tax revenues lagging, it turns out the schools will get more than the minimum Proposition 98 allowed. Rather than cutting the schools budget this year, though, Hill would use a legislative maneuver to take the cut out of next year’s appropriation.
Hill also argues that, under law, the schools wrongly stand to gain nearly $1 billion because the state last year changed the accounting technique it uses to count tax revenues. If the old system were retained only for the purpose of figuring the Proposition 98 guarantee, schools would lose $975 million.
Hill predicted that school officials will say they cannot sustain such a hefty cut. But he said they will have to live with what Proposition 98 has wrought.
“Proposition 98 is their formula,” Hill said. “As long as the Legislature does not suspend it, in this type of climate, how can you expect any more than the absolute minimum? When the economy turns around, the schools are first in line. They’re gonna hit a home run.”
To the $1.5 billion from the schools, Hill would add a 4% across-the-board reduction in all state programs, which he says would save $500 million. Finally, he proposes to borrow $500 million from special state funds, which are mostly supported by fees or taxes earmarked for special purposes.
The schools cut is not winning many backers yet. But it is the kind of thing that all sides are likely to bad-mouth until the last minute, when they embrace it. To do so earlier risks offending such powerful interests as teachers unions.
Maureen DiMarco, Wilson’s top education adviser, refused to rule out the chance that the governor might accept such a proposal as part of a budget-balancing solution. But she called the accounting maneuver a “gimmick” and took pains to make clear that Wilson is not proposing it.
“I don’t think there’s anything in this whole horrible budget scenario that anyone could say we’d never listen to,” DiMarco said. “It is possible to do. It appears to be legal to do. It might even be what the technical writing of Proposition 98 would allow you to do.”
Democrats in the Legislature also contend that they do not want to cut school funding. Assemblyman John Vasconcellos of Santa Clara, the Democrats’ top budget writer, said he “won’t be a party” to any plan that cuts schools by $1.5 billion.
But Senate floor leader Barry Keene (D-Ukiah) suggested that a deep cut in education funding may be necessary to balance the budget.
“There may be some move at the very end to do that,” Keene said before quickly distancing himself from the idea. “I’m predicting--not desiring or advocating it.”
Another key element of Hill’s proposal--the 4% reduction in all state programs--also contradicts Wilson’s strategy. The governor has spurned across-the-board cuts because, he says, he prefers to target the reductions at low-priority programs while preserving the services he values more.
Keene said Wilson’s preference for making choices rather than spreading the pain evenly is “logical”--but politically difficult.
“We’re no longer left with the distinction between good and bad choices,” Keene said. “They’re all bad. It is politically difficult for people to do things they can be heavily criticized for, even though they feel they are the lesser of two evils. There is no fun at all in deciding who gets what percentage of a rapidly shrinking pie.”
The third major element of Hill’s plan--borrowing $500 million from special funds--is another strategy that few lawmakers support. But it is one that liberals can accept as a way to prevent deeper cuts in programs they value and conservatives can embrace as a way to avoid a tax increase.
Virtually no one in the Legislature is proposing a general tax increase. But many Democrats are hoping that they can generate several hundred million in new revenue--perhaps as much as a billion--by closing what they call tax loopholes.
The most frequently cited example is a provision that allows companies to deduct as an expense 80% of the cost of meals at which business is discussed. Reducing that allowance to 50% would generate another $225 million, according to one estimate.
Another $100 million could be gained by eliminating some exemptions to the sales tax--for such things as motion pictures and printed advertising material. As much as $200 million might be raised by taxing investment gains on property and stocks sold by heirs.
These three measures would raise almost as much as Wilson’s welfare proposal would save. And while Wilson has flatly rejected talk of any tax increase, Democrats hope that the governor, as he did last year, will compromise. It is possible that the Democrats will oppose any deep welfare cuts until the last moment and then agree to them in exchange for Republican support for some tax increases.
