NEWS ANALYSIS : School Funding Defines Lines of State Budget Battle : Education: After 57-day struggle, Legislature and governor have circled back to issue that started their war.

Fifty-seven days after a battle over education funding triggered California’s historic budget crisis, state lawmakers on Wednesday were back where they started, struggling over how deeply to cut into future school spending.

For nearly two months now, they have fought about major reductions in health and welfare programs and local government spending, and differed over prisons and the state bureaucracy. But before this stalemate can end, the Legislature and Gov. Pete Wilson must return to education--the issue that got them here in the first place.

The fight over this year’s spending for kindergarten through 12th-grade schooling is all but resolved: Those grades will get the same dollars per student as last year, although those dollars will be eroded by inflation. The battle now is over the future.

Wilson and most of his Republican allies in the Legislature want to act to rein in anticipated growth in school spending well into the 1990s. If they fail, Wilson’s forces contend, spending on schools will take an increasingly bigger bite of the budget, eventually forcing deep cuts elsewhere or a tax increase.

Most Democrats, however, say that the growth in school spending should be trimmed only enough to allow the state to balance its budget this year. Deal with next year when it comes, they say.

At the center of the dispute is Proposition 98, the constitutional amendment California voters passed in 1988 to protect funding for kindergarten through community college.

For all its complexities, Proposition 98 was based on a simple concept: Give the schools each year at least what they got the year before, plus enough to keep pace with growing enrollment and inflation.

Wilson’s position is based on the fact that schools last year got more than the minimum to which they were entitled by Proposition 98. Now he wants to go back and capture what he calls that “overpayment,” a move that would cut into school spending for years to come.

Think of school funding as a tower of wooden building blocks. Each year, the tower becomes a little higher as a new block is stacked atop the base that stood before.

Wilson, in effect, wants to go back and replace last year’s block with a thinner one, lowering the base upon which this year’s budget will be built. While this year’s block will be fairly thick, the schools must compensate under Wilson’s plan by accepting thinner blocks than they otherwise would get in each of the next two years.

The result is that by the end of 1995, Wilson’s school-funding tower would be considerably shorter than the one that would be built under a rival plan crafted by a Republican state senator and supported by Democratic leaders.

Maureen DiMarco, Wilson’s secretary for education and child development, points out that the Administration proposes to increase school funding this year when every other major part of state government is being reduced some by as much as 10%.

“Clearly, education is the first priority of this Administration,” DiMarco said.

State Supt. of Public Instruction Bill Honig acknowledges that Wilson’s latest plan would let schools keep pace with enrollment growth this year--not counting inflation. But it does so at the expense of the future, he said, when the schools will fall further behind their cost of doing business.

“What the governor is after is a way to ratchet down what schools get next year and the year after,” said Honig. “It’s a way of squeezing money out of the schools.”

Assemblywoman Delaine Eastin (D-Union City), chairwoman of the Assembly Education Committee, said California schools continue to sink relative to other states in per-pupil spending. Keeping them even, she said, is not enough.

“The point of Proposition 98 was to allow for some modest improvement over time,” Eastin said. “This would hold the line at a fairly low number.”

Since the budget stalemate began, there has been considerable confusion, even within the Capitol, about what Wilson has tried to do and how his plan differs from other proposals.

Although it has been widely reported that the governor sought to cut $2 billion from education spending, that was a reduction not from what schools received and spent last year but from what they were expecting to receive this year under the terms of Proposition 98.

The schools last year received about $1 billion more than the minimum to which they were entitled. This happened because when the level of school funding was set last summer, the Administration calculated the Proposition 98 guarantee based on a projection of a growing economy. As the economy soured, the minimum guarantee shrank, but by then the schools already had spent the money.

Wilson would reopen last year’s books and call $1 billion of the schools’ money a loan. He would force the schools to repay that loan immediately by deducting $1 billion from this year’s education budget.

But that’s not all. If that $1 billion in last year’s budget is called a loan rather than an appropriation, the base upon which this year’s budget is built would be that much smaller. The combined result would be a $2-billion reduction from what Proposition 98 otherwise would have guaranteed the schools.

Wilson’s proposal in June would have cut $200 million from the $23.4 billion the schools received last year in state and local tax revenue. But Wilson conceded that a cut of that size would leave the schools far short of what they need to keep up with nearly 200,000 new students. So he proposed several changes to help the primary and secondary schools keep pace with that growth.

One was his controversial kindergarten proposal, which would have postponed the first year of school for 110,000 4-year-olds who were scheduled to enter kindergarten in the fall. Wilson’s proposal would have opened kindergarten only to children who were 5 years old by Sept. 1. He figured the move would save the schools $335 million.

Wilson also proposed to cut deeply into special programs--to spare basic education--and to shift money from the community colleges to the lower grades, forcing the two-year schools to raise fees to make up the difference.

The Senate, in a highly charged, late-night session on the final night of the fiscal year June 30, passed the first step in Wilson’s school finance plan. But Assembly Democrats blocked the measure, saying it was unfair to the schools. The budget battle has raged ever since.

Wilson eventually gave up on his kindergarten proposal and abandoned the effort to cut the special programs. He replaced those plans with another idea to help the schools keep pace this year--a second loan, this one for $730 million. This loan would be repaid by deducting the amount from the schools’ Proposition 98 guarantee over the next two years.

Wilson says this is fair because it gives schools the same dollars per student in the coming year--$4,185--as they got in the last fiscal year. But the schools still oppose his plan because of its long-term effects. They prefer the Democratic plan, which keeps schools even this year but without penalizing them in the future.

Over the next three years, the schools each year under Wilson’s plan would fall $750 million to $1 billion below what they would get with the Democratic plan, which the governor has vetoed. Most of the shortfall would be absorbed by the community colleges, which the Administration has decided to assign a lower priority to protect kindergarten through 12th grade.

Senate Republican Leader Ken Maddy of Fresno is pushing a revised version of Wilson’s plan that includes the $730-million loan but would not require the schools to repay it if doing so would force them to lose ground in per-student funding.

Maddy said his plan guarantees that schools will at least keep up with enrollment. And he notes that the Legislature and the governor always could decide to give the schools greater funding. But he believes that if the Democratic plan becomes law, the schools next year would be guaranteed an increase in state funding so big that it would absorb all the expected growth in state tax revenue and require either a tax increase or $300 million in cuts in other programs.

“That may appeal to me as a grandparent who’s got grandkids in schools, but it doesn’t appeal to me as a person who represents the entire state of California,” Maddy said.

Democrats and school officials dispute the Republicans’ contention that schools will threaten other programs. In any case, they say, it makes more sense for the Legislature and the governor to cross that bridge when they get to it--even if it means considering the politically unpopular idea of suspending Proposition 98, which the Legislature can do with a two-thirds vote of each house.

“They want us to be their insurance policy,” Honig said of Wilson and his allies. “If they want to give us some more money next year, they can. But they won’t. This cuts us in advance.”

Education Funding Comparison

This chart compares the anticipated growth in state and local tax support for schools (kindergarten through community college) under Proposition 98 and two competing plans being considered by the Legislature. Proposition 98 numbers are based on current law.

All numbers are in millions.

1991-92 1992-93 1993-94 1994-95 * Proposition 98 $24,484 $25,257 $27,300 $29,348 * Democratic plan $23,349 $24,497 $26,143 $28,104 * Difference from Prop. 98 -$1,135 -$760 -$1,157 -$1,244 * Wilson plan $23,349 $24,171 $25,366 $27,188 * Difference from Prop. 98 -$1,135 -$1,086 -$1,934 -$2,159

SOURCE: Governor’s office