Gov.’s Deal May Worsen Fund Crisis

A deal Gov. Arnold Schwarzenegger made last year with one of the state’s most powerful political groups may be coming back to haunt him as he copes with a projected $6.7-billion budget gap.

The problem for the governor: He promised schools he would not cut their funding any more or block scheduled increases. But now those increases are projected to boost education funding by hundreds of millions of dollars, money that lawmakers are eyeing to narrow the shortfall.

With an end to the state’s budget woes nowhere in sight, its credit maxed out and all of the easy budget fixes long gone, that education money offers lawmakers and the governor one of the few viable options for balancing the budget without raising taxes.

But school groups say they intend to hold the governor to his promise not to touch it. “We think we gave at the office,” said Sue Burr of the County Superintendents Educational Services Assn. The administration, she said, “understands the terms.”

The early posturing foreshadows what promises to be one of the state’s most difficult budget years yet.

On Tuesday, education leaders held a news conference in Sacramento to remind lawmakers and administration officials how much they have sacrificed over the last several years to help solve California’s budget problems. A few blocks down the road, business and labor groups held a similar event, warning the administration and lawmakers not to continue to raid billions of dollars generated from a gasoline tax that is supposed to go into transportation projects.

It is school funding, however, that is shaping up to be the most contentious issue of this budget cycle. Last month, nonpartisan Legislative Analyst Elizabeth Hill, whom lawmakers of both parties look to for budget solutions, urged the Legislature to divert the unexpected $1.4-billion annual increase for schools to paying off the shortfall for two years.

The increase is the result of complicated education funding formulas that set aside fixed amounts of state revenue for school spending, regardless of the state’s financial health. The state is expecting an increase in revenue for the next fiscal year, but expenditures are projected to rise faster, resulting in another shortfall.

Hill said that even without the $1.4-billion increase, schools would have enough to fund cost-of-living increases and program expansions.

Administration officials are now privately mulling over whether to follow that advice.

“No final decisions on education have been made yet,” said Department of Finance spokesman H.D. Palmer. The administration will unveil its budget proposal in early January. Palmer would not rule out the possibility it could contain cuts that break the governor’s earlier pledge to school groups.

“I’m not going to get ahead of the decision-making curve,” he said, adding that the administration is finishing its own calculation of the size of the state budget shortfall.

“There are some things we have to look at, like what is the final budget gap we are going to have to close.”

Education leaders say they intend to hold the governor to his word.

“There is a great deal of anxiousness and concern on the part of the education community,” state Supt. of Public Education Jack O’Connell said at Tuesday’s news conference. He and others noted how school groups agreed to reduce the state education budget by $2 billion last year. The concession, they said, will continue to hurt schools for several years, as it lowered the base on which spending will be determined in future years.

“There were certain conditions on that deal,” said Rick Pratt of the California School Boards Assn. “One was that the suspension would be limited to $2 billion.”

Legislators are waiting for the governor to make the first move. Even Republicans, who have long pushed for hard spending caps that would limit increases in state spending, are reluctant to get in the way of a multibillion-dollar increase owed schools. Cutting school spending is commonly believed to be as politically dangerous as raising taxes.

Democrats, who have majorities in both houses of the Legislature, seem to be relishing the jam the governor is in.

“We didn’t have much of a part in it,” said Senate President Pro Tem Don Perata (D-Oakland). “He made those deals, and he is going to be the one who is going to have to explain how they will work in the next two budget cycles.”

Assembly Speaker Fabian Nunez (D-Los Angeles) said that he too would defer to the governor for now.

“We are going to wait patiently,” he said. “We are going to see what he proposes to do. Certainly I don’t want to jump the gun and give an opinion on that matter until we see the full package from the governor.”