The Unpleasant, Untold Story of the Gov.’s Spending Cap

The main choice voters face on Proposition 76 -- the governor’s spending cap -- is one that makes both sides wince. Put simply, choose one: Cut the school funding guarantee or raise taxes.

Neither Gov. Arnold Schwarzenegger nor his school adversaries are framing their campaign arguments in quite those terms. But the issue really comes down to that -- less guaranteed school money or higher taxes.

Schwarzenegger pitches the need to “live within our means,” complaining that “each year we are adding billions and billions of dollars to our deficit ... spending $1.10 for every $1 we take in.” Never mind that he is a co-conspirator. No legislation gets enacted -- no dollar spent, no buck borrowed -- without the governor’s signature.

But the larger point here is that no debt-ridden government can “live within its means” without either raising taxes or slowing the growth of spending.

Forget taxes for now. That means cutting back programs. And 43% of the state’s $90-billion general fund budget is being spent on schools -- kindergarten through community college.

In dollars, about $35 billion in general fund money goes for K-12. An additional $3.5 billion is for community colleges. Of this total, $36.6 billion is guaranteed by Proposition 98, passed by voters in 1988.

Schwarzenegger, disingenuously, keeps telling campaign audiences that “we are spending, this year, $50 billion on education.” What he never acknowledges is that $13.4 billion of this comes from local property taxes, not state coffers.

He also shamelessly reiterates, ad nauseam, that “we increased education funding by $3 billion.” That’s the amount basically required by the Prop. 98 guarantee.

The governor isn’t about to admit that it’s $3.1 billion less than what he really owes schools under a budget deal they cut shortly after he took office.

Schwarzenegger couldn’t keep two promises at once: His pledge to give schools their share ($3.1 billion) of any unanticipated state revenue growth, and his vow to voters not to raise taxes in order to staunch Sacramento’s red ink. So schools lost.

Actually, Schwarzenegger hasn’t raised taxes, but neither has he honestly balanced the budget -- without unprecedented borrowing and shell-game gimmicks.

Which brings us back to square one. Without Prop. 76 forcing the Legislature and governor to live within their means, Schwarzenegger insists, the budget cannot be balanced without hiking taxes.

Does that mean higher taxes are a certainty if voters reject Prop. 76, as most public polls indicate they will?

“It’s highly likely,” says Tom Campbell, the governor’s finance director who is on leave to campaign for Prop. 76.

“That’s not the governor [prophesying], but it sure is me. The policy options would be to again steal from roads and postpone paying back cities and counties -- or increase taxes. And I think the pressure for taxes is going to be irresistible. And this is from someone who has tried to keep us away from a tax increase.”

Schwarzenegger has been warning that Democrats -- somehow immaculately without his signature -- will raise taxes if Prop. 76 fails.

But you won’t hear him saying that schools must be dinged in order to avoid a tax hike.

Schwarzenegger certainly isn’t going to campaign for Prop. 76 by shouting -- even whispering -- that the measure would cut back on Prop. 98 school funding guarantees. Poll after poll shows that education is government’s most popular program, and one that voters would be willing to pay higher taxes to adequately fund.

The latest poll by the nonpartisan Public Policy Institute of California shows that likely voters consider education “the most important issue” facing the state. The budget deficit and taxes rank far behind.

Prop. 76 -- like Prop. 98 -- is too complicated for mortal comprehension. But one thing Prop. 76 says is that money previously borrowed from schools ($3.8 billion) to balance state budgets no longer needs to be returned to the schools’ guaranteed annual funding base, as required by Prop. 98. So that’s a nearly $4 billion annual cut right there. The current $3.8 billion debt would be repaid over a 15-year period, but not returned to the annual base.

Another feature -- which does make sense -- is that in boom years, a generous state could give schools a bonus above their guarantee without the payment being built into the future assured base, as currently required by Prop. 98.

State fiscal gurus -- not just Schwarzenegger -- have complained for years that the schools’ funding guarantee has been growing so rapidly it threatens to gobble up the rest of the budget, devouring healthcare, prisons, parks....

Prop. 76 also does this: It allows a governor, unilaterally without legislative approval, to cut spending for schools -- or virtually anything else -- if a budget deficit looms and there’s a legislative stalemate. With California’s tyrannical two-thirds majority vote requirement, that’s a license for a minority party to cede complete budgeting power to a governor.

Prop. 76 doesn’t necessarily mean there’d be less Sacramento money for schools. But it does mean there’d be less guaranteed. There’d be more reliance on the largesse of politicians.

It comes down to raising taxes or whacking schools -- neither popular with voters.

Between now and election day, you won’t hear the school lobby pitch a tax hike -- or Schwarzenegger advocate clipping schools.

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George Skelton writes Monday and Thursday. Reach him at george.skelton@latimes.com.