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California Lawmakers Begin To Parcel 'Embarrassment of Riches' to Schools

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California's school districts and community colleges could receive what some are calling "an embarrassment of riches" next fall due to an unexpected windfall generated by the landmark Proposition 98, the school-funding initiative approved by voters last fall.

Late last week, legislators began working in a conference committee to resolve their differences over how to distribute between $2.1 and $2.5 billion in new money that the schools and community colleges would receive next year under budget agreements reached separately by the Assembly and the Senate.

The fate of the school-funding increase, which is more than twice the increases of the past three years, has also become inextricably linked to negotiations over proposed revisions to a statutory funding cap, known as the Gann spending limit, which has slowed the growth of expenditures for nearly all state programs.

Legislators and Gov. George Deukmejian are facing a constitutional deadline of June 30th to craft a compromise that will satisfy the unusually large number of players who could block its adoption.

If the deadline is missed, the provisions of Proposition 98 would immediately take effect. They would give schools more money than any of the players are currently proposing, including almost $600 million that would be distributed on a per-pupil basis with no state control over how it is spent.

That prospect puts some school supporters, including State Superintendent Bill Honig, in the unusual position of lobbying for an agreement that would give public education fewer dollars than the minimum it is entitled to under Proposition 98.

If the complicated negotiations falter, however, "our default position is that we get more money," Mr. Honig admitted.

But Mr. Honig and others are concerned that such a result could provoke a backlash among both lawmakers and the general public. They fear it would create the perception that the schools' good fortune came at the expense of funding needed to address transportation problems and health and human-service needs.

If Proposition 98's prescribed spending formula were triggered, "it would generate so much acrimony and hostility, we'd end up in worse shape," Mr. Honig said.

Having only recently won the constitutional guarantee of funding increases for education, Proposition 98's supporters are reluctant to lend ammunition to any movement to weaken or eliminate its provisions.

But the language of the initiative also gives lawmakers the option of suspending its provisions with a two-thirds vote--a distinct possibility if liberal Democrats who want to avoid social-service cuts ally themselves with the Republican minority in each house, participants said.

Proposition 98, a constitutional amendment sponsored by public-education interests that won narrow approval from voters last fall, created a guarantee that the K-14 education system would receive either 40 percent of the new state money available each year or an increase based on inflation and enrollment growth, whichever is greater.

The amendment also grants to education all of the money that the state collects but cannot otherwise spend because of the Gann spending limit, up to a maximum equal to 4 percent of the previous year's K-14 budget.

Any remaining revenues must be returned to taxpayers in the form of rebates under the terms of the Gann spending limit.

Such a situation occurred in 1987, prior to the passage of Proposition 98, when some $1.1 billion was re8turned to taxpayers after lawmakers failed to agree before the June 30th deadline on a plan that would have increased school spending.

The bitter feelings left in the wake of that battle proved a significant factor in the subsequent drive that secured Proposition 98's passage.

The portion of Proposition 98 that grants excess revenues to schools was not expected to be a major issue this year because state officials had not projected that revenue collections would be high enough to trigger the automatic reallocation.

But in May, education funding leapt to the forefront of the legislative agenda in Sacramento when Gov. George Deukmejian announced new revenue projections indicating that the state would receive almost $2.5 billion more in tax collections than his earlier estimates for both this and next year.

Regardless of the outcome of the debate over next year's budget, the state's K-14 education system will receive at least $550 million in one-time payments triggered under the provisions of Proposition 98 as it affects the current year's budget.

Although many issues remain to be resolved, Assembly negotiators and Mr. Honig last week agreed on a plan for distributing the increase for education, which amounts to 8 percent per pupil, according to the state chief, and almost 19 percent over all, according to Republican estimates.

The public comments of educators in the weeks preceding the agreement suggested a raging battle over longstanding issues of fairness and educational policy.

Privately, however, several participants acknowledged that the public rhetoric cloaked fierce political bargaining motivated more by the magnitude of the potential windfalls for constituent school districts.

Assembly Republicans blocked passage of a budget bill for almost a week to win concessions that willbenefit many of the suburban and high-wealth districts they represent.

The Republicans charged that political maneuvers in previous years by the Democratic majority had skewed the distribution of the state's categorical education funding to benefit the urban communities that they typically represent.

At the same time, they said, the proportion of students who need special services has risen steadily in suburban school districts that, in some cases, receive no funding under the current categorical formulas.

The compromise reached lastweek in the Assembly agreement endorsed by Mr. Honig would both readjust the formulas in some categorical programs and provide as much as $200 million in unrestricted funding to school districts that receive the lowest levels of combined general and categorical state aid.

This type of bargaining has provoked outraged reactions from some education lobbyists, including charges that lawmakers are undermining the voters' intentions in passing Proposition 98.

Ed Foglia, president of the California Teachers Association, charged that the lump-sum payments to districts would also violate the intent of categorical programs, which were designed to provide services to students with identified needs, and would lessen the amount of money available to implement other needed reforms.

The state's largest teachers' union will "probably go to court on this thing," he said.

Mr. Foglia added that while he does not think a default to the Proposition 98 mechanism is likely, the lump-sum allocations that would be triggered in that event "would be a lot better than the way they're carving it up now."

The Assembly agreement also earmarks $100 million for equalization of the basic school-aid formula, which could benefit low-wealth districts, and would provide full cost-of-living increases for all categorical programs for the first time in several years.

The bulk of the $2.5-billion increase would accommodate the dramatic growth in the state's school-age population, which is increasing at the rate of 150,000 students per year. And it would fund a 4.6 percent cost-of-living adjustment in general school aid.

The Senate's $2.1 billion school-aid bill does not address the issue of equalization of categorical funding. Instead, it would allocate larger amounts to class-size reductions and to a reserve account earmarked for unspecified education programs.

Next year's increase will only help school districts begin to make up ground lost over the past few budget years, when education received increases smaller than the rate of inflation and enrollment growth, Mr. Honig and others said.

The increase "comes at a perfect time for us," Mr. Honig said, because "it will remove some of the impediments to the quality issue."

All participants agree that the fate of the spending agreement hinges on the resolution of the more troublesome issue of amending the Gann spending limit.

In the short term, the budget agreement requires the use of a Gann provision that allows the state to assume the unused spending capacity of local government bodies, most of which do not collect enough revenues to reach or exceed the spending limit.

Such a move would allow lawmakers to use funds that would otherwise have to be returned to taxpayers for a variety of non-education programs.

But the players are also negotiating permanent revisions to the Gann formula that would allow state spending to grow more rapidly.

This action would decrease the possibility that schools would receive future windfalls from the excess-revenues provision of Proposition 98. But education lobbyists may agree to support the changes in return for concessions in the education budget.

Another major obstacle to a budget agreement, several observers said, is the resentment felt by many legislators toward Proposition 98, which they say ties their hands in setting the state's budget priorities.

Some disenchanted lawmakers may mount a move to delay the budget agreement until after the June 30th deadline, observers said, because they think voters would repeal the school-funding initiative after cuts in other state services took effect.

But most participants and observers acknowledged that they were at least "cautiously optimistic" that an agreement could be reached that would channel the financial flood represented by Proposition 98.

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