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Published in Print: April 24, 1991, as Battle Over Education Funding at the Heart Of Efforts To Balance California's Budget

Battle Over Education Funding at the Heart Of Efforts To Balance California's Budget

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Sacramento, Calif--As groups of schoolchildren toured the crowded hallways of the State Capitol here one April afternoon, political bargains were being struck that could change their lives.

Most immediately, say observers, the negotiations going on behind closed doors here could cost the public schools that most of the students attend a lot of money next year--perhaps $2 billion in lost state aid.

The recession, a five-year drought, other economic forces, and growing demands on the state budget have combined to confront the state of California with a projected budget deficit of $12.6 billion.

The result, many lawmakers say, is that the state is having to make the difficult choice of whether to drastically reduce funding for schools, or the disabled, or the poor, or all those groups.

Lawmakers here have reached a consensus that the state budget needs to be overhauled, perhaps permanently. But they agree on little else, and education funding has emerged as a highly controversial sticking point.

As legislators this month argued their various proposals for eliminating the anticipated fiscal shortfall, the key bargaining chip in their budget talks appeared to be Proposition 98, a 1988 constitutional amendment that guarantees public K-12 education and community colleges about 40 percent of the state general fund.

Gov. Pete Wilson has insisted that the first step in any budget solution must be to suspend Proposition 98, thus enabling him to trim a total of $2.5 billion from education spending.

Although his Republican predecessor, Gov. George Deukmejian, tried without success to suspend Proposition 98, Mr. Wilson is described by aides as being confident of getting his way in the legislature.

Leaders of the Democrat-majority Senate and Assembly have publicly maintained that Proposition 98 is not negotiable. But some of their aides say privately that they agree with Republican arguments that the initiative hamstrings their attempts to find budget solutions and cannot be saved in the face of such an overwhelming state deficit.

And, although the California Teachers Association and other education groups were vowing this month to do everything they could to defend Proposition 98, their political weight was being counterbalanced by a coalition of powerful lobbies calling for the initiative's suspension.

"We can no longer just defend Proposition 98 at all costs. It is more vulnerable," said an aide to Barry Keene, the Senate majority leader. Failure to suspend Proposition 98 this year, the aide warned, could create a backlash and lead to outright repeal of the initiative next year.

"Most legislators recognize that we can't resolve the budget problem without suspending Proposition 98," asserted Maureen DiMarco, the Governor's secretary of child development and education.

"There is very little room for choice," Ms. DiMarco said. "You can't get there from here without every state service taking a hit."

Suspending Proposition 98 or adopting another frequently mentioned fiscal strategy--higher taxes--will not be easy, however, since either move requires a two-thirds vote of both the Assembly and Senate.

But legislative insiders said this month that a budget compromise might be possible if Democrats agreed to suspend the school-funding guarantee, in return for Republican acceptance of additional income or service taxes.

As of last week, though, neither side had publicly submitted a plan that accommodated both Democratic tax demands and Republican calls for suspension of the proposition.

"A lot of the discussion is posturing," asserted the Governor's spokesman, Bill Livingstone. Many legislators are under public pressure not to compromise their stands against Proposition 98 or tax increases until the last minute, Mr. Livingstone observed.

Legislative leaders last week discussed convening a joint conference committee to expedite the budget process. Governor Wilson has called on them to submit a final budget proposal by May 1, well before the June 15 deadline in the state constitution.

Meanwhile, executive-branch officials said the state's projected deficit could exceed the current $12.6-billion estimate when new figures are released next month.

Even at the current estimate, the budget deficit has grown dramatically since the Governor's January budget address, when he announced a $7-billion deficit and outlined a plan for eliminating it.

The latest figure, which includes a $2.6-billion shortfall left over from this fiscal year and a $10-billion deficit projected for next year, is already thought to be the largest spending gap ever faced by a state. It exceeds the total budgets of all but a handful of other states, and represents more than twice the cost of running California's prisons and higher-education institutions for a full year.

Some analysts argue the staggering deficit reflects not only short-term factors but also long-term flaws in the way California raises and spends money.

"What we have is a situation where our tax and spending structure has remained unchanged since the early 1970's, when Ronald Reagan was still Governor," observed Michael Reese, an aide to Speaker of the Assembly Willie L. Brown Jr.

"Three governors later, we are 12 million people bigger than when that delivery system was created," Mr. Reese said, "and many of those 12 million are people who are highly dependent on services provided by the state, particularly educational services. The system was never designed to meet the needs of some of those people."

The most recent legislative budget proposal was announced April 11 by Mr. Brown and President Pro Tem of the Senate David A. Roberti.

The Democratic plan proposed cutting $1.3 billion from state funding for public K-12 and community-college education. Sponsors asserted, however, that the state need not and should not suspend Proposition 98 to close the budget gap.

If the Democrats concede on a suspension of Proposition 98 now, leaders of the caucus warned, the resulting budget plan probably would fail to address the budget's structural gaps, and they would be asked to suspend the initiative again and again in the future.

The Democrats' plan, designed to tackle a $13.2-billion shortfall, contains a total of $4 billion in budget cuts. It calls for substantial reductions in funding for state programs and a one-year, across-the-board freeze on public-sector salaries.

The proposal rejects, however, the Governor's request that spending for Aid to Families with Dependent Children be trimmed by $225 million.

The plan also calls for shifting $2.3 billion in public services from the state to the counties. The local governments would cover their additional costs through increased vehicle-license fees, commercial-property reassessments, and other new taxes, some of which were previously proposed by the Governor.

The Democratic proposal would close the remainder of the budget gap through new revenue, including $1.3 billion generated by increasing the average state personal-income-tax rate to 11 percent from the current 9.3 percent.

In addition, the plan would raise $2.4 billion by creating a 3 percent tax on services. The tax would apply to engineering, legal, and entertainment firms and virtually all other businesses that provide services, with some exemptions for health and education.

"A services tax taps a currently untaxed segment of the economy in a way that affects the wealthiest households and corporations," Mr. Roberti and Mr. Brown said in a letter to the Governor.

"Broadly applied, the burden on any one taxpayer is small," the Democratic leaders added, noting that revenue from the new tax could be earmarked for higher education.

But while service taxes are an increasingly attractive revenue option for many states, a broad levy such as that proposed by the Democratic leaders could face strong opposition. Florida passed a similar tax in 1987, but repealed it after meeting resistance from the real-estate and other powerful service-industry lobbies.

Hawaii, New Mexico, and South Dakota currently tax most categories of professional, business, and personal services, and 23 states tax a more limited range of service industries.

As of last week, Governor Wilson had not said whether he would support or oppose a tax on services.

He has gone on record, however, against any increases in income taxes, arguing that California already has an extremely progressive personal-income tax system and that any further hikes would deter economic growth and hinder the state's long-term ability to raise revenues.

Mr. Wilson maintained that the Democratic proposal does not contain enough structural reforms to prevent future deficits.

The Governor remains adamant in his demand to suspend Proposition 98 and committed to a campaign to publicize the severity of the state's situation and muster public support for a suspension, according to an aide.

Mr. Wilson told a group of newspaper editors last week that he believes many legislators who previously had opposed suspending the school-funding guarantee have since changed their minds, even if they have not announced the fact.

"If we don't suspend 98, it will force an additional half-billion dollar cut in health, welfare, and other basic services," Mr. Wilson warned in a recent press release. "Everything from prenatal programs, to treatment for substance-abusing mothers, to Health Start preschool programs would be on the chopping block."

A spokesman for the Governor asserted that Proposition 98 hinders efforts to close the budget shortfall because, by requiring that 40 cents of each new dollar go toward education, it forces the state to raise almost two dollars for every dollar of deficit.

The Senate Republican Caucus this month issued a budget proposal similar to that originally outlined by the Governor, with provisions to suspend Proposition 98, thereby saving $1.4 billion, and to recapture $900 million in funds that the group said were overappropriated to public education this year, before the full extent of the budget woes was known.

The Senate GOP proposal also would implement statewide teacher-salary schedules and merit pay, eliminate a requirement that teachers be notified of layoffs by March 15, and place limits on the amount of state money that can be used to pay school salaries, benefits, and administrative costs.

On the other side, a coalition of local education officials and teachers'-union leaders was expected this week to stage a day of intensive lobbying at local legislative offices in favor of new taxes and in opposition to suspending Proposition 98.

The education community's public campaign against suspending Proposition 98 has intensified within recent months, with the 230,000-member C.T.A. leading the resistance.

"Proposition 98 isn't our property, it belongs to the people of the state of California," said Ed Foglia, president of the union, adding that Governor Wilson has unfairly targeted teacher salaries as the scapegoat for the state's budget woes.

The C.T.A. estimates that the Governor's proposed budget cuts could force local districts to lay off 10,000 or more teachers.

The union has also been waging a stepped-up war of words with Mr. Wilson, with whom it has had a tenuous relationship ever since the early 1970's, when, as mayor of San Diego, he took on striking teachers.

C.T.A. officials recently infuriated the Governor by running a series of television ads against the proposed suspension, one of which featured a little girl who said she would lose her teacher if the funding guarantee is put aside.

In response, Governor Wilson accused the union of "exploiting California's children in pursuit of still-fatter paychecks," and charged in a press release that the C.T.A. had tacked a $12 surcharge on union dues to finance its "million-dollar ad campaign." His aides also pointed out that, at $38,966, the average teacher salary in California this year is the third-highest in the nation, behind Alaska and Connecticut.

A C.T.A. spokesman countered that the revenues from the surcharge on union dues also are used to pay for other ads not related to the budget issue. California teachers need a relatively high salary, the spokesman added, to cope with the state's cost of living.

Another irritant in the relationship between Mr. Wilson and the union has been the hard line he has taken in dealing with the virtually bankrupt Richmond school district.

The Governor has vowed not to sign legislation providing a bailout loan to Richmond unless it includes provisions that would allow the district's collective-bargaining contracts to be scrapped if negotiations there fail. (See Education Week, Feb. 20, 1991.)

Both sides see the stakes in the battle over Richmond as extending far beyond the Bay Area district. Aides say the Governor is frustrated with the fact that teachers' unions negotiate contracts with local administrators who, because they pay teachers mostly with state funds, have little vested interest in keeping salaries from escalating.

The C.T.A., on the other hand, sees the effort to suspend collective bargaining in Richmond as the opening wedge in a campaign against the practice statewide. Union officials think the Governor may push a similar policy in other financially troubled districts, which include one system that is on the brink of going under, 20 that have told the state education department that they may not be able to pay their bills, and 9 that are being re-audited.

Richmond was a rallying cry this month as about 10,000 people gathered at the Capitol to protest the Governor's proposed education cuts. The event was organized by various labor groups and the Education Coalition, which includes the C.T.A., the California School Boards Association, Superintendent of Public Instruction Bill Honig, the California Federation of Teachers, and the statewide pta

Among those addressing the rally were Assemblywoman Delaine Eastin, who chairs the Assembly Education Committee.

In an interview, Ms. Eastin said that suspending Proposition 98 would "fundamentally devastate public education in this state," which, she argued, is already $6 billion short of funding the schools at the national average.

This week's lobbying effort was organized by a separate, less-formal group called the Unusual Coalition, which takes its name from the fact its ranks have school superintendents and union members working together. It has focused on acting locally to build support for tax increases that would alleviate the need to suspend Proposition 98.

If there is a political price to be paid for suspending Proposition 98, though, there appears also to be a growing price to be paid for leaving it in place.

Several lobbies that each rival the C.T.A. in political might--including the California Medical Association, the California Manufacturers Association, and the California Chamber of Commerce--have coalesced in support of suspension.

"I believe that Proposition 98 put education in the cross hairs of every other issue area," Ms. DiMarco said. "It created the perception that schools have a lot of money that they didn't have before."

Given the fiscal crisis and countervailing political pressures, Republican leaders and officials in the Governor's office have questioned the education community's resolve and unity in the budget debate.

Ms. DiMarco, a former president of the state school-boards group, said she perceives the education community as essentially divided into two camps.

On one side, she said, are the C.T.A. and a few other organizations that want to protect 98 "no matter what." On the other side, she suggested, is a growing group that would be willing to allow the initiative's suspension in exchange for state promises not to cut certain funds or to provide more education funding in the long run.

A spokesman for Mr. Wilson recently asserted that Superintendent Honig has maintained a cooperative attitude with the Governor in addressing the budget crisis.

In an interview this month, however, Mr. Honig insisted that the schools already have sacrificed enough as the result of provisions in state law that automatically trigger reductions in Proposition 98 education funding during hard economic times.

Mr. Wilson's budget plan "takes a lot more from schools than other places," Mr. Honig argued. He questioned the logic of those who say they could get more money for education by suspending Proposition 98, and said the initiative was specifically created to keep the state from raiding education funds during fiscal crises.

"Nobody is going to cut any deal suspending 98," Mr. Honig vowed. ''It just isn't going to happen."

Vol. 10, Issue 31, Page 1, 16-17

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