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Caught in Budget Vise, Calif. Awaits Agreement on Cuts

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California school officials, who have been caught for a month in the middle of the nation's most severe state fiscal crisis, could learn this week exactly how deep they must cut spending in the coming year.

If budget negotiations fail to produce an agreement soon, however, local educators will find themselves cast adrift in uncharted waters of financial management, as they try to continue operating on state-aid I.O.U.'s that many banks are no longer willing to honor.

Administrators last week were closely monitoring the negotiations between Gov. Pete Wilson and top Democrats in the legislature, who have been at odds over the size of school cuts necessary to close a projected $11-billion shortfall.

Throughout weeks of budget talks, the Republican Governor has insisted on more than $2 billion in education cuts for the fiscal year that began July 1. Leaders of the Assembly had fought for slashing no more than $600 million, but recently offered a compromise that would cut just over $1 billion.

Yet while the stalemate has left many state operations in limbo, most school districts have already had to begin gearing up for the opening of classes in a few weeks. Their budgets are built on guesses of where the political haggling will end and contingency plans for adjustments once lawmakers and the Governor reach an agreement.

Several educators last week said they were optimistic that the final state cuts would not greatly exceed their projections. But they added that they were far from comfortable with the ongoing uncertainties.

"We're just waiting day by day to hear what's happening,'' said John F. Fitzpatrick, the superintendent of the Rim of the World Unified School District in southern California. "On the one hand, the fact that they're holding off is a hopeful sign that it won't be so bad, but really we don't know.''

No I.O.U.'s, Please

More unsettling, officials said, is the prospect that the budget issue will not be resolved this week and that banks across the state will make good on their threat to stop accepting the I.O.U.'s the state has been issuing.

In the first month of the budget dilemma, the state has issued about $1 billion in I.O.U.'s that banks can hold and collect with interest once the fiscal 1993 budget is adopted. But three of the state's largest banks have threatened to stop honoring the vouchers beginning this week, complaining that the additional administrative work necessary to process the promissory notes has not been worth the interest.

In the Rim of the World district, officials have cashed the state vouchers to pay for food services. But Mr. Fitzpatrick noted that funding could dry up for the 5,600-student district if banks stop honoring the I.O.U.'s.

Like many other California districts that operate schools on a yearround calendar, the Rim district has already adopted a 1993-94 budget. Its fiscal plan anticipates a 7 percent cut from the state--an amount that Mr. Fitzpatrick said should hold up if the state slashes $1 billion.

To balance the books at about $1 million less than last year, the district has frozen salaries, laid off teachers and other workers, and trimmed supply and equipment costs. It has also imposed a bus fee, charging $135 a year for the first student from a family, up to a maximum of $300 for three students or more.

"It has been a real crystal ball this year,'' Mr. Fitzpatrick said. "Our only hope is that this gets solved pretty quickly.''

Minimizing the Pain

While acknowledging that the situation has been frustrating for school officials, state leaders say the budget delay has principally been caused by the need to find spending cuts that will create the least possible pain for the schools.

Mr. Wilson has said that his proposed $2.2 billion in cuts would amount to less than a 1 percent cut in per-pupil spending. According to the Governor's office, much of the reduction can be attributed to lower-than-expected enrollments and sagging tax receipts, which have lowered the amount that must be spent on the public schools under Proposition 98, the state's constitutional education-funding guarantee.

The Governor has identified $250 million in new initiatives that can be put off and targeted savings from combining funding for categorical programs and allowing districts to continue the initiatives they choose.

Mr. Wilson also has proposed raising the age for kindergarten entrance. By requiring that kindergartners have had their 5th birthday by Sept. 1, rather than Dec. 1, schools could save up to $350 million.

Compared with 11 percent cuts in health and welfare programs and reductions of more than 20 percent in natural-resource and environmental efforts, officials in the Governor's office said, the schools have been protected as much as possible.

"We've made deep, deep cuts across the board except for schools and prisons,'' said Franz Wisner, a spokesman for the Governor. "Obviously he doesn't like proposing any reductions, but the state is looking at an $11-billion budget shortfall. We have faced some of the largest deficits in the history of any state, and we have no choice but to make tough decisions.''

Holding 'Close to Even'

The disagreement between Mr. Wilson and legislative leaders has grown from his refusal to increase taxes and reluctance to transfer a part of the deficit into next year's budget. Both of those strategies were used last year to plug a $14-billion shortfall, at great political cost to the Governor.

Observers said last week that Democratic leaders have accepted that the budget crisis will have to be resolved without higher taxes. That has led to the $1.1-billion compromise plan, which, unlike the $600-million reduction sought earlier by Assembly Democrats, would force a decline in per-pupil spending.

Even so, observers predicted last week that most schools would survive with minimal cuts even at the $1.1-billion mark.

"If all of the cuts are in proposed new programs or expansions, you can get to the level where you hold most districts pretty close to even,'' said Eric Premack, a consultant with a firm called School Services of California. The budget dilemma will probably only hurt districts that were already in financial straits, he said.

Some schools that have tapped reserves or maintained high expenditures in recent recessionary years will face severe funding crunches no matter the size of the state cut, he predicted. "Those districts that have managed themselves a little better will be able to scrape by,'' he added.

Paying 'Real Dollars'

In the Sonoma Valley school district, officials have prepared for a $250,000 cut and tried to let parents know what to expect when school reopens in a few weeks. Administrators are also bracing for a potentially more grim situation, however, and have drawn up a contingency plan, which they have not made public, for a $1-million local budget cut.

"We've kind of taken a back seat in that we've tried not to ruin anybody's summer,'' said Patricia P. Davis, the business manager for the 4,700-student district.

Ms. Davis said many residents have been frustrated that the district has been left in the lurch while the state runs without a budget.

"A lot of people don't understand why we can't just go along without a budget, too, but I can't issue I.O.U.'s to the vendors and staff,'' she added. "They have to be paid with real dollars.''

The district's primary budget plan calls for cutbacks in finding substitutes for janitors, nurses, and librarians when they call in sick or take time off work. Further, officials are looking into leasing out athletic facilities for community use, charging community groups for using school buildings, and raising the bus fee.

The more stringent list of cuts, Ms. Davis noted, calls for eliminating staff positions, curbing athletic programs, and imposing other drastic cuts that will hit the classroom.

While officials in the northern California district have taken a low profile during the lingering budget debate, she said, the anxiety is building each day as they wait.

"There is no way to get around not knowing what's going on. The reality is there, and we all know about it even though we are not hammering it into people,'' she said. "We went through this last year, and the reality is that we'll probably do it again.''

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