THE PROBLEM WITH GIVING SCHOOLS $1.8 BILLION NORE? $1.8 BILLION

Posted by Kevin Yamamura in Sac Bee CapitolAlert -The latest on California politics and government

July 12, 2010 - 12:11 PM | Legislative Democrats say they've agreed to seek $54 billion for K-14 schools in budget negotiations, a number higher than what Gov. Arnold Schwarzenegger and even Senate Democrats first proposed.

Great for schools. But not so great for the budget deficit.

To be exact, it is $1.8 billion more than the $52.2 billion the Department of Finance used to determine how much money schools would be owed under current assumptions. That figure determines the workload budget, the expenditure side of the ledger when putting together a spending plan. It is one baseline against which the state's $19.1 billion deficit was first measured.

The problem with giving schools $1.8 billion more is that you have to find that $1.8 billion somewhere.

"One way you can think about it is, the problem is (about) $2 billion worse," said Jennifer Kuhn, K-12 education director for the Legislative Analyst's Office. She added that it would be challenging enough to protect the education budget at $52 billion, let alone provide an increase.

Democrats have proposed various new tax revenues, including $2 billion in delaying corporate tax breaks and $1 billion in oil production taxes. Based on a more optimistic projection by LAO, Democrats also believe the state will take in $1.4 billion more in revenues than Schwarzenegger has projected; for now, that projection appears to be accurate.

OK, so Democrats say they found money to increase funding for schools. Why is there still a problem?

There's a problem because Democrats are still counting on all of those revenues to help bridge the governor's original $19.1 billion deficit gap. If Schwarzenegger's Department of Finance had projected that schools were owed $54 billion instead of $52.2 billion, it could have pegged the state's deficit at nearly $21 billion. But Democrats want to give schools $54 billion - and still have the deficit at $19.1 billion.

If you still want to assume the gap is still at $19.1 billion, then you'd have to cancel out almost $2 billion of the Democrats' new revenues as a budget solution. One way to think about this is, nearly all of the corporate tax break money would go toward higher payments to schools -- and not toward solving the state's budget deficit.

Any time you add new revenues, a sizable chunk must go toward schools. LAO said this in March: "Specifically, we estimate that up to about 60 percent of the newly identified revenues above our current forecast will be required to go to these Proposition 98 obligations. While this helps schools, it means that "new" revenues provide much less budgetary solution than on first blush."

Democrats aren't openly saying how they can give more money to schools and solve the deficit at the same time. The Assembly Democratic plan initially proposed borrowing heavily from future oil production taxes to give more money to schools. That was one way to do it. But Assembly Democrats have moved away from that idea as a budget solution in the wake of legal concerns and little support from the Senate.

For now, it seems that the $54 billion-to-schools proposal stands mostly as an opening Democratic negotiating point. Nobody has explained how the state can actually dedicate that much toward education other than relying on the risky Assembly borrowing plan.

We should point out that Schwarzenegger's budget does the exact opposite of what the Democratic budget does -- reduce school funding as a solution to the deficit problem. The governor proposes giving schools $48.9 billion, according to the LAO, thereby reducing the deficit by $3.3 billion through 2010-11 cuts to education and child care.

Follow-up (1:45 p.m.): There are different ways to interpret the state's Proposition 98 constitutional guarantee for school funding. Schwarzenegger has taken the harshest approach at $48.9 billion, which Democrats say requires legally dubious maneuvers. Senate Democrats proposed $51.2 billion in their original budget, which LAO said would have required suspending the Proposition 98 guarantee. That's an option, but not one that Democrats -- or the California Teachers Association -- would prefer.

Assembly Democrats say they are only following the constitution for their $54 billion figure. Shannon Murphy, spokeswoman for Assembly Speaker John A. Pérez, responded, "We don't get to choose which parts of the constitution we want to follow and which to ignore. The constitution puts the level at $54 billion and we are obligated to recognize that. Ignoring Proposition 98 is just a hidden borrowing ... a court will tell you you have to fund it anyway."

All sides will debate over how to interpret Proposition 98, although Senate and Assembly Democrats seem to be on the same page now. Even if state leaders agree on the $54 billion figure, they still have to find additional ways to pay for it.