Revision sets stage for fight

Governor says key areas funded; critics fault spending on schools

By John Hill, Sacramento Bee, May 14, 2005

Gov. Arnold Schwarzenegger proposed a revised budget Friday that sets the stage for a bitter fight over funding for schools, with new spending that falls well short of what teachers and other education groups say they were promised.

Schwarzenegger nonetheless called his revised $115.7 billion budget proposal for the 2005-06 fiscal year "great news," arguing that it avoids new borrowing and tax increases while preserving crucial spending in such areas as transportation.

"Today, I am presenting a budget that will rebuild California," he said. "My budget is balanced so that we can continue our fiscal responsibility. It contains no new taxes to keep our economic recovery moving forward.

"And it provides education with billions more in funding, and innovative programs to build accountability and raise student performance." The Republican governor took pains to tout new education initiatives. One would boost the pay of teachers and principals who work at low-performing schools - a proposal that Schwarzenegger once called "combat pay" but now has renamed "recognition pay."

Others would reduce class sizes in low-performing schools, help students prepare for the high school exit exam, and put more fruits and vegetables into school breakfast menus.

He said schools funding would go up by almost $3 billion from the current fiscal year, "by far the largest increase for any program in my budget." That translates to another $379 per pupil, he said.

"My budget invests more in education than California has ever invested before," he said. "It is a budget strongly on the side of students, parents and classroom teachers."

But education groups and Democrats didn't see it that way.

"Let's be clear: The governor has broken his promise to public education once again. ...," said Assembly Speaker Fabian Núñez, D-Los Angeles. "He's not listening to the PTA moms. He's clearly not listening to our teachers and certainly not listening to our children."

Pearl Iizuka, president of the California Association of School Business Officials, called it "very disappointing."

"The governor had an opportunity to make good on his promise, but he has another priority," he said.

At the heart of the dispute is a bill approved last year that suspended Proposition 98, the 1988 initiative that guarantees a certain level of funding for K-14 schools.

Education groups say that last year's agreement set spending at $2 billion less than would have been required under Proposition 98.

Still, when revenues went up unexpectedly, schools should have gotten more under the Proposition 98 formula, they say - even though they would still get $2 billion less than normal.

More or less?

California Insider Web Blog, Daniel Weintraub, May 13, 2005

If you thought the Battle of Prop. 98 was hard to follow before, get ready for it to get really messy. With new money flowing into the treasury, much of it from a tax amnesty program, the formulas everyone is fighting about have gone into overdrive.

Remember the $2.3 billion that the teachers unions have been saying the schools were shorted by Schwarzenegger’s January budget? Using the same methodology, the governor’s aides acknowledge, that number would now be $3.2 billion.

That’s what they say would be required by a strict reading of “the deal” that Schwarzenegger and the education coalition agreed to a year ago. The number is derived by calculating what the Prop. 98 guarantee would have been if there had been no deal, and then subtracting $2 billion.

But of course, the governor doesn’t buy their methodology. He prefers to focus on what the law requires, not what he might have promised to the lobbyists. And up until today at least, his reading of the law has been in sync with key staff members in the Legislature, including budget aides to the Assembly Democrats.

Using that approach, the governor now says, he is actually proposing to give the schools more than Prop. 98 requires for this year and next. About $500 million more. That number, incidentally, is padded because of the bizarre accounting surrounding the receipt of nearly $4 billion in disputed tax payments, much of which will probably have to be refunded.

$500 million more than required?

Look for that number to appear soon in an ad near you.

Perata's Quotes on May Revise

Clipped from By Steve Geissinger, Oakland Tribune Article, May 13, 2005

Both the Assembly speaker and Senate leader Don Perata, D-Oakland, made it clear they consider the governor's revised budget to be a starting point.

"The governor had a lucky Friday the 13th and found a pot of one-time money to restore some cuts in the budget," Perata said.

"That sets the stage for us to talk about finding real solutions to the long-term structural deficit that threatens our roads, schools and health care, and for us to have a fundamental, forthright conversation about where California should be, and how we're willing to get there," said Perata.

Without more significant action, Democrats said the state faces a $4 billion deficit in the following fiscal year, combined with predictions that the economy will slow again.

STATE SCHOOLS CHIEF RESPONDS TO RELEASE OF GOVERNOR’S MAY BUDGET REVISION

Press Release, State School Superintendent, May 13, 2005

State Superintendent of Public Instruction Jack O’Connell issued the following statement regarding Governor Schwarzenegger’s revised budget:

“I am deeply disappointed that the Governor has missed this opportunity to make good on his promise to California students. He claims his revised budget includes $509 million more than what the law requires, but in fact, it does not provide a single additional dollar for schools in California above his January proposal. His promise to repay our schools the loan of almost $4 billion remains broken. His claim of additional school funding is at best misleading.

“The Governor’s budget forces schools to continue their struggle to educate California’s students with funding that is lower than 42 other states. Coupled with his so-called ‘Live Within our Means Act,’ California schools are at risk of falling even more shamefully behind.

“The Governor is not listening to the people of California. In poll after poll since the Governor released his January budget proposal, the people of California have overwhelmingly and consistently supported additional funding for education.

“Instead of listening to the people, the Governor is showing himself to be precisely the kind of politician he vowed to ‘sweep’ from Sacramento.

"California needs leadership that truly invests in our future. A piecemeal approach to funding our schools is woefully inadequate and fails our children. I hope the Governor and the Legislature will reach agreement on a budget that provides for meaningful investment in California's most valuable asset – our children."

Education Coalition Statement on Gov. Schwarzenegger’s May Revised State Budget 2005-06

Press Release, May 13, 2005

The governor’s May Revision appears to acknowledge some of the funding problems facing our most challenged schools, but the Education Coalition is deeply disappointed that overall this budget revision cements the governor’s broken promises to California’s students and public schools and fails to provide any long term solutions.

Last year, students and public schools sacrificed $2 billion in ongoing cuts because the governor promised that our schools would receive their fair share of any additional state revenues and would be spared cuts in future years. The governor also promised during his campaign that he would protect Proposition 98, the voter approved measure that guarantees a minimum level of education funding.

With his May Revision and his flawed “Live Within Our Means” initiative, Gov. Schwarzenegger is breaking his word on both fronts and ignoring the will of the people.

In the short-term his budget proposal does little to help public schools and students and it fails to address the ongoing fiscal shortfalls in school districts throughout the state, guaranteeing more school closures, increases in class sizes, lay offs of teachers and support staff, and a devastating shortage of librarians, counselors and nurses. California’s students deserve better.

In the long-term, his proposed budget initiative would exacerbate an already inadequate funding problem by eviscerating Prop. 98, eliminating the minimum funding protections for our schools at a time when they cannot afford to cut anymore.

The governor’s budget plans and initiative proposals are in direct contrast to the priorities established by California voters. They cannot mask the fact the he has failed to offer any real solutions or plan to deal with the real problems facing our public schools.

The future of our state depends on giving our students access to a quality education. Our students and schools deserve better than broken promises.

Sandra Carsten, President, Association of California School Administrators
Pearl Iizuka, President, California Association of School Business Officials
Larry Reider, President, California County Superintendents Educational Services Association
Mary Bergan, President, California Federation of Teachers
Dr. Kerry Clegg, President, California School Boards Association
Clyde Rivers, President, California School Employees Association
Carla Niño, President, California State PTA
Barbara E. Kerr, President, California Teachers Association
Annelle Grajeda, President, Service Employees International Union, California

Tax hikes urged for rich

By Alexa H. Bluth, Sacramento Bee, June 1, 2005

Assembly Democrats on Tuesday called for tax hikes for the state's top earners in order to pour $3 billion more into public schools, laying the groundwork for a summer budget standoff with Republican lawmakers and Gov. Arnold Schwarzenegger.

Although polls show California voters favor boosting taxes on upper-income earners to pay for schools, Schwarzenegger has said he will not support it. Republican lawmakers, who hold enough votes in the Legislature to block a tax increase, immediately balked at the plan.

But Assembly Speaker Fabian Núñez, D-Los Angeles, said Democrats have "looked at every other option" and determined the increases are vital.

"Assembly Democrats are not afraid to cast the hard votes necessary to increase revenues when those revenues will be used to fund public education," Núñez said. "We are not going to shortchange our schools of the resources that they need to educate our children."

Assembly Democrats' tax increase plan is similar to one proposed earlier by Senate President Pro Tem Don Perata, D-Oakland.

Even raising the notion of tax hikes this year is a departure from last year, when Democrats shied away from such ideas after the ouster of Democratic Gov. Gray Davis and with Schwarzenegger's popularity soaring.

This year, the stakes have changed. The Republican governor's popularity has dropped under an intense campaign from teachers' unions and other groups over his budget.

His threats during last year's budget talks to campaign against incumbent Democrats resulted in no losses for California's majority party. And voters in November approved a 1 percent tax on annual personal incomes of $1 million or more to raise money for mental health programs.

So for the first time in years, legislative Democrats are unified in flatly calling for tax increases to help balance the budget.

Specifically, Núñez said, they want to restore two top income tax brackets.

The highest earners now pay a 9.3 percent state income tax. Under the Democrats' plan, married couples earning from about $285,000 to about $570,000 would pay 10 percent, while those who make more than that would pay 11 percent.

Assembly Democrats said a couple earning $350,000 would pay an additional $124 in taxes per year. That's "the equivalent of about $10 per month, or 30 cents a day, to protect public education," Núñez said."That is not a lot to ask from those who have recently been benefiting from tax cuts by our president at the federal level," he said.

The state had 10 percent and 11 percent brackets most recently in the early 1990s, when the Democrat-controlled Legislature and then-Gov. Pete Wilson approved a temporary plan during a recession.

H.D. Palmer, a spokesman for Schwarzenegger's Department of Finance, said the governor would not embrace a tax hike.

"The governor has a budget before the Legislature that has no new taxes, no new borrowing and gives education the largest increase in the budget by any reasonable yardstick," Palmer said.

"The Assembly Democrats' alternative is two things - either tax and spend or borrow and spend, and those are the kind of policies that got this state into the kind of fiscal crisis that this governor has been trying to fix since since the day he took office," he said.

On Tuesday, as Democrats unveiled their school spending plan at Sutter Middle School, Schwarzenegger was showcasing his plans to boost teacher training in math and science.

Schwarzenegger's $115.7 billion budget proposal would increase school funding almost $3 billion from the current fiscal year. But education officials and legislative Democrats are asking for $3 billion more that they said the governor promised under an agreement last year but did not include in his current budget plans.

The tax hike proposal is part of a larger budget outline presented by Assembly Democrats on Tuesday. Starting today, a joint Assembly-Senate budget committee will begin negotiating a plan to present to the full Legislature and ultimately the governor for the fiscal year that begins July 1.

But it is likely the largest sticking points - including school funding and any potential tax increases - would be negotiated behind closed doors by the top four legislative leaders and the governor.

Assembly Democrats also rejected cuts in Schwarzenegger's 2005-06 budget plan, including a 6.5 percent cut in welfare grants and a reduction in the state's contribution to in-home care workers for the disabled.

Assembly budget Vice Chairman Rick Keene, R-Chico, said there is "no chance" Republicans will accept a tax increase.

"The issue is not a revenue issue, it is a spending issue," he said. "Now we need to be disciplined about taking care of the spending issue."

Republicans, including Schwarzenegger, have warned that tax hikes on top earners would drive wealthy residents out of the state and harm small businesses.

Núñez said Democrats "mean business" and plan to try to add $3 billion more to schools "one way or another." If they cannot win support for the tax hike proposal, Núñez said they will ask the governor to use deficit bonds authorized by voters last year but that Schwarzenegger's latest budget plan does not tap.

"If the Republicans are going to draw the line in the sand ... we are going to find another way to fund education," he said. "It's not going to be the most fiscally prudent, but we're going to find another way to do it."

Aid is sought on tax hike bid

Democrats to fish for GOP votes to put measure on ballot

By Alexa H. Bluth, Sacramento Bee, June 14, 2005

Legislative Democrats will try to muster Republican support for a November ballot measure seeking tax increases for top earners to boost education spending, Senate President Pro Tem Don Perata said Monday. Their desire to add two new top income tax brackets is not new, but Democrats had planned to hold out for the change as part of a state budget agreement with GOP lawmakers and Gov. Arnold Schwarzenegger. Now, they've decided to pursue the tax hikes separately from budget talks.

"Let's get a balanced budget to the governor, let's vote on it, let's put that aside," said Perata, an Oakland Democrat. "And then let's spend the next six to eight weeks debating real education reform ... and then let's see if we can't put something before the voters in November."

Democratic leaders on Friday abandoned plans to seek tax hikes on top earners as part of the budget process. Only a week before, they insisted they would not accept Schwarzenegger's $115.7 billion budget without $3 billion more for schools and called for top earners to pay more income taxes to pay for education.

Democrats who control both houses of the Legislature plan to put up a budget for a vote Wednesday that is similar to that proposed by Schwarzenegger and does not include the tax increase proposal. The plan does, however, reject some of Schwarzenegger's proposed cuts to welfare grants and in-home care wages.

Democrats on Friday said they wanted to avoid being seen as obstructing a state budget that is technically due to the governor by June 15 each year, although that deadline has not been met for nearly two decades.

Lawmakers could agree, with Republican votes to achieve the necessary two-thirds vote, to place a tax increase on the November special election ballot.

Schwarzenegger last month called it "perfectly fine with me" for Democrats to ask voters for a tax increase for schools. "As I've said many times, 'Let the voters make those decisions,' " he said.

On Monday, Perata said, "We would like to take him up on that."

He also said Democrats would try to entice Republican votes by coupling the tax increases with measures to increase local school districts' power over public dollars.

But Assembly budget panel Vice Chairman Rick Keene, a Chico Republican, said that "it doesn't sound like something we would be in favor of."

"We've been fairly steadfast in believing that we have additional revenues, we just need to constrain our spending for a while," he said.

Schools lobbyist Kevin Gordon said that education officials were surprised by Democrats' change in tactics, but that they believe it is necessary to determine if GOP legislators would lend their votes to a budget that didn't include a tax hike.

"Democrats needed to demonstrate the Republicans' complete unwillingness to be reasonable and vote for a reasonable budget," Gordon said.

Gordon said education officials were not worried that Democrats had dropped their calls that additional schools money be part of a budget.

"We've got plenty of courses of action here that we can take," including supporting a ballot measure, he said.

State Budget Battle Fizzles

The spending plan could be approved on time today after Democrats postpone their fight for school funding to focus on the special election

By Evan Halper, Los Angeles Times, June 15, 2005

SACRAMENTO — The Democrats who control the Legislature have abandoned their effort to add billions of dollars in programs to the governor's proposed state budget, and are preparing to vote for a spending plan with no new taxes and no extra money for schools.

Shifting their focus to the coming special election fight, the lawmakers are surrendering to Gov. Arnold Schwarzenegger on the major spending issues that have separated the two sides for months. For the first time in years, they are rushing to meet their constitutional deadline for passing a budget today with a viable plan. Democrats fear that holding up the budget — even for what they argue is the noble cause of trying to restore $3 billion that schools say they are owed — would hurt them Nov. 8 and drive voters to approve spending controls the governor helped place on the ballot. They said they would try to secure the money by other means.

They say they will vote in favor of a budget that closely resembles the governor's latest spending plan, issued in May. The strategy shift is an indication of the extent to which the special election, ordered by Schwarzenegger on Monday, already has begun to dominate decision making in the Capitol.

"We are not going to hold up the budget and have a protracted budget battle," said Assembly Speaker Fabian Nuñez (D-Los Angeles). "We want to send the message to voters of this state that we are serious about getting things done."

A month ago, Nuñez called Schwarzenegger's budget proposal a "sham," saying the governor "simply doesn't get it" and is "not listening to the people."

Several lawmakers said Tuesday that the Democrats changed strategy at the urging of the politically powerful California Teachers Assn. "No such decision was going to be made without them," said Assemblyman Joe Canciamilla (D-Pittsburg).

The teachers group is gearing up for its own fight against a measure on the fall ballot that could clip the ability of state employee unions to fund political campaigns. The unions are among Democrats' biggest backers.

The budget that lawmakers will vote on today includes Schwarzenegger's plan to put $1.3 billion into stalled transportation projects throughout the state. It suspends for two years cost-of-living increases for welfare recipients.

The plan does not include some of the reductions in healthcare and social services that Schwarzenegger proposed. Those include cuts in the wages of workers who provide in-home care for the elderly and disabled, and a plan to move some recipients of state-subsidized medical care into HMOs. The restoration of these services would cost the state $208 million this year but tens of millions more beginning in the 2006-2007 fiscal year. The concessions Democrats are making have taken Republicans by surprise, because the special election had been widely anticipated and Democrats had given no sign of a willingness to compromise on issues important to the governor.

The ballot is expected to have eight initiatives, the centerpiece of which is the spending cap. That measure would limit the growth of the state budget and give the governor authority to make midyear cuts if the budget fell out of balance. Two other measures embraced by Schwarzenegger would lengthen the time it takes teachers to earn tenure and change the way California's voting districts are determined.

Meanwhile, GOP lawmakers — whose support is needed for a budget to be approved — say they will withhold their votes until the Democrats make clear their education agenda for the rest of the legislative session. Senate leader Don Perata (D-Oakland) has said those plans may include putting on the November ballot a constitutional amendment that would raise taxes on wealthy Californians to generate money for schools.

In addition to the budget vote today, the Assembly will vote on a bill to levy that tax through the Legislature, but it does not have the needed Republican support.

"We want to see a total package," said Senate Republican Leader Dick Ackerman (R-Irvine). "We don't want to do this piecemeal."

Some Republicans, however, said privately that they would vote for the budget if the governor gave it his blessing.

At a press briefing Tuesday, Finance Director Tom Campbell outlined some issues that concern the administration, such as the Democrats' plan to put off paying $600 million the state owes local governments. Campbell said there is an additional $535 million of borrowing in the Democratic plan that the administration does not support.

But Campbell said those issues were "not insurmountable."

Democrats say the budget now reflects Schwarzenegger's priorities more than their own. "With very few changes, this is the governor's budget," Perata said.

The new fiscal year begins July 1. If the state budget has not been approved by then, the state will begin withholding payments to schools and vendors.

By far the biggest concession the Democrats are making — at least for now — is on education spending. They have scrapped their demand that the governor increase his schools budget by as much as $3 billion.

School groups agreed to cuts last year in exchange for the governor's commitment to restore the money beginning next month. Facing a $6-billion budget shortfall, the governor opted not to restore the money in his 2005-2006 budget. Instead, his budget would provide only a modest increase in per-student spending.

Now, Democratic strategists and school groups fear that holding up the budget over that issue — just as the special election campaign gets underway — could backfire, fueling Schwarzenegger's charge that the Legislature is dysfunctional. The governor already is campaigning for the measures he endorsed, which could dilute the Legislature's power.

School groups say passage of the spending cap would be more harmful to them than losing the $3 billion this year. The measure would remove some education spending obligations from state law, potentially costing schools billions more. It would also give the governor the authority to unilaterally cut education any time the state budget falls out of balance.

Some Democrats, however, expressed surprise at the sudden about-face of their own caucus.

"Most of us were surprised there was such a quick change of heart," said Canciamilla. "If this special election wasn't going on, I don't think we would be folding so quick."

Asked about the teachers union's involvement in the Democrats' turnaround, union president Barbara Kerr would say only: "There's a lot of talk. Bottom line is, we want long-range, stable financing for education."

Kerr declined to discuss the strategy for getting that outside the Legislature's budget process, in which Democrats have little leverage to get the Republican votes needed for a tax increase or to put a measure for a tax increase on the November ballot.

"We're going to talk about a lot of options," she said.

Budget plan voted down

A Democratic proposal without tax hikes fails to entice GOP as - no surprise - a deadline passes

By Alexa H. Bluth, Sacramento Bee, June 16, 2005

The Legislature rejected a state budget proposal Wednesday, with Republicans balking at the initial vote on the Democrat-shaped plan despite its absence of tax increases and its resemblance to Gov. Arnold Schwarzenegger's spending blueprint.

Votes in the Assembly and Senate, whose outcomes came as little surprise to those involved, fell on a constitutional deadline to pass a state spending plan that has not been met since 1986.

The actions proved largely ceremonial, designed to demonstrate lawmakers' commitment to meeting the deadline as Schwarzenegger begins a summerlong ballot campaign to slam Democrats for inaction and ineptitude in handling state finances.

"Unfortunately, there are people outside of this chamber who would hold the budget hostage and intimidate this institution for narrow political gain," said Senate President Pro Tem Don Perata, D-Oakland. "This budget is therefore nothing less than a battle for political relevancy of our institution." Democrats last week abruptly retreated from statements that they would not support a budget unless it included tax increases for the state's top earners to pay for $3 billion in additional education spending.

Conceding that they did not want to appear as obstructionists, Democrats instead promoted a plan with no new taxes and on Wednesday challenged Republicans to put up votes for what they described as "Schwarzenegger's plan."

"We are, make no mistake, voting to support the governor's budget," said Assemblywoman Jackie Goldberg, D-Los Angeles. "I find it odd and interesting that it is the Democratic Party that supports the governor's budget and not his own party."

But Republicans did not supply any of the votes needed Wednesday to approve a budget by the necessary two-thirds margin. The plan fell nine votes short in the Assembly and two in the Senate.

They said they did not have enough time to review the 700-page proposal and that, on first glance, they disliked many of its components.

"We should have time to look at a real budget," said Assemblyman Michael Villines, R-Clovis. "I've had the chance to go through - since it's been in print yesterday - maybe 200 pages."

Shortly after dispensing with the budget, the Assembly also rejected a separate proposal to raise taxes on the state's highest income earners to provide more money for schools.

The plan would have raised more than $2 billion by imposing 10 percent tax rates on couples earning $286,000 a year and 11 percent on those earning $573,000 or more.

The highest tax bracket now is 9.3 percent.

The measure - which also required a two-thirds vote - also failed to win any Republican support and fell eight votes short.

"The spending addicts are back to score their fix once again," said Assemblyman Ray Haynes, R-Murrieta. "Just like the common street thief, you are going to justify the theft by saying the people you are taking it from are rich."

Assembly Speaker Fabian Núñez, D-Los Angeles, said he will continue to seek more funds for education, although not as part of budget talks, and that he hoped Wednesday's vote exposed Republican priorities.

"All of us have to respond to our own constituencies," he said. "We have to be able to look at our schools in the eye and be able to say, 'Look, you didn't get the necessary money that you needed because we protected the wealthy today.'

"We are going to continue to look for avenues to not turn our back on education."

After the votes, legislative leaders said they would continue to negotiate to reach a budget deal by July 1, the first day of the new fiscal year.

But Wednesday's debate revealed the tensions that are present as the Democrat-controlled Legislature negotiates a budget with a Republican governor who Monday called a special election for initiatives that Democrats oppose.

Some Democrats said Republicans will hold out budget votes to try to help bolster Schwarzenegger's case for one of his measures, strict spending controls that would enable the governor to make unilateral budget cuts in certain fiscal circumstances in future years.

"This little game here today is about the November ballot; it has nothing to do with the budget," Goldberg said.

Republicans responded that they are prepared to negotiate.

"I pledge to you today as the Republican leader that we will work with you if you are serious about sitting down, finding a common-sense solution and moving forward," said Assembly Republican leader Kevin McCarthy. "Today is not the solution. Today is a bill that is still hot off the presses."

The budget bill presented to lawmakers Wednesday contained more than $1 billion in additional spending than Schwar-zenegger's $115.7 billion proposal. It embraced many of his proposed cuts and programs, including its lack of new taxes and his plans to avoid using the state's voter-approved authority to sell bonds to help fill its budget gap.

But the plan lacked some things contained in Schwarzenegger's May budget revisions, including a proposal to shift $469 million in state teacher retirement contributions to school districts, a 6.5 percent cut in welfare grants and a reduction in the state's contribution to in-home care workers for the disabled.

Schwarzenegger's finance director, Tom Campbell, issued a statement Wednesday praising the budget's rejection and disputing Democrats' contention that it is largely the same as the governor's budget plan.

Campbell said the Democratic plan contained more ongoing spending commitments than Schwarzenegger's and that the Assembly's attempt to pass a tax increase showed different priorities than the governor.

"So, within two very important principles, the governor and the Legislature can work toward a budget for our state," Campbell said. "Those principles remain: Don't use one-time money on permanent spending, and don't try to tax your way out of a spending problem."

Dueling proposals

How the governor's and Legislature's plans compare:

Both budgets:

• No new taxes
• State faces multibillion-dollar gap in 2006-07.
• $1.3 billion in gasoline sales tax revenues for transit and highway work.
• $44.6 billion for Prop. 98 education spending, an increase of $384 per pupil to $7,405.

Legislative proposal rejects governor's plan to:

• Shift $469 million in teacher retirement contributions to school districts, teachers.
• Cut state portion of wages for in-home care workers for disabled to minimum wage.
• Reduce welfare-to-work grants 6.5 percent.

A Gray Davis kind of budget

Democrats act as if spending $5 billion more than you take in is responsible

By TOM McCLINTOCK Republican state senator from Thousand Oaks , Orange County Register, June 21, 2005

When a state gets itself into a fiscal pickle the size of California's, a helpful bit of advice is the First Law of Holes: "When you're in one, stop digging."

Unfortunately, that little wisp of wisdom is entirely wasted on the majority of California's legislators. Not only are they still digging, they're digging even faster.

Witness the budget that was voted on with great fanfare on June 15, the constitutional deadline (last met in 1986) for the Legislature to send its budget to the governor for approval.

As a result of last year's general fund budget, California will spend $82 billion while taking in just $80 billion - ending the fiscal year on June 30 about $2 billion in the red, according to the nonpartisan Legislative Analyst's Office.

But next year, if the budget offered by the Democrats is adopted, California will spend $89 billion while taking in just $84 billion - a $5 billion deficit. We're not even heading in the right direction.

To understand what's wrong with California's finances - and the latest addition to its woes if the Democrats' budget is adopted - three numbers become very important: 5, 6 and 9.

Five percent is the combined rate that population and inflation will grow next year.

Six percent is how fast state revenues will grow. Revenues substantially exceed inflation and population growth, proving once again that this has never been a revenue problem.

The problem is the 9 percent figure. That's how fast general fund spending would grow under the budget now pending. During the spendthrift days of Gray Davis, annual spending growth averaged 6 percent.

We are told the budget is balanced because of billions of dollars of borrowed money either carried over from last year or new borrowing contemplated for the coming year. But borrowing is not revenue. Borrowing is what happens when you're spending more than your revenue.

This budgetary nonsense has already racked up $26 billion of general fund-supported debt to finance the state's chronic deficit spending. That's $2,860 that the average California family is obligated to repay through its taxes just as surely as the balance on their last credit card statement.

The Legislature was once fully capable of working through these problems and delivering relatively balanced and relatively punctual state budgets. But those were days when the state Constitution was faithfully followed. The budget was painstakingly pieced together through extensive discussions and negotiations and give-and-take agreements throughout the many months of deliberations. Each house took up its budget independently and entertained amendments from any member.

The new process is to present a conference report to both houses for a take-it-or-leave-it vote at the last possible moment with no opportunity for even the slightest modification. This doesn't leave much room for bipartisan compromise that was once the hallmark of California's Legislature.

So where do we go from here? It should be obvious to everyone that the same legislators who got us into this mess aren't going to get us back out. Months of legislative inactivity have produced a last-minute spending plan measurably worse than the Davis budgets that have already placed California on the brink of bankruptcy.

Perhaps the most important action immediately available is Gov. Schwarzenegger's "Live Within Our Means Act," scheduled for the statewide election Nov. 8. The heart of the measure restores the authority that the governor of California had from 1939 until 1983, to make midyear spending reductions whenever spending exceeded revenue, without having to return to the Legislature.

Ironically, in his last budget, Gray Davis begged the Legislature to restore this traditional authority to his office. As long as the governor held this power, legislators were compelled to adopt balanced budgets based upon honest numbers. Failure to do so gave the governor his choice of what programs to reduce - and they knew it.

As a result, it was a power that rarely needed to be used and California rarely ran a deficit.

The ultimate solution rests in a maxim that is both a blessing and a curse for democracies: We get the government we vote for. We're now living with and paying for the curse. The blessing is that we can change it.

Political theatrics aside, state budget process is seriously broken

By Dan Walters, Sacramento Bee, June 17, 2005

It was apparent months ago that the annual theatrics surrounding the state budget would be submerged into the power struggle between Republican Gov. Arnold Schwarzenegger and the Legislature's dominant Democrats, one headed for a ballot showdown in November.

It was also apparent that the timing of the budget would be a political hinge point. Democrats were insisting that Schwarzenegger give the schools another $3 billion - and raise taxes to finance it - but were Democrats to stall passage of a budget on that issue, it would give Schwarzenegger some rhetorical ammunition. He could use it to urge voter approval of his ballot measure that would give the governor more power over the budget.

Early this month, Assembly Speaker Fabian Núñez seemingly drew a line in the sand, saying that Democrats "will not leave the negotiating table and we will not sign on to a budget until and unless we fully protect (education) funding, because doing less than that would be doing a disservice."

Just days later, however, Núñez and Senate President Pro Tem Don Perata did an abrupt about-face, pledging to put a Democratic version of the budget - without the extra school money - on the floors of both legislative houses June 15, the rarely met constitutional deadline for legislative enactment.

What happened to change directions? "We didn't want to be used as a whipping boy in this political season," Núñez said Thursday. Evidently, the unions that are supplying the money to oppose Schwarzenegger's ballot measures, especially the powerful California Teachers Association, decided that beating him in November was far more important than holding up the budget for more school money in June - and Democratic legislative leaders quickly fell into line with that tactical decision.

Obliquely, of course, the switcheroo proved Schwarzenegger's main point - that Democratic legislators march in lockstep with unions.

What happened next proved another of his points - that the state's budget process is totally dysfunctional because even though state revenues are rising smartly because of a very strong economy, a series of spending and tax reduction commitments made by legislators and governors of both parties, including Schwarzenegger himself, have made it impossible to erase chronic deficits.

As promised, Democrats presented their version of the budget to legislative floors Wednesday and hailed it as "balanced," but in fact it continues the deficit spending that has generated tens of billions of dollars in debt over the last four years.

Sen. Tom McClintock, R-Thousand Oaks, cited figures from the Legislature's budget analyst, showing that the Democrats' 2005-06 general fund budget would spend $5 billion more than revenues, covering the gap largely with borrowed money. While projected revenues would increase by $5 billion over 2004-05 - about 6 percent - state spending would increase by $7.5 billion, or 9 percent. But McClintock didn't mention that Schwarzenegger's own budget has roughly the same deficit, or that a major factor is the $4 billion-plus a year reduction in taxes on cars that both championed.

The budget stalled when Republicans, as expected, refused to vote for it, and a bill boosting income taxes on the wealthy to pay for more school spending also failed in the Assembly.

With the school finance issue off the table, at least for the moment, Schwarzenegger and the Democrats could, if they wish, resolve the other, lesser issues and agree on a budget. To some extent, the Democrats' ploy has now shifted the political onus for a budget onto Schwarzenegger.

That said, a bipartisan budget would almost certainly spend billions of dollars more than the state is collecting in revenues, and the legislative analyst and other fiscal authorities have projected even larger deficits in the years ahead as one-time gimmicks used in the past to avoid tough tax and spending choices expire, and as locked-in medical care and education demands escalate.

Clearly, we need structural reform of a structural problem. Whether Schwarzenegger's prescription - giving the governor more unilateral power - is the right one is debatable. But something is needed, or California will continue to meander toward its financial Armageddon.

Sides disagree on how far they are from a deal

Budget in apparent stalemate

By Alexa H. Bluth, Sacramento Bee, June 22, 2005

Although legislative leaders insist that a budget agreement could be reached easily in a matter of hours, Gov. Arnold Schwarzenegger on Tuesday said he and Democrats are still "far, far apart" about how more than $1 billion should be spent.

Schwarzenegger, smarting from voters' rising displeasure with him and his special election in a new statewide poll, struck a more conciliatory tone on Tuesday about negotiating a budget and measures for November's ballot.

At the same time, however, he rejected Democrats' statements that they had presented a 2005-06 budget last week that is largely similar to what he proposed in May.

The quibbling over whose priorities are reflected in the budgets comes with the June 30 end of the fiscal year fast approaching.

Majority Democrats failed to garner any Republican votes last week for a budget bill that they said largely reflected Schwarzenegger's budget blueprint. The plan did not contain any tax increases and added about $1 billion in spending that was not included in Schwarzenegger's $115.7 billion plan.

Schwarzenegger said Democrats' calls to restore his proposed cuts to in-home care wages and welfare grants would strap state government with long-term obligations it can't afford.

"Yes, number-wise we are very close. But how the money is being spent, we are far, far apart," Schwarzenegger said.

Schwarzenegger pointed to numbers from nonpartisan Legislative Analyst Elizabeth Hill, who estimates the Democratic budget proposal would leave the state facing a $6.4 billion deficit in 2006-07. Hill said the Republican governor's budget, in contrast, would leave about $3.6 billion in red ink in the future fiscal year.

"The counterproposal from the Democrats ... returns to the irresponsible ways of the past," Schwarzenegger said.

But Democratic leaders on Tuesday said their plan is much closer to Schwarzenegger's than the analyst's numbers reflect.

Assembly Speaker Fabian Núñez said the Democrats' plan excludes about $900 million in "phony" savings included in the governor's blueprint, including $408 million promised from state worker concessions that must be agreed to by public employee unions.

The Democrats' budget plan is "99.947 percent" the same as the governor's, said Assembly budget Chairman John Laird, D-Santa Cruz.

"I believe that this budget can be settled in a two-hour discussion where there is a seriousness of purpose and political will," Laird said. "We are that close."

Speaker sees progress on deals with governor

Some Dems doubt Schwarzenegger is ready to negotiate

By John Wildermuth, Lynda Gledhill, San Francisco Chronicle, June 24, 2005

The Legislature and Gov. Arnold Schwarzenegger are taking the first cautious steps toward an agreement that could end the partisan firefight over the November ballot issues, Assembly Speaker Fabian Núñez said Thursday.

"We can see the architecture of something coming together,'' Núñez, D-Los Angeles, said in a meeting with The Chronicle editorial board. "But by no stretch of the imagination do we have a deal.''

There are plenty of real problems that still have to be dealt with, the speaker added. Initiatives that give the governor new power to shape the state budget and that limit the political power of the heavily Democratic public employee unions "were designed to put a dagger in the heart of the Democrats in California" and have to be changed or defeated, he said.

But Núñez suggested Democrats would be willing to give up the Legislature's redistricting power and could reach common ground with the governor and his allies on contentious issues such as low-cost prescription drugs for seniors, reforming the public pension system and term limits for legislators.

"I don't think the governor gets what he wants or the Democratic (legislative) majority gets what it wants," Núñez said. "But we get what we can live with.''

The governor and the Legislature have been at loggerheads for weeks over Schwarzenegger's call for a special election to push three initiatives he bills as his California reform plan. While the governor has only endorsed measures revising the redistricting rules, increasing the time it takes a teacher to get tenure and changing the budget process, other initiatives on subjects such as abortion, union dues, low-cost drugs and electrical power regulation also will be on the Nov. 8 ballot.

The dispute cut off virtually all discussions between Schwarzenegger and Democratic leaders. But Núñez said he had spoken with the governor twice this week and had other meetings with Schwarzenegger's staff.

"Communication is back in a major way,'' Núñez said. "We're making progress.''

Margita Thompson, a spokesman for Schwarzenegger, confirmed that Núñez had met with the governor and said discussions were happening on both the budget and the reforms on the ballot.

The governor is willing to look at alternatives, she said, but is interested in concentrating on the three reforms he has on the ballot, along with pension reform.

Some Democrats remain skeptical about how willing Schwarzenegger really is to make a deal.

"Clearly, the governor appeared to be more conciliatory this week," said Sen. Kevin Murray, D-Los Angeles. "My experience so far with this governor is that those public statements do not necessarily mean that he wants to negotiate. It means he wants to appear that he is negotiating."

While the speaker declined to provide details of the discussions, he talked about some of the issues that might be in play. Democrats could accept a redistricting plan that, unlike the initiative already on the ballot, didn't take effect until after the 2010 Census, he said. While the current "Live Within Our Means" budget initiative is unacceptable, Núñez said, there's room to give the governor more power to make mid-year corrections to keep the state budget balanced.

Even pension reform, a hot-button issue for Democratic allies in the public employee unions, is up for discussion, he said.

Although he won't support Schwarzenegger's call to eliminate the current defined benefit pension plans for new public employees, "the Democratic leadership is very open to looking at ways to address legitimate concerns about the pension system,'' Núñez said. "We want to look at ways to make sure it doesn't go broke.''

Any negotiations will involve putting together compromise measures that could join the eight current initiatives on the November ballot.

There are players on both sides that aren't eager to compromise.

"The governor's in a tough spot,'' said Kevin Spillane, a GOP consultant. "If (the Democrats) offer him crumbs, and he calls it a piece of cake, there will be Republican and business groups that will be disgusted with him.''

On the Democratic side "there are a lot of membership groups out there calling for blood,'' said Andrew Acosta, a Democratic consultant.

Núñez knows he's walking a tightrope.

"We're going to negotiate an agreement with the governor even if our friends say it's not the right thing to do because we can beat him in November, '' he said.

The renewed call for negotiations may have been jump-started by a poll that shows California voters growing increasing frustrated with the gridlock in Sacramento.

Working out an agreement on the initiatives in the next few weeks means the speaker will have to lean hard on Assembly members. He's already threatening to get tough on the slow-moving budget negotiations.

"Don't be surprised if I lock everyone in the Assembly next week'' until a budget agreement is reached, he said.

His clout slipping away, the governor backtracks on budget

By Dan Walters, Sacramento Bee, Friday, July 1, 2005

That crackling sound you hear are branches breaking off the man who was dubbed the "Austrian Oak" when he was dominating the world of bodybuilding. Gov. Arnold Schwarzenegger, whose once-immense popularity among Californians has plummeted to abysmally low levels and whose "year of reform" ballot measures now appear to be failing, has been reduced to virtually begging for political crumbs.

On Wednesday, Schwarzenegger spokesman Rob Stutzman had told reporters that the governor was "not willing to accept a budget that creates (a) deficit in (future years) without there being reform attached to it." Schwarzenegger apparently wanted something that approximated one of his November ballot measures, which would give the governor unilateral authority to cut spending when revenues fall short of expectations. By seeking a compromise, the governor was already indirectly acknowledging that his political standing had diminished and he no longer commanded automatic support from voters.

On Thursday, Schwarzenegger caved even further. Just 24 hours after Stutzman's declaration, he tossed in the towel on linking the budget to "reform." And since the competing versions of the budget are now only fractionally different, a final deal is likely within days.

Thursday was the final day of the 2004-05 fiscal year, and both legislative houses had begun what appeared would be marathon "drills" of debate and budget votes when the Republican governor called a brief meeting of the "Big 5" - himself and four legislative leaders - to disavow linkage.

Thursday's retreat was another sign of Schwarzenegger's dramatic political deterioration, which has been graphically demonstrated in a series of statewide polls. The Field Poll recently found his approval rating among voters to have declined to a weak 37 percent - scarcely half of what exit polls of last November's voters had determined. As Schwarzenegger launched his "year of reform" crusade in January, public employee unions responded with a multimillion-dollar media campaign portraying him as the enemy of teachers, nurses, police officers and firefighters, and his public standing began to plummet.

Polls have also shown that the two major measures he's placed on a Nov. 8 special election ballot, dealing with the budget and legislative redistricting, are faring poorly.

There was some indication that Schwarzenegger and GOP legislators would stall action on a new state budget in hopes that stalemate would provide ammunition for the ballot measures, but Democrats countered cleverly by rewriting their version of the budget to bring it very close to Schwarzenegger's. Most significantly, they backed away from their demand that school spending be increased by another $3 billion-plus and taxes be raised to pay for it.

With those tactical moves, Democrats could then shift the onus for any budget delays onto Schwarzenegger. "We surrendered. We have given up," Democratic Assemblywoman Jackie Goldberg declared facetiously during the truncated Assembly debate. "Could we find someone ... to accept our surrender?"

A few minutes later, as Schwarzenegger convened the Big 5 meeting, it became evident that Schwarzenegger would be the one surrendering. "We've gotten what we wanted, a straight-up discussion of the budget," Senate President Pro Tem Don Perata said after the meeting, saying that there are "no more than five items" to be resolved.

With that, members of the Assembly recessed for the holiday weekend - many of them to attend the inauguration of former Assembly Speaker Antonio Villaraigosa as mayor of Los Angeles - but Democratic senators decided to remain in session Thursday night, apparently to maintain the pressure for a budget deal.

In politics, success begets success and failure begets failure. Schwarzenegger is now in a downward spiral, and it's not certain he can pull out of it. The forces he had vowed to displace - Democrats and unions - are now strengthened and the governor's business allies, on whom he was counting for campaign support, are dispirited.

If Schwarzenegger's decline continues, it calls into question whether he'll even seek another term next year, and if so, whether he can defeat any of the Democratic aspirants.

Budget battle is being waged over 2 fiscal years

By By Ed Mendel, San Diego Union, July 1, 2005

SACRAMENTO – It may look like more of the same as the state for the fifth time in a row begins another fiscal year today without a budget, but there is a new twist.

Lawmakers are struggling to close a chronic budget gap that opened in 2001 when the tax windfall from the high-tech boom evaporated, creating a huge shortfall.

But instead of fighting with Democrats solely over the new budget, Gov. Arnold Schwarzenegger and Republican lawmakers are also holding out for a plan that narrows the budget gap in the following fiscal year that begins July 2006.

In Capitol jargon, the year after the budget year is called the "out year," and the term was often heard yesterday after Schwarzenegger and legislative leaders agreed to budget talks this weekend.

"What the governor is focused on is making sure that we have fundamental reform, and so therefore we need to make sure we improve the out-year situation," Margita Thompson, the governor's press secretary, told reporters.

"We all know what the issues are," Assembly GOP leader Kevin McCarthy of Bakersfield said after meeting with the governor and other legislative leaders. "The issues are the out-year money."

"The out year is the big problem," Senate Minority Leader Dick Ackerman, R-Tustin, said later in the day. "There is still roughly about a $2 billion difference between (the governor's plan) and the latest Democratic proposal."

Democrats say Republicans are focused on the out year because they don't want to approve a budget for political reasons. Democrats, who have majorities in both houses of the Legislature, say their $116.8 billion budget proposal for the fiscal year that begins today is very close to the governor's plan.

"We have surrendered; we have given up," Assemblywoman Jackie Goldberg, D-Los Angeles, said during a budget debate yesterday that ended without a vote.

The Senate last night voted on the budget, which failed 25-13, two votes short of the two-thirds majority required for passage. The Senate continued to meet late into the night.

Democrats dropped their push for an additional $3 billion for schools days ago, reportedly after the California Teachers Association advised against holding up the budget over school funding.

Ackerman has suggested that a lengthy stalemate might aid Schwarzenegger's initiatives in the Nov. 8 special election, including a spending limit that would modify the Proposition 98 school-funding guarantee.

As if agreeing with Ackerman's analysis, Democrats made even more concessions after Republicans blocked their budget on June 15, trimming what they say is $900 million from the budget gap next year.

Senate President Pro Tempore Don Perata, D-Oakland, said the Democrats' plan would have a budget gap of $5.5 billion in the fiscal year beginning July 2006, about the same as their $5.2 billion estimate for the governor's plan.

"The fact is, we are really arguing now on what they call 'budget dust,' or very small numbers," Perata said.

Ackerman and the other Republicans use an estimate from the nonpartisan Legislative Analyst that the governor's plan would result in an out-year gap of $3.6 billion, about $2 billion less than the Democratic plan.

But Democrats contend that the governor's gap is $5.2 billion when the impact of "unachievable" savings are subtracted from his plan.

Democrats say the governor's plan to cut $400 million from state worker contracts is politically impossible. And they say his proposal to shift a $469 million pension payment to school districts would trigger a Proposition 98 school funding increase.

Schwarzenegger, who calculated that he inherited a $22 billion gap when he took office in November 2003, created part of his current budget problem by repealing a $4 billion increase in the vehicle license fee.

The governor is making some progress in closing the chronic budget gap. The budget he has proposed for the new fiscal year beginning today closes a gap of about $6 billion.

The lead Assembly Republican budget-writer, Rick Keene of Chico, argued yesterday that closing the out-year budget shortfall is important because the economy could slow, producing less revenue and an even wider budget gap.

Schwarzenegger and Republican legislators also argue that Democrats do not want to close next year's budget gap because that would reduce pressure for a tax increase.

"But we must draw the line when politicians once again push for budgets that guarantee deficits in the future and create the need for tax increases," Schwarzenegger said a Capitol news conference on June 21.

At a news conference on Wednesday, Assembly Speaker Fabian Núñez, D-Los Angeles, said this about the Republican contention about pressure for a tax increase: "That's bogus."

Another goal for Schwarzenegger is to keep a campaign promise to fix the budget problem that led to the recall of former Gov. Gray Davis, who saw the budget shortfall balloon to an estimated $38 billion early in 2003.

The governor used one of his oft-repeated phrases about the state's budget imbalance during an appearance last Friday on "The Tonight Show with Jay Leno."

"I'm having a great time up there, fighting to create the reforms that we need in California and to make sure they get the budget straightened out, and to make sure our legislators live within their means, and don't spend more than they take in," Schwarzenegger said.

The governor alarmed Perata and Núñez by suggesting in a closed-door meeting Tuesday that if they pursued a budget that spent temporary revenue – so-called one-time money – on permanent programs, he wanted authority to make midyear cuts.

The power to make such cuts, if the Legislature does not act to rebalance the budget, is a part of the governor's spending-limit initiative on the November ballot.

Democrats said the governor was trying to use passage of the budget as leverage to get something that voters are not likely to approve. The governor's initiative is trailing in the polls.

But at the meeting with the governor yesterday, legislative leaders said Schwarzenegger said he is not linking passage of the budget to an agreement to give the governor the power to make midyear cuts.

"He made it clear that there is not a linkage," Ackerman said, "and that his goal is to get the budget done as soon as possible."

Democrats made it clear they do not share the concern about next year's budget gap. They said the gap is unpredictable, noting that revenue in May was $390 million above projections.

"These are all dynamic factors in a budget," Perata said. "So to say that we have to make sure that things in the out-year are met – that's going to change."

There are winners and losers in the 2005-06 budget

By Hanh Kim Quach, Orange County Register , July 6, 2005

EDUCATION

Losers: Public schools, because they have to pay nearly $235 million toward teacher retirement costs covered by the state now, although that's half of what the governor proposed they pay.

Draw: Public schools. They're getting another $3 billion this year. But the governor and lawmakers didn't stick to the terms of last year's budget deal, which should have yielded another $3.1 billion because revenues increased.

HIGHER EDUCATION

Winners: Community college students, because they won't pay higher fees.

Losers: College students in the University of California and the California State University systems, because they will pay higher fees – $186 more at CSU, $457 at UC.

Elderly/disabled

Draw: Elderly and disabled, because the federal government is giving the state money to provide a cost-of- living increase in cash benefits, but the state will take a quarter of it.

Winners: State-paid, in-home health-care workers, because they'll get a raise – from $10 an hour to $11.10 an hour – rather than be cut to the minimum $6.75 an hour as the governor proposed.

Local governments

Winners: Local governments and people who use their services, because the state will make an early repayment of $1.2 billion borrowed to make up for the loss of vehicle license fee revenue when the governor unilaterally cut the car tax in 2003.

TRANSPORTATION

Winners: Drivers, because lawmakers decided to spend $1.3 billion in transportation funds on transportation, rather than use it to balance the budget, as they have done in recent years.

STATE WORKERS

Draw: Unionized workers, because their negotiators will enter talks with the state on whether they lose two paid holidays to help save money.

Losers: State workers who are managers, administrators or non-union, because the administration can unilaterally cut their salaries and benefits by a collective $40 million to save the state money.

TAXPAYERS

Winners: Everyone who pays income or sales tax, because efforts to raise those taxes to keep up with the rapidly rising cost of providing government services failed.

CTA and Education Coalition Disappointed with State Budget Parents, Teachers, Schools Outraged that Budget Shortchanges Students, Schools by $3.1 Billion

CTA Website, July 6, 2005

The Education Coalition today issued the following statement in reaction to last night's proposed budget agreement:

More than 1.7 million parents, teachers, school board members, school employees and administrators represented by the Education Coalition are deeply disappointed that the budget agreement announced yesterday doesn't keep the promise to provide adequate funding for California's students and public schools.

Press Release, State Superintendent of Public Instruction

Department Website, July 7, 2005

State Superintendent of Public Instruction Jack O'Connell released the following statement on the budget agreement reached between legislative leaders and Governor Schwarzenegger:

"I'm pleased a state budget agreement was reached last night so that school operations won't be impacted by a long delay in funding. I am, however, very disappointed in the lack of commitment to education reflected in this agreement.

"In fact this budget does not represent a significant increase in funding for our students. It barely keeps our schools afloat at a time when many districts are facing serious budget shortfalls. Nor does the budget include the $3.1 billion our schools were promised under Proposition 98 and the agreement reached with the Governor last year. I will continue to fight for significant new investment in California 's public school system so our schools will not continue to be shortchanged.

"Unfortunately, the Governor's claim that the budget provides more than $10,000 per student is misleading and should not be interpreted as money going to classrooms. For example, that figure includes $50 million for the State Library and $38 million for the Commission on Teacher Credentialing.

"The $10,000-plus-per-student figure also includes money for education over which the state had no control. His calculation includes: $7.6 billion in federal funding, $1.5 billion to repay local debt service on locally raised money for school building projects, and $3.8 billion for other local revenues raised by local districts for their own schools — everything from booster club bake sales to donations from local businesses. The reason why every major state-to-state comparison of school funding does not include such funding sources is because they have nothing to do with a state's effort to support its schools.

"Remarkably, the Governor even includes parcel taxes raised at the local level by citizens who believed it necessary to raise their taxes to support a school system under-funded by the state. While taking credit for a state budget that does not raise taxes to improve schools, the governor also takes credit for local taxes raised for that purpose.

"Finally, the Governor's portrayal of increased funding to pay for the growth in student population and provide a cost-of-living increase to schools as new dollars to fund classroom programs is misleading, as this money simply allows our schools to maintain a shaky status quo. California has one of the highest costs of living of any state, the largest, most diverse and most challenging student population, yet sadly, its education funding still ranks 8th from the bottom of all states.

"While this budget unfortunately represents a status quo for our schools, we now must focus on the November special election and defeating the Governor's Live Within Our Means Act. That initiative would do serious long-term damage to our schools by eviscerating the state's Constitutional guarantee of stable school funding."

General fund spending up 10%; plan goes to vote today

By Ed Mendel, San Diego Union, July 7, 2005

Gov. Arnold Schwarzenegger, who took office on a promise to control runaway spending, is learning the hard way that getting the state budget under control is not easy.

The Legislature is scheduled to vote today on a new budget Schwarzenegger negotiated with legislative leaders that increases general fund spending by 10.3 percent, to $90.1 billion.

The first budget that the governor signed last July increased general fund spending by 7 percent. The general fund pays for schools, higher education, health care, prisons and other programs.

Spending keeps ratcheting up, outpacing increases in tax revenue from an improving economy, as the governor struggles to close a 5-year-old budget gap and schools complain that they are seriously underfunded.

"The spending formulas are making us spend more money, and so I think we have to solve the problem. And I think that it will be easier than to solve the budget each year," Schwarzenegger said as he announced the budget agreement Tuesday evening.

The governor wants to accomplish this goal without raising taxes, which he says would harm the economic recovery. He made that more difficult when he repealed a $4 billion increase in the vehicle license fee on his first day in office in November 2003.

The governor's finance director, Tom Campbell, has argued against a tax increase, saying last month that estimates of tax revenue have increased more than $11 billion since last year.

"Most people find it impossible to believe that our state is undertaxed," Campbell said.

General fund revenue estimated in the proposed budget for the new fiscal year that began last Friday is $84.5 billion, still well below the $90.1 billion spending plan.

The shortfall must be closed by borrowing and other means. And a gap of about $4.7 billion is expected to reopen in the budget for the fiscal year that begins next July. Many details on the new budget were still unavailable yesterday.

As a cushion, the state has $3.7 billion in unsold deficit bonds authorized last March by Proposition 57, which enabled the state to pay off a short-term debt with $10.3 billion in bonds and avoid a cash crisis.

But if the economy weakens or the chronic budget gap rolls on into following years, pressure could build for a tax increase, a possibility that the governor finds unsettling.

"We must draw the line when politicians once again push for budgets that guarantee deficits in the future and create the need for tax increases," Schwarzenegger said at a Capitol news conference June 21.

Democratic leaders had contemplated proposing a tax increase to boost education spending but dropped it, apparently fearing that a lengthy budget deadlock with Republicans could influence the vote on a spending limit initiative this fall.

The Republican governor has argued since January that his proposal for a spending limit, Proposition 76 on the Nov. 8 special election ballot, is needed to close the budget gap.

But only about a third of voters supported that proposal in a recent Field Poll, and powerful school groups are certain to oppose the initiative, which would change the Proposition 98 school-funding guarantee.

In the face of such opposition, the governor hopes to negotiate a bipartisan compromise on a spending control that the Legislature could place on the November ballot. This would allow him to urge voters to support the compromise rather than his initiative.

The governor had angered school groups last year when they said he reneged on a budget agreement. As a result, he was the target of a well-financed TV ad campaign accusing him of breaking the deal. Analysts say the TV blitz contributed to his sharp decline in the polls.

Schools are by far the largest single item in the state budget, getting about 40 percent of the proposed general fund, and they are often the biggest bone of contention in budget battles.

School groups agreed to unprecedented legislation suspending the Proposition 98 guarantee last year, a $2 billion cut in school funding that helped Schwarzenegger balance the budget without a tax increase.

In January, the school groups angrily accused the governor of breaking a promise to give schools their regular Proposition 98 share of any revenue unexpected when the budget was signed last July.

As an improving economy boosted tax revenue, the groups said in January that they were owed more than $2 billion, an amount that increased to $3 billion when revenue forecasts were revised in May. That would double the education increase in the budget deal.

Schwarzenegger contended that his budget, little changed by Tuesday's agreement, provides a $3 billion increase in kindergarten-through-community college funding and fully funds the Proposition 98 guarantee.

But a news release from the governor's office saying the proposed budget provides $10,000 per student was declared "misleading" yesterday by Superintendent of Public Instruction Jack O'Connell.

"In fact, this budget does not represent a significant increase in funding for our students," O'Connell said in a statement. "It barely keeps our schools afloat at a time when many districts face serious budget shortfalls."

O'Connell said the $10,000 per-student figure includes federal and local funding, not state funding only. A Schwarzenegger spokesman said the method of calculation has been routinely used in past years.

Despite the 10.3 percent increase in general fund spending, the backers of the proposed $117.5 billion budget (which includes $23.4 billion in special funds and $4 billion in bond funds) say it is fairly tight.

The budget pays off a $1.2 billion debt to local government a year early, reducing the gap in the next budget as Republicans requested.

It also gives $1.3 billion from the sales tax on gasoline to roads and transportation as required under Proposition 42. The Legislature and governor suspended the measure in the past two years and used that money to help balance the general fund.

Although Schwarzenegger proposed deeper cuts, the budget freezes CalWORKS welfare payments for two years and delays a cost-of-living increase for the aged, blind and disabled for the first three months of two fiscal years.

While the state saves $650 million over two years, the scheduled increases would have meant $1,074 to a typical CalWORKS family of three and $600 to each recipient of aid to the aged, blind and disabled over that period, according to the Western Center on Law and Poverty.

The budget does not include Schwarzenegger's request for more than 40 new positions on the gambling commission, which would have doubled the staff to deal with a backlog of work on new agreements. Powerful gambling tribes opposed the expansion.

"We have to take a look at all of our responsibilities and ... our resources and reprioritize," said Anna Carr, the commission's spokeswoman.

New budget not balanced, but it's getting closer

By Daniel Weintraub, Sacramento Bee, July 7, 2005

If Gov. Arnold Schwarzenegger makes a political comeback this year and manages to reconnect with California voters who have turned against him, the bipartisan budget agreement he reached Tuesday with legislative leaders will be the first step on that journey.

Though far from perfect, the deal represents another piece of the fiscal game plan that Schwarzenegger laid out when he took office in late 2003. It slows the growth in projected state spending while still investing in essential services and relies on the returns from economic growth rather than tax increases to eventually close the persistent gap between the state's desires and its willingness to pay for them.

Schwarzenegger didn't get everything he wanted. But he fought back attempts by Democrats in the Legislature to raise taxes and, failing that, to add to the state's future budget problems by keeping spending on a growth track that could not be sustained under the state's current tax structure.

The governor could make quicker progress in balancing the books for the long term by either raising taxes or more strictly limiting the growth in spending. But neither is politically viable in a Legislature sharply divided along partisan lines. Given those parameters, this budget doesn't make the state's long-term fiscal mess any worse, and, arguably, improves the situation.

Among the highlights:

The proposition also allowed legislators and the governor to suspend the sales tax transfer in tough fiscal times, and that has happened every year up until now. This budget will provide a $1.3 billion boost to transportation construction.

Schwarzenegger did make some costly concessions on cuts he had proposed in some of the state's most sensitive programs, those serving the elderly and the poor. He had suggested a 6.5 percent cut in welfare grants for poor families with children but gave that up. He had proposed freezing grants to the elderly, blind and disabled but agreed to pass through a small cost-of-living increase that will be funded by the federal government. And he had proposed limiting the state's payment to workers who care for the elderly and the disabled in their homes, forcing counties, which set their wages, to pay any amount over the state minimum wage. He abandoned that proposal altogether.

And thanks in part to the Democrats, the plan also avoids some of the questionable assumptions that have marked most budgets in the recent past. It doesn't rely on savings that the governor hopes to wring from state employees in contract negotiations, nor does it seek to shift to schools the entire obligation for teacher retirement, a proposal the governor had floated but which Democrats had insisted was not workable.

The budget is also free of new debt. A restructuring of some old borrowing is expected to free up about $500 million, but that one-time revenue will be used to help repay the debt to local government. The plan also relies on a legally questionable proposal to borrow money to pay the state's pension fund obligation, a move that has been part of three budgets now but has yet to be implemented.

While the plan balances on paper, it does so with the help of some old borrowed money that wasn't spent last year and will be carried over into the new budget, plus the proceeds of a surge in tax revenues this spring that budget experts say will not be repeated. That, plus the reemergence next year of obligations the state postponed in the past, means Schwarzenegger will be looking at a new projected deficit in the $5 billion range when he writes his next budget in January.

That's down from $15 billion when he took office, and projections show the red ink slowly shrinking each year in the future. In California these days, that's what passes for progress.

More California schools report financial problems, report finds

Jennifer Coleman, Associated Press, July 8, 2005

A state report paints a bleak portrait of California's public school finances, finding that as many as 79 districts may not be able to pay their bills in two years.

One-third of the state's 982 public school districts have tapped reserves to make ends meet, with 14 expecting to run out of money in the next two years, according to a report released Thursday. Another 65 districts reported a possibility that their expenses would outpace revenues within that time.

Ten of the 79 most financially troubled schools are in Los Angeles County.

"For the first time in 12 years, schools are spending more money than they are taking in," said state Controller Steve Westly, whose office compiled the audits of 1,040 school districts and county offices of education.

The common threads are declining enrollment and deficit spending, said Scott Plotkin, executive director of the California School Boards Association.

Plotkin, Westly and Superintendent of Public Instruction Jack O'Connell blamed the state budget for much of the schools' financial troubles.

The state's $117.5 billion 2005-06 spending plan allots about $50 billion for kindergarten through 12th grade education. Gov. Arnold Schwarzenegger said his budget plan, which was approved Thursday by the Legislature, spends $3 billion more on schools than last year, an increase he said would cover cost-of-living and enrollment growth.

But Plotkin said that won't help half of the state's school districts that are seeing declining enrollment.

Education advocates have lobbied against Schwarzenegger's budget, which Democrats approved with only slight changes. They say it doesn't give schools all the money they are owed under Proposition 98, the voter-approved funding formula that sets the minimum amount of state education spending.

"The governor and the Legislature have made a beautiful landing at the wrong airport," Plotkin said.

Without an increase in state spending for education, Plotkin said, "the number of school districts on this list is likely to go up next year."

Schwarzenegger said the extra $3 billion he gave schools in this year's budget exceeds what they would have been owed under the Proposition 98 formula.

Among other findings in the controller's report, which is released annually:

State officials will work with the schools reporting financial hardship, Westly said. If the trouble persists, the districts could be forced to close some schools, he said.

The districts also can request an emergency loan, a move that would lead to state control of the district.