Senate stalemate could mean windfall for public schools

In the wake of the Senate’s failure to pass three bills that would have bridged the state cash crunch, uncertainty now reigns over how much discretion the state has to make cuts to public schools, and what the missed deadline means for the rest of the state budget.

The three bills that failed Tuesday night would have deferred about $3.6 billion in payments to schools, and shifted some money out of redevelopment agencies to fund local school districts. But the Legislature’s failure to act has altered the Proposition 98 formula used to determine school funding, and increased the state’s future obligation to public schools by an estimated $11 billion over several years. Ironically, a measure to do exactly that was rejected by voters in May.

Does that mean schools, by default, end up winning from this week’s lack of legislative action?

“It’s always a mixed bag with the budget,” said Marty Hittelman, president of the California Federation of Teachers. “There’s always good and bad. In a way, it’s good that we’re going to have the (Proposition 98) guarantee firmly in place. It’s good that they couldn’t cut education funds for 2008-9 any further. On the other hand, a lot of these things would have allowed the state to function a little longer without IOUs.”

The state’s hands are further tied by the federal government. In order to keep the $6 billion in federal education funds, the state must maintain funding at certain base levels, and cannot cut below those thresholds. So, by building the $3.6 billion back into the education budget, it raises the level at which the state can make cuts.

“We’ve already written leaders to the president and to (Education Secretary Arnie) Duncan to hold the line on those requirements, though it seems like they’ve been giving lots of waivers for California.” Hittelman said.

But even the short-term future of school funding seemed in doubt. In a budget update, Scoot Lay, president of the Community College League of California, wrote, “few education lobbyists seriously expect that the additional $3.6 billion in Proposition 98 “maintenance factor” that may have been created by the failure of SB 80 will lead to more money in 2009-10. The increase will almost certainly be suspended and postponed to a future date.”

The only thing that is clear is that the maneuvering of this week has made the budget picture even more cloudy than it was before.

The state Senate rejected three bills that would have lessened the state’s immediate cash crush by billions of dollars in a surreal late-night session in which a packed Senate chamber quietly counted down the minutes to the new fiscal year, as Senate leader Darrell Steinberg’s efforts to cajole Republicans came up empty.

Republicans in the Senate, at the behest of Gov. Arnold Schwarzenegger, did not vote for the bills because Democrats and Republicans could not come to an agreement of a comprehensive $24 billion budget solution that the governor has repeatedly said he must have before signing any partial budget fixes.

The bill’s failure means that Controller John Chiang will begin issuing promissary notes to certain state vendors and others so that the state has enough cash on hand to meet debt service obligations and make education payments that are constitutionally required.

But the Senate’s failure to act on the measures takes away a series of deferred payments and bookkeeping tricks that could have saved the state up to $7 billion. The Senate’s inaction now deepens the state budget hole, and will renew the fight over additional cuts to social service programs, and inevitably, Democrats’ call for some new revenues.

“It is without question the most irresponsible act I’ve seen in my 15 years of public service,” a visibly frustrated Steinberg, D-Sacramento, said after the session. He called the act “a major blunder” and said, “I hope its significance catches enough attention that people will truly say it’s time to change a system that allows the minority to rule the day.”

The Senate adjourned after a marathon series of negotiations that lasted throughout the day and evening. As late as 10 p.m., Senate Republican Leader Dennis Hollingsworth, R-Murrieta, was meeting with the governor in Schwarzenegger’s smoking tent. According to numerous Senate sources in both parties, many Republicans wanted to vote for the bills, but held the line in the face of a veto threat from Schwarzenegger.

“I think the Republicans were looking for a way out, but the governor won’t budge,” Steinberg said after meeting with Hollingsworth.

After the vote, Hollingsworth blamed Democrats for the stalemate. “By waiting until the last hour, Democrats have brought us to the brink and still refuse to solve the $24 billion problem everybody knows we have,” he said. “This is not what the people of California want; it’s not a fix.”

 Time was of the essence Tuesday night. In order for the state to be able to delay these payments, the bills had to be passed and signed by the governor before the start of the new fiscal year, which began at the stroke of midnight Wednesday. Last week, Assembly Republicans joined with Democrats in moving the bills out of that house. But Schwarzenegger said he would not sign the bills without a complete budget solution.

Assembly Republican Leader Sam Blakeslee, R-San Luis Obispo, said he was disappointed in the Senate vote, noting “the Assembly acted responsibly” by passing the bills out of their house on a bipartisan vote.  “The defeat of these measures means that these savings go away and our budget obligations will grow by $8 billion – making an already tough task even more difficult,” he said in a statement Wednesday.

Through the arcane formulas of state education finance, the failure of one of those bills, which shifts $350 million out of redevelopment agencies into local school districts, means the entire computation of the Proposition 98 education formula is different. The end result is that the state is now on the hook to give schools an additional $11 billion over the next several years, a debt which is known in the education world as a “maintenance factor.”

Steinberg lashed out at the governor, saying he orchestrated the bills’ demise “for no good reason. The govenror apparently was out to prove a point, and he proved a point,” said Steinberg. “in the end the governor wanted it his way. He wanted the cuts he wanted, he wanted the reforms he wanted and he wanted it right away. Whatever point he thinks he made, there’s one undeniable fact — California is worse off tonight than it was yesterday.”

The disappointing result for Steinberg and fellow Democrats ended a day that was marked largely by optimism. At various points, there were rumors that a framework had been agreed to on an overall budget deal. Other stories had the Republicans willing to put up votes for the bills if Democrats committed in writing to making changes in fraud investigations of in-home healthcare workers and Medi-Cal abuses. Republicans also pushed Democrats to accept the governor’s 11th-hour proposals to change the public employee pension system to roll back benefits for future state workers.