A primer on California’s messed-up finances

If ever there were a perfect example of how ballot-box budgeting has confounded California’s finances, this one has to be it:

This spring, the state appears headed for a tax revenue windfall. And that spike in tax money might just force legislators and the governor to slash spending on health and social services.

Why?

Because Proposition 98, the constitutional mandate for school spending that voters approved a generation ago, is essentially a one-way ratchet for the education budget.

When tax revenue climbs, the amount the state must spend on the schools climbs as well. Then that spending becomes the new base upon which the next year’s budget must be built.

This month, according to the nonpartisan legislative analyst, it looks as if the state will see a large spike in revenue after all the income tax returns are counted. But that bump is likely to be short-lived. Next year’s revenues are not expected to keep growing at the same rate.

No one knows yet how big the spike will turn out to be. But the analyst has sketched a few possible scenarios.

For instance, suppose the state saw a $2.5 billion bump in revenue this year and a $1.25 billion increase next year above what Gov. Jerry Brown projected in January.

With another $100 million still trickling in from past tax years, that’s a total of $3.85 billion in new money that would be available to spend in the budget year beginning July 1.

But because of the way Proposition 98 works, that revenue increase would trigger $4.8 billion in new, mandatory spending on the schools. And that would force cuts of about $1 billion in other programs.

The Legislature’s challenge actually would be a bit bigger, because the state’s new rainy day fund would take its share of the new revenue, too, meaning that cuts to non-education programs would have to total about $1.8 billion next year.

This would come at a time when the schools already are scheduled to receive a $7 billion increase next year, to a record $65 billion in state and local funding.

We always have been supporters of public schools and generally favor spending more, not less, on education. But at a time when the state’s safety net still suffers from program cuts imposed during the Great Recession, it makes little sense to spend even more on the schools than the governor has proposed. But that is exactly what Proposition 98 might require.

The legislative analyst has offered lawmakers a few suggestions for getting around the requirement, mainly by changing the way certain tax revenue is counted against the Proposition 98 mandate.

We hope that, at a minimum, legislators take a serious look at those options before cutting health and social programs in order to spend more on public schools.

This story was originally published April 8, 2015 at 5:00 PM with the headline "A primer on California’s messed-up finances."