PD Editorial: When good times threaten state services

When state revenue tumbled, it was bad news for Californians who rely on Medi-Cal and other safety net programs.

This year, tax dollars are flowing into the state treasury. In fact, revenue is far exceeding expectations.

And that may mean more bad news for the poor.

Welcome to the “Twilight Zone” world of ballot-box budgeting.

Proposition 98, a constitutional amendment approved by voters in 1988, set a floor for state funding of public schools and community colleges. The guaranteed minimum ratchets up based on several factors, including growth in tax revenue. If school funding falls short of the guarantee, as it did during the Great Recession, the state is obligated to make up the difference later.

The mechanism is similar to Santa Rosa’s Measure O sales tax, which established minimum funding for the police and fire departments that is largely independent of the city’s revenue and threatens to elbow out funding for other services.

That’s a likely scenario for this year’s state budget, with education crowding out other programs, according to the nonpartisan legislative analyst.

State tax revenue for 2014-15 is running well ahead of projections in Gov. Jerry Brown’s budget for the fiscal year that begins July 1. The state also exceeded expectations in 2013-14, and Wall Street’s bull market might increase estimated tax payments from wealthy individuals for anticipated capital gains and other sources of income that aren’t subject to withholding.

Under the terms of Proposition 98 and subsequent legislation governing the repayment of past shortfalls, schools will be entitled to most of the windfall. “Almost dollar for dollar,” the legislative analyst said.

“This also increases the? 2015-16 guarantee to some extent, even if the additional revenues prove temporary,” the report said. “In some scenarios, this makes it difficult for the state to build reserves, fund existing operating costs and make augmentations outside of Proposition 98.”

A revised budget proposal is due in early May after updated revenue projections are made based on April tax receipts. Under several plausible scenarios outlined in the legislative analyst’s report, new funding minimums for schools and community colleges would actually exceed any amount of unexpected revenue. For example, a $3.85 billion windfall could trigger a $4.8 billion obligation, forcing legislators to cut about $1 billion from other state services such as health programs, the university systems and corrections.

For many voters, education is a top priority - maybe the top priority. We don’t disagree.

But public schools and community colleges haven’t been shortchanged in Brown’s budgets.

After dipping as low as $47.3 billion during the recession, funding for K-12 schools climbed to $58.3 billion in 2013-14 and $60.9 billion in the current fiscal year. Under the governor’s proposal in January, funding would increase to $65.7 billion in 2015-16, plus retroactive payments of $2.7 billion for 2013-14 and 2014-15 because revenue exceeded budget estimates.

One option is to declare a budget emergency, allowing the state to shortchange its rainy day fund. But that would undermine promises to budget responsibly.

In the short run, legislators and the governor may revise various calculations or resort to creative accounting to avoid further cuts in safety net programs that already have been scaled way back. Beyond any such quick fixes, it’s time to reconsider some of the ballot-box mandates that deny elected officials flexibility in setting and, as necessary, adjusting budget priorities.