Unions Supporting a Spending Cap?

In 2005 the California Teachers Association (CTA) and other unions declared war on Governor Schwarzenegger when he called a special election and placed a spending limit and tenure reform initiatives on it. The CTA coalition was able to soundly defeat the Governor’s initiatives in the special election, and Schwarzenegger’s tenure as an education reformer was largely over. In the process, the pounding that he took lead to his approval rating falling from 58% approval in Jan. 2005 to 34 percent in August 2005. Fast forward to 2009. To fill a $40 billion budget hole the Governor and the Legislature negotiated a budget package that no one is particularly happy about, but it may have saved the state from budget anarchy. A part of that solution was to once again call a special session and place a spending cap before the voters. For voters this might seem like déjà vu all over again, but not for the teachers’ union. What has changed? While the CTA has still not decided whether it will formally support the spending cap, it is not likely to oppose it either(here). So what has changed? The answer is a technical ambiguity with the state’s education funding guarantee in the state constitution.

A little background. California lives in a world of ballot box budgeting where much of the key decisions on spending are determined by voter approved initiatives. One of the most imposing initiatives is Proposition 98, a funding mechanism for K-14 education (K-12, community colleges and child care/preschool funds). Generally Proposition 98 creates a minimum funding guarantee that is increased annual by the growth in student population and growth in the economy (growth in per capita income). When the state General Fund is having a bad year, the state can provide less funding to education, but must restore the funding to education when the General Fund has a good year. This mechanism has generally resulted in funding for schools following the overall economy with lots of booms and busts (For a primer on Prop 98 I wrote in my prior life see here). But, because of the unique level of decrease in state revenues this year, and specifics of the Proposition 98 formulas, there is constitutional uncertainty about what the minimum guarantee would be in 2009-10 and beyond. At stake is $8 billion in annual funding for schools. In a rational world, the Governor and Legislature would figure out what an appropriate funding level is in 2009-10, but California budgets are often far from rational. And, the guarantee that prop 98 provides is what schools get especially in tough times regardless of whether the amount makes any sense. For example, in the current year, the just adopted budget decreases funding for the 2008-09 school year by $7.3 billion, with about half of this decrease being achieved by providing funding to school districts on July 1 that they would have normally received throughout this spring. This accounting and cash flow move lower the 2008-09 funding level which in turn lowers the 2009-10 required spending level. Normally the reductions that school experienced in 2008-09 would be restored to their budget over the next several years (ususally 3-5 years or so. But no one can agree whether in this particular year, the state would need to restore these cuts in the future. This is a big uncertainty for the school community, and clear would lead to lawsuits for the foreseeable future. Instead of letting the courts decide, the Governor and Legislature are sending this issue back to voters.

And the Governor has been able to take advantage of this constitutional uncertainty to neutralize the CTA on the spending cap initiative by only allowing an initiative (Prop 1B) that fixes the $8 billion constitutional uncertainty to be implemented if the spending cap passes (Prop 1A). In addition, Schwarzenegger was able to delay the repayment of the $8 billion plus a little more until after he is out of office. So, instead of suffering a second defeat at the hands of CTA, he has neutralized the education lobby. Of course the interests of CTA in this package are not the same as the rest of California’s public employee unions which are likely to oppose the spending cap. This will be an interesting tension to watch. In the end what will voters think? We will find out May 19th.