State sued for $1 billion IOU

Governments at all levels find it hard to keep their fingers out of various piggy-bank funds they are supposed to maintain for specific uses. Often it seems just too tempting to solve immediate budget conflicts by exchanging set-aside dollars for shaky IOUs. Congress systematically emptied the so-called Social Security account for decades. San Francisco habitually helped balance its budgets by not maintaining the vital Hetch Hetchy water supply infrastructure.

Last Wednesday the California School Boards Association and five school districts representing major state population centers sued California for nearly$1 billion owed on 38 Sacramento-ordered programs. The lawsuit charges that the last five state budgets shortchanged schools $890 million for programs they were forced to implement — plus another $160 million for this year’s obligation.

This year as in recent years, the governor’s budget allocated just $38,000 — a token $1,000 per program for the school mandates. True, the Legislature in 2006-07 did appropriate some $900 million toward the schools’ arrears, but that only retired half of the lawmakers’ “credit card debt.”

Many of these state mandates divert schools’ discretionary funds from direct classroom teaching uses. There are pupil immunization screenings ($4 million a year); reporting attendance figures ($3.8 million); school safety plans and habitual truant programs. And of course the biggest compulsory burden is administering the High School Exit Exams ($66 million a year). It also costs school districts thousands of man-hours to prepare the detailed annual paperwork for reimbursement claims, which are largely futile anyway.

Assigning smaller jurisdictions to carry out costly programs without funding the work has become a staple of California budgeting, especially since 1978 when Proposition 13 severely restricted statewide taxation options. However, withholding timely local reimbursement for state-mandated programs also appears to be illegal in California, having been specifically forbidden by California voters in 1979’s Proposition 4.

This case could well trigger sweeping changes in the way California must carry out state business. If the lawsuit eventually establishes a principle that local repayment for state-mandated programs can no longer be delayed arbitrarily and indefinitely, billions more dollars would need to flow quicker to cities and counties as well as schools.

And this could be especially problematic for lawmakers right now, since the nonpartisan Legislative Analyst’s Office last week forecast a $10 billion state budget shortfall over the next two years, which already means painful spending cuts are in the offing. More than the usual smoke-and-mirrors budget trickery could be required to find an extra $1 billion for debt retirement.

Still, Gov. Arnold Schwarzenegger might find himself with no option except to settle out of court with the schools again, as he did with last year’s $3 billion lawsuit on unpaid Proposition 98 minimum school funding guarantees. Except this time California might actually be forced to stop imposing some of its 38 school mandates until the state has enough money to properly fund them.

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