How much spending is cut for K-12 schools and higher education next year may be determined not in Sacramento but in Washington, D.C. – and perhaps by the White House.

Legislative Analyst Mac Taylor this week projected an 18-month state budget deficit of $20.7 billion ($6.3 billion for the fiscal year ending June 30 and the rest next year).

Using the roughest rule of thumb, with K-12 schools and community colleges receiving roughly 40 percent of the budget and higher ed an additional 10 percent, one would assume that education could be expected to absorb 50 percent of that deficit – or $10 billion. That assumes, for the moment, no higher fees and taxes and no new budget gimmicks (Haven’t we run out of those by now?).

But cutting education will bump against the federal government’s demand that states maintain their levels of spending for education in order to receive stimulus money under the American Recovery and Reinvestment Act of 2009.

California agreed to it, and its K-12 schools alone are getting $6 billion over two years.  (Community colleges, because of the distribution formula, actually received little help.)

There’s little doubt that Gov. Schwarzenegger will seek the waiver, but it’s speculative to assume that the Obama administration will grant it. No state has been given a waiver and none has yet to publicly acknowledge  applying for one, according to Michael Griffith, senior policy analyst for the Dever-based Education Commission of the States. A state would have to prove extreme financial hardship; California, of all the states, could certainly make the case. It would also have to show it hadn’t cut  education spending disproportionately.

What’s unclear from the stimulus law, Griffith said, is whether the Obama administration would make an all-or-nothing decision. The feds could also permit some retrenchment to stay in compliance – just not as much as Schwarzenegger and legislators would like.

The penalty is also not explicit, Griffith said. Would the feds withhold the second installment of the stimulus money – about 25 percent – or force California to repay all of the dollars?

Staying in compliance without raising more revenue would require cutting $20 billion from the remaining 50 percent of the state budget, which includes prisons (untouchable in Republicans’ eyes). It would be infeasible to do so without shutting down parks, decimating the state workforce, Medi-Cal, welfare and Healthy Families, which provides health insurance for low-income children.

No wonder Democrats are reviving talk of an oil production tax, and the California Teachers Association is debating whether to launch an initiative to raise commercial property taxes – and revise Proposition 13 — either by assessing commercial properties regularly or by raising the non-residential tax rate, potentially bringing in $2 billion a year.

K-14 spending under Proposition 98, the primary source of school funding, has dropped about $7 billion or 12 percent over the past two years, after factoring in deferrals and accounting manipulations, according to the Legislative Analyst’s Office. Because of oddities in the Prop 98 formula, the revised spending for this year is theoretically supposed to increase about $1 billion to $51.4 billion, though schools would be foolhardy to count on it.

Because per capita income, a factor in determining Prop 98 spending,  has dropped sharply, the Prop 98 obligation would fall slightly next year and then $2 billion to $49 billion in 2011-12, unless the Legislature extends temporary taxes due to expire.

These will be bleak years for already strapped schools. But if the Legislature attempts to suspend Prop 98 funding, it will face the wrath of parents and teachers and the prospect a confrontation with the federal government.

There is no obvious option.

By John Fensterwald on November 20th, 2009