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State moving toward budgeting by fait accompli

As Gov. Schwarzenegger and legislative leaders consider asking voters to increase the sales tax to help pay for universal health insurance, they face at least one big dilemma.

For every additional dollar in sales tax the state brings in, the state Constitution requires that roughly 40 cents go to kindergarten through community college education. So, if voters hike the tax by a penny for health care, generating $6 billion a year in new money, $2.4 billion would go to the schools, and only $3.6 billion of the total take would be available to finance insurance subsidies for low- and middle-income Californians.

That distribution is controlled by Proposition 98, which voters approved in 1988 to set minimum levels of education spending. The voters could change that law, but asking them to do so risks drawing opposition from the influential California Teachers Association, which could help defeat the measure.

The conundrum is only the latest example of how California has tied its hands when it comes to setting priorities for spending the public's money. Through ballot box budgeting and formulas written into state law, voters and legislators have limited the ability of policy-makers to respond to new challenges.

Two examples popped up in the debate this summer over the state's new budget.

The mental health issue arose when the governor used his line-item veto to cut $55 million the state was spending on a program for homeless mentally ill people that has proven to be effective. But with the state bringing in far less revenue than it needs to maintain all current services, Schwarzenegger chose to shift money to another program that screens, diagnoses and treats mentally ill children.

The governor suggested that the counties, which run the homeless program, keep it going with money from a ballot measure voters approved in 2004. Proposition 63 slapped an income tax surcharge on people reporting incomes of more than $1 million. The new tax is generating about $900 million a year -- and all of it must be spent on mental health programs.

But Proposition 63's supporters argue that it requires the state to maintain its level of funding for every program within the mental health budget.

That interpretation locks 2004's mental health priorities in place forever, even if, by some miracle, we eliminated the problem of homeless mentally ill. That hardly seems prudent.

The transportation issue is also causing problems for Schwarzenegger. A law on the books since the early 1970s requires a portion of the sales tax to go to public transit funding. The recent spike in gas prices has meant a huge increase in that special pot of money. At the same time, with people spending more on gas, they're spending less on everything else, depressing sales tax revenue.

Schwarzenegger, with the support of two- thirds of the Legislature, shifted more than $1 billion of that money to other priorities.

Without the windfall, transit agencies have been forced to cut services. An association of transit agencies now says it will sue the state to reverse the funding decision. A ballot measure the voters passed later might have locked into place transit's share of the sales tax -- one more fiscal time bomb waiting to explode.

The health care proposal now on the table would be an example of ballot box budgeting. Old formulas beget new ones. Pretty soon every penny of the budget will be spoken for.

Weintraub's e-mail address is