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California School Not Out.JPGSenate President Pro Tem Darrell Steinberg, D-Sacramento, says state leaders can use $1.2 billion in new federal money dedicated for California school districts to help plug the state's $19 billion deficit.

That's significant because Gov. Arnold Schwarzenegger's Department of Finance has said all along that the school money can't be used as a budget solution. The money doesn't flow through the state's budget, so Finance has never treated it as a state budget answer.

But Steinberg says he believes the state can take advantage of that money. He was reluctant to say how, but he said the state would actually get about $600 million more than Schwarzenegger anticipated, rather than $500 million less, as Finance said last week because California received that much less in Medicaid help than was expected.

"We had a net $600 million gain," Steinberg said in an interview last Thursday. "I'm not saying how we would do it, but you have to assume that (as a budget solution). We gained $600 million more than what we anticipated a week ago."

Since the federal school money doesn't flow through the state budget, the main way that state leaders could use it to solve the state's budget gap would be to reduce payments to schools by a like amount, $1.2 billion. Democrats have proposed paying schools $52 billion in 2010-11, while Schwarzenegger proposed nearly $49 billion. In this instance, Democrats could reduce their figure to $50.8 billion with the justification that schools will be getting $1.2 billion from the federal government.

Schools probably won't like that option, since it means the state would essentially use a back-door option to take advantage of federal dollars heading toward districts. But as August drags on with no budget in place, treating federal school aid as a solution will look increasingly attractive.

"The state doesn't have a budget, and it has now learned with finality that it will get the $1.2 billion in federal education jobs money," said Jennifer Kuhn, K-12 director with the nonpartisan Legislative Analyst's Office. "Given that the state is still negotiating what level of support it will provide schools, it could be that the state will take that into consideration."

Updated to clarify that the federal funds don't flow through the state budget. The state receives the funds from the federal government but is required to disburse them to school districts.

PHOTO CREDIT: Students play on the playground during a lunch break at Rolling Ridge Elementary School in Chino Hills on June 24, 2009. (AP Photo/ Jae C. Hong)


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