SACRAMENTO – Proposition 98, the measure that guarantees schools a certain level of funding, has long been a sacred cow, largely off-limits to state budget-cutters.

But the sanctity of the Proposition 98 guarantee, which is based on prior-year funding plus enrollment growth and inflation, is being severely tested during the state budget crisis.

The Legislature has not voted to suspend the Proposition 98 guarantee in more than a decade, and the school groups that vigorously defend the measure are struggling to keep the guarantee in place.

"We are doing everything we can to make sure it doesn't get suspended," said Kevin Gordon of the California Association of School Business Officials. "Then it would be like opening the vault."

These school groups, which formed the Education Coalition, have backed several delays in school funding over the past year, totaling nearly $3 billion, that have resulted in a lower guarantee. The delays eased the pressure for cuts elsewhere in the budget.

But crucially, the funding delays did not require a vote to suspend Proposition 98.

"The whole objective was to lower the Proposition 98 base – a shell game," Gordon said.

Now, as a deadlocked Legislature battles over a budget for the fiscal year that began July 1, school funding – which amounts to about 40 percent of the state's general fund – is by far the largest single item still unsettled.

Some Democrats are suggesting that Proposition 98 may have to be suspended if Republicans do not drop their opposition to a tax increase to help close the record $38 billion budget gap.

"If the Republicans continue to hold the line on taxes and we have to go back and make additional cuts," said Assemblywoman Jenny Oropeza, D-Los Angeles, the budget committee chairwoman, "then it's quite possible that we would have to suspend it (Proposition 98) and do additional reductions in education, because it is such a large piece of the state budget."

The Education Coalition has allied itself with Gov. Gray Davis by endorsing his proposed budget, which would reduce school funding by about $2 billion in the fiscal year that began this month.

As part of its agreement with Davis, the coalition mounted a $1 million campaign in support of the governor's proposed sales tax increase, including sending mailers to voters in the districts of two Republican senators.

Budget writers in the past have said that governors usually get "80 to 90 percent" of what they want. But Davis, facing a recall election, is in an unusually weak position and may have to take what the Legislature gives him.

The school groups are watching nervously as billions of dollars in health and welfare cuts proposed by Davis are rejected by Democrats, sometimes with the passionate argument that cutting health care will "kill people."

In what would be a painful irony for coalition negotiators, the school funding protected by Proposition 98 may take a bigger cut than the unprotected health and welfare programs that receive about 30 percent of the state's general fund.

Until now, the third year of escalating state budget problems, schools protected by Proposition 98 have been able to avoid an actual reduction in funding.

But under the governor's proposal for this fiscal year, as calculated by the nonpartisan Legislative Analyst, school funding would be cut by $2 billion.

The reduction is not apparent in the total school funding from all state, local and federal sources, which would increase from $54.5 billion in the past fiscal year to $55.5 billion this year under the governor's plan.

While state general fund spending on schools would drop from $29.6 billion to $29 billion under the plan, funding from taxes on local property, whose value is increasing, would jump from $12.8 billion to $13.9 billion.

Still, the Legislative Analyst calculates that the failure to provide funding for increased enrollment, inflation and other factors amounts to a $2 billion cut – forcing many school districts to trim programs and staff.

If not for a series of funding delays approved by the Legislature, the Proposition 98 guarantee based on prior-year funding plus enrollment growth and inflation would require more school funding this year.

"Certainly, it's true (that) had we not used these deferrals to lower the minimum guarantee, the obligations would be substantially higher," said Rob Manwaring, of the Legislative Analyst's Office.

One indication of how much money the funding delays have cost schools is a "restoration" provision in Proposition 98, which requires that schools be repaid in the future for any money lost during an economic slowdown.

If the school funding in the governor's plan is approved by the deadlocked Legislature, schools would have to be repaid about $3.5 billion when an improved economy begins producing more tax revenue.

The first of the delays approved last year shifted $1.7 billion in school funding to later fiscal years. Another shift earlier this year shifted $1.2 billion to the next fiscal year.

The shift this year simply delayed a payment due in late June until a few days after July 1, after the start of the new fiscal year. School groups proposed the change as an alternative to mid-year cuts proposed by Davis.

But the shift caused outside auditors to raise a question: How can local school districts balance their books for the fiscal year ending in June if one of the big state payments is not received until the next fiscal year?

Controller Steve Westly solved the problem by issuing a letter on June 2 saying the state would record the funding as "payables" in the fiscal year ending in June, even though the payment will not be made until early July.

Looking back, the school groups that sponsored Proposition 98, particularly the California Teachers Association, think the measure was valuable but has never lived up to the goal expressed in the ballot pamphlet argument.

Voters were told that Proposition 98 "is a well-thought-out plan for California's schools to once again be among the very best in the nation." However, school funding in California has remained below the national average.

The association gathered enough signatures three years ago to place an initiative on the ballot requiring California to bring per-pupil school spending up to the national average.

At a time when the state thought it had a large surplus, Davis persuaded the association to drop the initiative by agreeing to place an additional $1.84 billion in school funding in the budget enacted in 2000.

"I think I will probably always regret a little bit that we didn't run that initiative and see what we had," said Wayne Johnson, a former teachers association president whose final term ended last month.

Now the association is gathering information by polling voters as it considers placing an initiative on the ballot next year for an as-yet unspecified tax increase that would raise more revenue for schools.

"I am of a firm mind that if you are going to increase educational funding in California, you are going to have to do it through the initiative process," Johnson said. "It is not going to come through the Legislature."