ARNOLD PLANS TO RETURN BILLIONS TO SCHOOLS.

Byline: HARRISON SHEPPARD Sacramento Bureau

SACRAMENTO -- With state revenues booming, Gov. Arnold Schwarzenegger will issue a revised budget plan Friday that proposes repaying billions of dollars borrowed from schools, administration officials said Wednesday.

The administration also is expected to finalize a settlement this week with education groups that had sued the state over what they contend has been the governor's broken promise to repay the schools after he suspended funding guarantees.

The settlement is expected to include a plan to add a total of $2.8 billion for education in fiscal 2005-06, and an additional $2.9 billion over the next seven years.

The governor is expected to report that the state has $5 billion more than revenue estimates included in the budget proposed in January for the fiscal year that begins July 1.

His revised budget plan also is expected to dedicate $3.2 billion to repay state debt and build up reserve funds.

The agreements on school spending and settlement of the suit comes as Schwarzenegger tries to recover from poll ratings that plummeted during the 2005 special-election campaign, when he was bashed on the airwaves for his ``broken promise'' to education and outspent by unions, most notably the powerful California Teachers Association.

Since his special-election measures failed, Schwarzenegger has worked hard to regain his footing. He achieved some success this month, when he persuaded the Legislature to place four infrastructure bond measures on the November ballot.

An agreement on education spending -- and a budget that is passed on time in June -- could also be seen as successes to tout as he makes a bid for re-election.

Schwarzenegger started his administration on friendly terms with the CTA after reaching an agreement in 2003 to suspend Proposition 98, saying the state could not afford to fully fund education spending.

But the Education Coalition -- an umbrella group for organizations representing teachers, school board members, parents and others -- sued the state last year, contending the governor failed to live up to the provision that called for quickly restoring the funds.

The administration had earlier argued that the funds did not have to repaid as quickly as the coalition believed, and disputed the amount owed.

The $2.9 billion to be paid over seven years is considered ``settle-up'' or repayment of money owed to schools from fiscal 2004-05 and 2005-06.

The other funds include $2 billion added to the Proposition 98 guarantee in 2005-06 and $800 million in 2006-07.

The group is satisfied with the governor's new proposal and is preparing to settle the suit.

``Generally speaking, he is fulfilling all the priorities of the Education Coalition, and most of the things he wants to spend additional funds on are highly desirable,'' said Scott Plotkin, executive director of the California School Boards Association, a coalition member.

The CTA also said it is satisfied with Schwarzenegger's latest education- funding proposal.

``We are pleased to acknowledge that the governor has owned up to his obligations to repay schools and to fund Proposition 98,'' spokeswoman Sandra Jackson said.

She said the group expects at least a portion of the new funds to go toward the most needy schools -- typically those in urban and high-poverty areas facing the most crowded classrooms -- and to programs for English-language learners.

Jackson said the agreement does not necessarily mean the group will become a political ally of the governor, but it hopes to maintain a good relationship with him on school issues.

The group's next goal is to find better ways to provide adequate resources to schools on a long-term basis.

State Superintendent of Public Schools Jack O'Connell, who is also running for re-election to his post, had filed the suit jointly with the teachers association.

``This agreement will provide much-needed resources for our schools, will help us improve student achievement and address the achievement gap,'' he said.

Democratic leaders in the Legislature were also pleased.

``For two years, Democrats have said that fully funding our schools should be our top priority,'' said Assembly Speaker Fabian Nunez, D-Los Angeles. ``I'm glad to see that our dogged pursuit of making sure our schools get resources the law requires is finally paying off. This is a victory for kids, teachers, and parents.''

At the same time, the governor is making fiscal conservatives happy by paying down state debt and adding to the budget reserves.

``This governor understands that you cannot plow one-time revenue into permanent programs,'' said Jon Coupal, president of the Howard Jarvis Taxpayers Association.

``To the extent that he is using the windfall to reduce debt and increase reserves is not only prudent, but it will very likely result in a better credit rating from all three rating houses.''

harrison.sheppard(at)dailynews.com

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