Legislative Analyst Mac Taylor believes it may be unavoidable – and may be preferable – to suspend Proposition 98, the primary method of funding K-12 schools and community colleges, in a year when the state is struggling to close a massive $20 billion deficit.

Doing so would at least be a candid acknowledgment that the state can’t afford what it is legally obligated to pay for education. It would also free up the Legislature to establish priorities – do the least harm – if it manages to raise additional revenue.

Taylor, head of the non-partisan Legislative Analyst’s Office, described the scenario and presented a budget overview last Friday during a budget conference committee of the Legislature.

As of now, neither Gov. Schwarzenegger nor Democrats in the Legislature have indicated they’re considering a Prop 98 suspension, which has been done only twice since voters narrowly approved the initiative in 1988 as a way to establish a minimum level of funding schools. But Schwarzenegger and Democrats also disagree on what ts the Prop 98 obligation for next year, and they’re also proposing vastly different ways of closing the deficit.

For the fiscal year starting July 1, Schwarzenegger is proposing to spend $49 billion of the general fund on K-12 and community colleges, which he says fully funds the state’s Prop 98 requirement. But he can claim this only because he is eliminating a child-care program costing more than $1 billion –  therefore lowering the Prop 98 minimum — and because he is refusing to acknowledge some of the previous money that the state owes the schools. Known in Prop 98 lingo as the maintenance factor – an IOU to the schools that accumulates during years of falling state revenues — it now totals about $11 billion, and must be paid back over time.

Senate Democrats would restore the child care money and fully fund Prop 98 at $51.2 billion. They would do so by raising more revenue: delaying corporate tax breaks and extending a temporary income tax increase due to expire this year. Senate President pro Tem Darrell Steinberg wants to use most of the extra revenue to prevent harsh cuts for home-health care for the disabled and the elimination of the state’s welfare program for mothers and kids. Steinberg’s dilemma is that Prop 98, including paying off the maintenance factor, would get dibs on 55 cents of every dollar of new revenue. The only way to alter that ratio is to suspend Prop 98.

Assembly Democrats would avoid that problem by raising a lot more money. They would restore social service cuts and spend $54 billion – more than the Prop 98 guarantee – by postponing corporate tax breaks and borrowing $9 billion from Wall Street, then repaying it over 20 years with a new tax on oil production. Assembly Speaker John Perez is confident the complicated plan say the can be written to bypass the two-thirds majority requirement and pass with a simple majority in the Legislature.

But the scheme, which Schwarzenegger immediately dismissed, would be challenged in court, and, as a one-year quick fix, would leave the state with an estimated $16 billion deficit in 2011-12.

Few legislators – certainly no Democrat – want to head into November having suspended the minimum funding level for schools. But if the budget stalemate extends into summer, Taylor’s prediction may hold true.

Suspending Prop 98 may be inevitable. It will also build the case for Robles-Wong v. California, the suit filed last month challenging the state’s method and commitment to adequately fund public schools.