California's budget woes are known nationally. On May 19, voters overwhelmingly rejected a series of five ballot initiatives that were central to the state's plans for feigning a balanced budget. While there might be an element of sport in watching politicians flail around trying to deal with more than $20 billion of red ink, the stakes for California and the nation are huge. Perhaps the most significant impact will come through what happens to California's public schools K-12 education is the largest portion of the state budget and naturally must fit into any budgetary plan. Schools are also the emotional tripwire that figured prominently in the unsuccessful campaign to secure passage of the deficit initiatives. The votes are consistent with surveys that show that California's citizens have mixed emotions about schools. In surveys by the Public Policy Institute of California, a majority believes that school budgets should be spared from cuts and that more funding would improve the quality of schools, but an even larger proportion believes that greater improvements could come from using existing funds more wisely. Virtually all of the post-referendum discussion has focused either on how to raise taxes or on the potential layoffs that will be required by budget cuts. Ironically, these proposed solutions are necessarily circumscribed by competing elements of prior voter initiatives -Proposition 13 that makes it difficult to raise taxes and Proposition 98 that sets a floor on school spending. These provisions of the state Constitution create dueling budgetary requirements. Yet, lost in the discussions is the simple fact grasped by the ordinary citizenry of California - that wiser use needs to be made of existing school funds. There are no questions but that California's schools need fixing, but by disregarding solutions that would make better use of funds now available, the governor and the Legislature do a disservice to the state's children. In the latest round of reading and math tests administered by the National Assessment of Educational Progress (often referred to as the "nation's report card"), California ranks among the bottom five states across the board. With 6.5 million students, or one-eighth of the entire nation's pupils, it is no exaggeration to say that California is dragging down the nation. One significant element of the problem with California schools is the centralized control that flows from the state capital. California essentially has full state funding of its schools, with local school districts able to make only very marginal contributions. Moreover, much of the funding is restricted to small legislatively specified programs fitting into more than 100 categorical spending programs. These include class-size reduction in grades K-3, oral health assessment, civic education, principal training, middle-school counseling, and on and on. These are all good-sounding things, but how can politicians in Sacramento possibly know whether these programs are the ones really needed in each of the 1,000 California districts? Or how effective each might be? To go along with these funding constraints, the state has an onerous set of regulations that govern every aspect of schools including their hiring of teachers and administrators. It has a very powerful teachers union that resists any significant changes in schools (such as shown in a failed prior ballot initiative to increase the time to teacher tenure from the current two years to five). And through it all the state has tarried on collecting data that would permit tracking student achievement over time and linking performance to the teachers and programs of a school. The simple summary of this system is that there are no incentives that would lead to improved student performance. Indeed, most available purely budget options would simply reinforce the low level of performance. It is easy to see why U.S. Secretary of Education Arne Duncan told California that it was unlikely that California would get any of the competitive "race to the top" funds, given the lack of willingness to pursue any real innovations. It does not have to be that way. The state could decentralize decision-making by stepping back from the myriad prescriptive regulations and by removing the strings on funding. This approach would ensure that money could be spent more productively. For example, the state could use existing stimulus funds to offer early retirement to expensive older teachers, thus reducing the wage bill when the stimulus funds disappear. It could also set up bonus pools for teachers who demonstrate that they are highly effective in the classroom. It could develop its data and analytical capacity so that it had some chance of ending ineffective programs and keeping effective ones. At the same time it could include student performance information in evaluating (and paying) teachers. These are things that cost little or nothing but that hold some promise of improving the system. They are issues in other states also, but perhaps nowhere are the needs greater for improving the system - as opposed to just balancing the budget. What it takes is a commitment to improving student achievement as opposed to maintaining the ineffective system. Eric Hanushek is a senior fellow at the Hoover Institution of Stanford University; Alfred Lindseth is of counsel with the law firm of Sutherland Asbill & Brennan LLP. Their book, "Schoolhouses, Courthouses, and Statehouses: Solving the Funding-Achievement Puzzle in America's Public Schools (Princeton University Press, 2009), focuses on using school funding more effectively.