SACRAMENTO, CALIF. — SACRAMENTO, Calif. -- The national test scores released last month were not good. Embarrassing, in fact. Fourth-graders in California -- a state that once boasted a premier educational system and nationally recognized public schools -- were among the worst readers in the country, scoring as low as children in Mississippi. In the state capital, Acting School Superintendent William D. Dawson said of the numbers: "It is certainly troubling and not acceptable." In an office in a Los Angeles suburb, the news provoked a different response. "It had our phones lit up like a Christmas tree," said Sean Walsh, a spokesman for proponents of a controversial ballot initiative that would shift public school dollars to private school students. "The system is broke and in need of fundamental reform, and the newspaper makes our case every day." Whether the system is "broke" is a matter of opinion here, but growing frustration with the quality of California schools has thrust the Golden State into the forefront of a national debate on "school choice." On Nov. 2, California voters will decide whether to break with convention and change, perhaps irrevocably, the way in which the state funds the education of its children. Known as Proposition 174, the proposal would require the state to give parents a voucher -- worth about $2,600 -- for use at any school with more than 25 pupils that parents choose, public, private or parochial. The voucher represents about half the average yearly cost of educating a child in public schools, but it could well cover tuition at a parochial school. If Proposition 174 passes, it would give private and church-affiliated schools public dollars they have never had and divert what could be millions of dollars from the already strapped public schools. An estimated 550,000 students attend private schools in California. "It's the most important ballot initiative for education since the formation of the state in 1850," said Michael W. Kirst, a professor of education at Stanford University and a former California school board president. "If the voucher [initiative] passes in California, it will be like a shot heard around the country." The measure has provoked considerable debate on the state of schools in this reputed bellwether of educational change -- where school buses, librarians and music teachers have long been a luxury -- and the quality of education received by the state's 5.2 million students. With the passage in 1978 of Proposition 13, the state saw a precipitous decline in local property tax revenue, dollars bankrolling schools, police and other public services. Ever since, there has been a steady erosion in the amount of money California spends to educate its children. At the same time, the schools have seen a dramatic increase in their immigrant population -- 22 percent of California public school students speak limited English -- and its entrenched class of underprivileged students. 'Won't do anything to help' "The problem as I see it, 174 . . . won't do anything to help the public schools improve," said Mr. Dawson. "It only exacerbates the problems of the public schools. It can only make the problems much worse." Proposition 174 pits a well-financed, politically savvy education establishment against a handful of wealthy Southern California businessmen and frustrated inner-city parents looking for a way out of some of the state's most crime-plagued schools. If Proposition 174 passes, it would be the first statewide voucher program in the country. Similar measures in Oregon, Colorado and Washington, D.C., have failed. "It's the biggest school district in the country," said Allan Odden, a school financing specialist at the University of Wisconsin in Madison and a former California college professor. "A lot of things happen in California first before elsewhere in the country." A recent public opinion poll by a San Francisco-based educational research group found that 63 percent of Californians favor the concept of a school choice plan, but a majority polled also said they would oppose a voucher system if it siphoned money from the public schools. The financial impact of Proposition 174 has been debated by both sides in the contest, each trumpeting multimillion-dollar figures. Two independent think tanks -- the Rand Corp. is one -- have disputed those predictions, saying the price tag is unknown. But if there's one thing on which most Californians seem to agree, it's the need to change the public school system. A poll by Policy Analysis for California Education, an independent research group based at Stanford University and the University of California-Berkeley, found that 87 percent of the more than 1,400 Californians surveyed wanted the educational system changed. And 61 percent said they wanted "a major overhaul," according to the PACE poll. Although its college-bound students fare somewhat better than their counterparts across the country, California's younger pupils consistently perform poorly in math and reading skills on national tests. The latter has made California a ready target for critics. It wasn't always this way. Paradise lost In 1965, the California schools were "the place to be," said Stanford's Mr. Kirst. They had money, were creative, promoted innovation and amassed a record of achievement. At the time, the state ranked fifth in the nation in per pupil spending. While California continues to receive national attention for its curriculum reform initiatives, the state now ranks 41st in the nation in per pupil costs, spending less than half of the $10,818 spent by the No. 1 ranked state, New Jersey. (Maryland spends an average of $5,823.) So what happened? "You can track the decline [in state school funding] to the first [gubernatorial] administration of Ronald Reagan," said William L. Rukeyeser, a state education official. "He coincided with a change among the electorate . . . a turn away from the public-sector solution to a lot of California's problems." The impact of Proposition 13, however, cannot be diminished. "We got fooled and I'll admit to that," said Les Creelman, the parent of a public school student in Union City, Calif., who voted for the controversial measure back in 1978. "The effects of Proposition 13 are not the results we desired." For the most part, Proposition 13 changed the way public schools are financed in California. With property tax revenue shrinking, local governments turned to the state for money. The state, in turn, sought to equalize the funding across districts, spending the same on school children whether they live in well-to-do Marin County or in Mexican border towns. The shift in funds took its toll on California schools. Class sizes crept up. The American Library Association rated California's school libraries "the worst of the worst." School nurses? "They were all taken out and shot years ago," one state official quipped. More pupils, less money Meanwhile, school enrollment soared, increasing 1.1 million in the past decade. The student body became more ethnically diverse and poorer. Today, California schools have more than double the percentage of economically disadvantaged urban students than the national average. Since 1979, the number of public school students who speak limited English grew from 288,000 to 1.15 million, a 387 percent increase. As many as 50 languages -- from Urdu to Spanish, Arabic to Lao -- are spoken in school corridors, and state education officials attribute the state's poor showing on national tests to the difficulties these children face. "The system is a disgrace," said Terry Moe, a Stanford professor and one of the country's most prominent "school choice" theoreticians. "We're turning out students whose achievement is far too low. Many of them can't read and write at elementary levels." "When you spread the decline across the state, you create a statewide constituency," added Mr. Kirst. If supporters of Proposition 174 can galvanize that constituency into votes, they may well usher in an era in the California schools unlike any before. Proponents, including religious educators, contend the measure would give low- and middle-income parents opportunities afforded the wealthy and force the public schools to compete for students. The voucher initiative would be implemented over three years. "We believe the family is the primary educator and they should make the choice" of where to educate their children, said Dr. Jerome R. Porath, school superintendent for the Los Angeles Roman Catholic Archdiocese. "Parents see vouchers as the opportunity to exercise that right." But voucher opponents question just how much choice a parent will have. While tuition at many archdiocesan parish schools may be within the $2,600 range, private schools cost much more. Besides, a study by a California educational research group, the Southwest Regional Laboratory, found that "the vast majority of California private schools are already full." But what most concerns voucher opponents -- parents and bureaucrats alike -- is the effect it will have on an already beleaguered school system and its students. 'Class system' "We feel very strongly it would be exclusionary," said Margie Garrett, a black teacher in a predominantly Latino public school district near Los Angeles. "It's setting up a class system to me." Mrs. Garrett expects schools catering to the same ethnic or racial groups. "All black, all white, all Latino. That's the worst thing that could ever happen. The world is not that way." Mary Purvis, a Sacramento graphic artist, has been a public school parent for nine years. It's a "daily struggle," she said. She has watched school nurses and class aides disappear due to budget cuts. She has seen crime encroach on her neighborhood school. Still, she said, "I'd rather work within the system . . . and for all the children involved. Maybe it's my generation, my bleeding-heart liberalism. I have a greater say in the public school system than I ever would in the parochial school system." l,.5l If Ms. Purvis wanted to enroll her children in a private school, she could do so. "I have two children who are bright kids, and they'll do well wherever they go as long as I keep track of them. If parents keep involved, your children will do well," she said. For nearly a decade, Ms. Purvis has chosen the public schools. On Nov. 2, she and other Californians will have another choice to make.