If (CA) voters reject bond, (Props 57 & 58) 'chaos' may NOT ensue!!!

San Diego Tribune ^ | 01/24/04 | Ed Mendel

[SierraWasp]

If voters reject bond, 'chaos' may not ensue

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Davis package would act as fallback if court upholds it

By Ed Mendel STAFF WRITER

January 24, 2004

SACRAMENTO – Gov. Arnold Schwarzenegger may have a problem as he launches a full-scale campaign to overcome voter skepticism about a $15 billion fiscal-recovery bond measure on the March 2 ballot.

It's not entirely clear that voter rejection of Proposition 57 will, as the governor has warned, result in "economic chaos," "Armageddon cuts" in services, or leave no choice but to "drastically increase taxes."

If the governor's bond is rejected, the state simply would continue with the budget signed by former Democratic Gov. Gray Davis before he was replaced by Schwarzenegger, a Republican, in an historic recall election last fall.

The current budget authorizes a $10.7 billion fiscal-recovery bond, which is being challenged by a lawsuit contending that it violates a provision in the state constitution requiring voter approval of long-term debt.

The governor's $15 billion bond proposal would avoid the risk that the courts could block the $10.7 billion bond issue, punching a huge hole in the budget. Schwarzenegger's bonds also would provide an additional $4 billion to ease the need for cuts or tax increases.

As he launched the campaign for the $15 billion bond measure at an event in Fresno this week, the governor was asked if it is accurate to warn of "Armageddon cuts" when some believe the $10.7 billion bond will withstand the legal challenge.

"But the court also hasn't declared it legal," Schwarzenegger said. "So we don't want to count on that. It is absolutely important that we don't count on magic. There is no magic."

Schwarzenegger said the only way to fix the "financial mess" he inherited is voter approval of the $15 billion bond measure and a companion balanced-budget measure, Proposition 58. Neither takes effect unless both pass.

"We've got to have this restructuring of a bond for inherited debt, refinancing it and then have this never-again spending limit so that the politicians will never again spend more money than they have," he said.

When Schwarzenegger took office last November, he inherited a budget signed three months earlier based on the unprecedented use of long-term bonds to close part of a huge budget gap.

After a deadlock in which Republicans blocked a tax increase and Democrats rejected deep spending cuts, the Legislature authorized two long-term bonds last year totaling $12.6 billion.

Both bonds were challenged by lawsuits contending that they violate a provision placed in the state constitution more than a century ago that requires voter approval of any long-term debt over $300,000.

A court blocked a $1.9 billion pension bond, and the state is appealing. But the larger $10.7 billion in deficit bonds has a different financing mechanism that some legal experts contend does not require voter approval.

The $10.7 billion in bonds would be paid off over five years bya half-cent of the existing sales tax. Because bond payments would be appropriated each year by the Legislature, the argument is that it's not long-term debt.

State Attorney General Bill Lockyer and a law firm specializing in bonds have issued opinions that the $10.7 billion in bonds are legally valid. Wall Street rating agency Moody's has a similar view.

"In our view, there remains a good chance of completing the legal hurdles and issuing the bonds by June 2004," Moody's said as it downgraded the state's bond rating last month.

Two polls released last week found that only a third of voters favor the governor's $15 billion bond measure. The campaign for Propositions 57 and 58 has five weeks to build support before the March 2 election.

As a fallback in case the ballot measures are rejected, the Schwarzenegger administration is seeking a court ruling that the $10.7 billion bond authorized by the state budget is legally valid.

The court validation of the $10.7 billion bond is opposed by the Pacific Legal Foundation on behalf of a Fullerton taxpayer group. Opponents have until the end of the month to file with the court.

A decision by the court can be appealed directly to the state Supreme Court. But no final decision on whether the $10.7 billion in bonds are legally valid is expected until after the March election.

"We want to see this get resolved sooner rather than later," said Arthur Mark, a Pacific Legal Foundation attorney. "That's our goal. We are not out here to delay things."

The Davis administration sought court validation for the $1.9 billion pension bond but not for the $10.7 billion fiscal-recovery bond, as if to show confidence in the legality of the special financing mechanism for the latter proposal.

Still, the Davis administration had a backup plan of its own in case the $10.7 billion bond was blocked when $14 billion worth of short-term loans come due in June.

The state purchased an expensive guarantee that would allow the largest of the short-term loans, $11 billion, to be extended if the state is unable to pay it off before the new fiscal year begins on July 1.

[SierraWasp]

Welcome to Armegeddon... NOT!!!

[Enterprise]

I fearlessly predict that the bond measure will FAIL! The voters want the State to cut spending, and show proof that all has been done to make the State financially responsible, and THEN come back and talk about a bond.

[SierraWasp]

"If the governor's bond is rejected, the state simply would continue with the budget signed by former Democratic Gov. Gray Davis before he was replaced by Schwarzenegger, a Republican, in an historic recall election last fall."

So what we're getting here is "politics as usual" and some here facitiously accuse others of having wanted to retain Davis, or even elect BustedMonte because of out support for a righteous conservative in the Recall.

If what this writer is saying is true and we end up with a Dufus Budget... all the internal catfighting on FR was but a fart in a whirlwind!!! (aka, peeing into the wind)

What an absolute exercise in futility!!!

[junta]

How are they going to pay for all the new immigrants who come to do jobs that Americans won't do?

[SierraWasp]

Your astute comment is true, but Arnold has to figure a way out and there are simply two ways... 1. The quick, inexpensive and hard way, or 2. The long and expensive easy way.

I, of course prefer number 1. His sales pitch is nothing but a bunch of fractured fiscal fairy tales and shifts the burden off of voters that made the horrendous mistake of re-electing Dufus Davis, onto future voters/taxpayers.

I didn't support, or vote for Arnold, but I had hoped he wouldn't take the "little girlyman approach" to fiscal matters. I want the "Democrat Government Growth Lovers" punished, and not coddled in this state as an example to the nation of the falacy of tax & spend Liberalism!!!

Is that too much to expect of a "Republican?"

[Mad_Tom_Rackham]

Refuse to cut spending and then try to circumvent the existing law that was enacted to prevent one generation from passing it's consumption spending liability on to the next generation. Threaten a tax increase and still refuse to cut spending. There's sound fiscal management. </ dripping sarcasm>

[SierraWasp]

"How are they going to pay for all the new immigrants who come to do jobs that Americans won't do?"

That seems to me to be a FEDERAL ISSUE! We voted as a State on Prop 187 (which was anulled by a Federal Judge) to resolve some of that since Clinton wouldn't either defend our borders, or fund that load on the state's fiscal matters, just so he could "buy" votes for his '96 desperate re-election effort!

Now we have replaced him with a Republican and we're even more screwed and even more hopelessly due to some stupid political expectation that it will help a Republican President get re-elected!!!

Again, is doing the right thing too much to ask from a "Republican?"

[Mad_Tom_Rackham]

PS: We're doomed.

[junta]

Yes we are.

[SierraWasp]

"A real estate crash in the world's 7th largest economy will resonate through out the nation."

This is exactly what the NO-GROWTH, NIMBY's, BANANA's, EnvironMentalists, Organic Growers, Hippies stuck in the 60's from Berkeley's "People's Park" movement want!!!

I think Prop 55 is deliberately designed to constitutionally lower the budget approval requirement from 66% to 55% to defeat Prop 13's Dam against exactly the crashing blow to this state you are talking about!!!

Why isn't Arnold campaigning AGAINST THAT? (Talk about your "Armegeddon!")
Again, is that too much to ask of a "Republican?"

[SierraWasp]

"There's sound fiscal management. </ dripping sarcasm>"

I ask again... Is this what we can expect from a "Republican?"

[farmfriend]

You didn't really expect the R to mean something did you?

[Cowboy Bob]

How are they going to pay for all the new immigrants who come to do jobs that Americans won't do?

All the illegals should be seized by the State, and sold into slavery. All money raised should be used to reduce the debt.

I'm only joking...I think!?!

[William Tell]

From the article: "The $10.7 billion in bonds would be paid off over five years bya half-cent of the existing sales tax. Because bond payments would be appropriated each year by the Legislature, the argument is that it's not long-term debt. "

The trick for our fantasyland politicians is to pick a judge who believes that it depends on what the meaning of the word "is" is. They will probably succeed in finding a judge who believes that a "bond" is not long term debt if one has to decide each year whether to make payments on it. What liberal nonsense.

Thank goodness we have a Republican in the .... Oh, never mind.

[junta]

Correct but 180 degrees off, we are sold into slavery to pay for the liberal addiction. Thanks Dubya (the Jimmy Carter of our era)

[FairOpinion]

I guess California going bankrupt is not considered chaos?

[FairOpinion]

I guess the author doesn't like to be bothered by the facts.

Here is what Donna Arduin's analysis and assessment shows:

"The state will still have to borrow to cover its debts if voters do not approve the $15 billion bond measure that is a centerpiece of Gov. Arnold Schwarzenegger's economic plan, Finance Director Donna Arduin told business leaders Thursday.

If the bond measure does not pass, the state would not have time to either cut spending or raise taxes before $14 billion in short-term debt comes due in June, Arduin told a California Chamber of Commerce luncheon crowd.

The state would probably have to roll over the debt by issuing more short-term bonds, which is what Schwarzenegger hopes to avoid by using the one-time, $15 billion bond to pay off past deficits, she said.

"Rather than having the kind of borrowing that's usually done in California, we're asking for voter approval, and we're asking to do it in a way that will have the most market strength," Arduin told reporters afterward. "We're also putting language in front of voters that says this will never happen again."

http://www.sacbee.com/content/politics/story/8109875p-9042119c.html