Posted on 02/07/2004 8:30:29 PM PST by calcowgirl
SACRAMENTO - California's budget problems have become so large that voters will be asked in March to approve the largest bond measure to ever appear on any statewide ballot in the nation. Voters will also be asked to adopt a constitutional amendment intended to prohibit future borrowing and thus prevent the same financial dilemma in the future.
The $15 billion bond measure, Proposition 57, would be used to refinance the state's deficit and help close next year's shortfall. The balanced budget amendment, Proposition 58, not only would restrict borrowing but also calls for lawmakers to adopted balanced budgets in the future and create a reserve fund.
For either measure to take effect, both need to pass.
The measures have the backing of Gov. Arnold Schwarzenegger as well as many Democratic leaders including state Controller Steve Westly, who warn of a financial meltdown if the bonds cannot be sold before other loans come due in June.
While there is some debate about what options the state might have if voters do not go along with the idea, observers from Wall Street said the threats are serious.
"There is some possibility that the state could run out of money," said David Blair, a bond analyst with Nuveen Investments. "It's remote and I don't think it will happen, but it's there. That's why people in the investment community and the governor are so interested in seeing some deficit financing put into place."
The state's problems come from spending more money than it has received over the last four years. A badly divided Legislature has failed to agree on either spending cuts or tax hikes to balance the state's spending and instead have adopted a number of temporary solutions that relied heavily on short-term loans.
Some steps were taken in last summer's budget agreement but the plan only balanced because of $12 billion in bonds. Because voters did not approve the bonds, legal threats were raised and delayed sale of the bonds.
Schwarzenegger wants voters to give their blessing to the $15 billion bond measure so he can pay off the same state deficit and use what the remainder to close spending gaps in 2004-2005.
If voters approve the bonds, the state would quickly engage Wall Street investment bankers to help with the sale. Exactly how much would be borrowed and exactly what the interest rates would be will not be known until the final bond deal is put together, officials said.
Overseeing the transaction, however, will be a committee that includes the treasurer, controller and three members of the governor cabinet.
Once sold, most of the money would be used to pay off short-term loans that come due in June - money that was spent last year and the year before on general fund expenses.
The bonds would cost an estimated $4 billion in interest payments if paid back over nine years.
Critics, which include Democratic Treasurer Phil Angelides and Republican Sen. Tom McClintock, say neither of the two propositions help resolve the state's fundamental spending imbalance.
"I can't in good conscience support deficit borrowing," Angelides said. "Clear and simple this massive borrowing mortgages our children's future."
Angelides, who also opposed the borrowing in last year's budget, has called for a combination of spending cuts and higher taxes to bridge the gap.
H.D. Palmer, spokesman for the governor's finance department, said Schwarzenegger believes that California is already a high-tax state and will not support any tax increases.
McClintock, R-Northridge, is equally opposed to the bonds but believes the deficit can be eliminated through cuts alone. He said that if spending was reduced about 13 percent, the entire deficit could be eliminated in 18 months.
Schwarzenegger, however, has said that such cuts would be devastating to too many programs. He has advocated the borrowing as a means of softening the budget cuts without raising taxes.
Some of the harshest criticism, however, has been directed at the balanced budget amendment. The proposal grew out of demands Schwarzenegger initially made to Democratic leaders that he would not support the deficit bonds without a permanent cap on spending.
Initially, the governor sought a cap that would limit spending increases to population growth and inflation. But Democrats fought the plan, saying the cap was too restrictive and did not take into programs like such as education and public health where costs often grow faster than either population or inflation.
Schwarzenegger and Democrats finally agreed on what has become Proposition 58, although even supporters acknowledge there are loopholes in the measure.
The prohibition on future borrowing, for instance, does not include short-term loans. Some point out that short-term loans have helped get the state into the budget mess in the first place.
Those short-term loans have been used in the past to smooth out the state's cash flow needs which tend to peak around tax time and drop during other times of the year. While many government agencies use such borrowing, state officials agreed last year to refinance the debt over and over without paying it off because of the inability of lawmakers to agree on either raising taxes or cutting spending.
Also, mandates that the Legislature and governor establish a reserve fund are weakened by provisions that give the governor the option of not making contributions to the fund any time he believes that the state cannot afford it. Money in the fund can also easily be transferred to other uses with a two-thirds vote of the Legislature and gubernatorial approval.
McClintock points out that the Legislature already has the authority to follow through with most of the elements of the balanced budget amendment - but they lack the political will. He also casts doubt on Schwarzenegger's commitment to a balanced budget free from borrowing.
"The current budget proposal from this administration does not meet any of the criteria of the so-called balanced budget amendment," he said.
Still, some fiscal conservatives still support the governor's plan - largely because there isn't time to do much else between now and June.
"There's no way in the world that California can raise taxes or cut spending enough by June 30 to solve the inherited debt problems," said Larry McCarthy, president of the California Taxpayers Association, who is a co-chair of the Yes on 57 and 58 committee. "The governor has proposed a solid plan to work out California from a very serious problem."
ON THE NET
Gov.'s Yes on 57 and 58 committee
Now they want to run our country.
We already have a state law that prohibits deficit spending. Without a penalty attached for its violation, it is a useless and toothless law, violated repeatedly with impunity. We now need a bond issue to deal with those criminal acts.
Give the idiot legislators jail time for violating any future restriction, and I'll vote for the bond issue.
Pure, unadulterated HOGWASH!!! My opponent got the then President of this phony association in 1998 to participate in a blatantly false "hit piece" on me, complete with abject fabrication from whole cloth!!!
These guys can be bought quite easily, evidently. Even the Howard Jarvis organization is getting squirely these daze. Howard may have to resurrect himself to straighten his lessor successors out!!!
Now they support [the bond] and are urging Californians to vote “yes.” A half dozen other Republican Assembly members who voted with them are doing the same, along with most of the state’s anti-tax, anti-borrowing crowd — from the Howard Jarvis Assn. to the California Taxpayers Assn.
< snip >
That leaves some grass-roots groups unhappy. “I think it’s extremely disappointing,” said Joe Armendariz, executive director of the Santa Barbara Taxpayers Assn. “I think the Jarvis association is missing an opportunity on this one to tell the truth. You can’t borrow your way out of debt. “At the same time, I know they are working with Arnold on some stuff,” Armendariz said. “There are behind-the-scenes dynamics preventing Jarvis from taking that position.”
It Stinks!
That is less than 500 million per year, which for a state this size , in population and cash flow is not that big a deal IF we could count on Prop 58 doing what it is advertised to do.
The Democrats are going to say screw this,..... vote for Prop 56!.
If it does pass and prop 57 and 58 fail, then Arnold would not have any choice but to allow the Demonic Rats to raise the taxes and control the budgets!
They could pound him into the dust since they essentially control all of the state media!
They will use fear of cuts in Public Safety to motivate the electorate, they are already starting here in LA with a lot of talk about the Sheriff's Dept being shorted nearly $300 Million by the State!
Only weeks ago, fiscal conservative legislators Ray Haynes and John Campbell argued passionately against the plan to borrow $15-billion, and then they voted against it.
Now they support it and are urging Californians to vote “yes.” A half dozen other Republican Assembly members who voted with them are doing the same, along with most of the state’s anti-tax, anti-borrowing crowd — from the Howard Jarvis Assn. to the California Taxpayers Assn.
“With the astronomical broker fees involved in the sale of these bonds, I have no doubt that the supporters will raise more than $10 million,” McClintock said. “The problem is there is no similar counterbalance on the other side.”
That about says it all, doesn't it?
The Howard Jarvis Assn. and the California Taxpayers Assn. are sellouts - - probably for some big money.
Pathetic.
Only Tom has been a prominent and consistent fiscal conservative!!!
Here's one from the dems archives:
Treasurer Phil Angelides, a Democrat, said he does not support the idea of issuing deficit bonds. "There ought to be an all-out effort this year to structurally balance the budget because there is no indication that the economy is going to roar back. The state would be wise to fix its budget problem sooner rather than later."
---The Bond Buyer, May 16, 2003
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