CA: Group promises to sue if state moves ahead with pension bond sale

SACRAMENTO (AP) - Conservative activists vowed Thursday to sue the state if Gov. Arnold Schwarzenegger proceeds next week with his $920 million, 20-year borrowing plan to pay off part of one year's pension obligations.

Attorneys for the Pacific Legal Foundation said Schwarzenegger's widely expected move would violate a state constitutional ban on governments borrowing more than $300,000 without a popular vote. The foundation represents a Fullerton taxpayers group aiming to derail the idea.

Last year, courts cited the constitutional ban in striking down a similar borrowing plan by then-Gov. Gray Davis.

"This is a clone of last year's borrowing ploy," said foundation attorney Harold Johnson. "Insanity is defined by doing the same thing again and again and expecting a different result."

Johnson said the foundation will argue the constitutional ban in court if the administration authorizes the bond during a meeting next Thursday. Court rejection of the borrowing plan would open a near-$1 billion hole in this year's budget, as the administration already faces a shortfall that could be as large as $10 billion for the new fiscal year starting July 1.

A seven-member Pension Obligation Bond Committee, containing five Schwarzenegger administration representatives, is expected to authorize the borrowing plan, a key piece of this year's $105 billion state budget.

Administration officials, meanwhile, defended their plan, crafted with approval of state lawmakers this year.

"We believe that if a legal challenge is mounted, we will be able to successfully defend it," said Schwarzenegger spokesman H.D. Palmer.

Palmer said this year's bond plan differs because the sale is tied to changes in the state retirement system expected to cut costs by nearly $3 billion over 20 years. Palmer said the savings will eliminate the long-term debt, making the plan conform to the state constitution.

"That kind of reform wasn't attached to the last one," Palmer said. "We think this is one of the things that makes this fundamentally different."

Those voting on the plan next week include Schwarzenegger or his appointee and four Cabinet-level administration officials, Controller Steve Westly and Treasurer Phil Angelides.

Angelides, a frequent critic of multibillion dollar borrowing plans used to prop up state budgets in recent years, said Thursday he will vote against the $920 million pension bond, which he estimated will cost $1.4 billion with interest across 20 years.

"My concern is that the governor continues down the path of deficit spending and borrowing," he said.

Angelides, an expected Democratic candidate for governor in 2006, has frequently called for higher taxes on the wealthy to balance the budget. He called the bond proposal "legally questionable" because of last year's court ruling. He said Schwarzenegger's March ballot measure authorizing up to $15 billion in bonds to pay off the state deficit also prohibited any future deficit bonds.

This year's budget includes at least $7 billion in borrowed money after voters last March approved Schwarzenegger's plea to authorize up to $15 billion in bonds to pay off the state's deficit.

This, said Thom Babcock, an Orange County business owner and president of the Fullerton Association of Concerned Taxpayers, is "the Enronization of California. They're borrowing money to pay daily debts. It's not for a single purpose, to build freeways, hospitals or bridges. It's borrowing to pay daily bills."

"That is what our California Recovery Plan is all about.
We took the debt we inherited from the previous administration, the debt that threatens us with bankruptcy, and we rolled it into a $15 billion recovery bond.
Then we tore up the credit card.
We passed a balanced budget amendment.
And we created a rainy day fund for future hard times and emergencies.
Never again will government be allowed to spend money it doesn’t have.
Never again will the state be allowed to borrow money to pay for its operating expenses."
State of the State address by Gov. Arnold Schwarzenegger, Jan. 6, 2004:

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