CA: California may need new borrowing to fill transit plan pothole

SACRAMENTO – The Legislature may ask taxpayers to accept $2.3 billion in new borrowing to fund a backlog of transportation projects sidelined when lawmakers repeatedly siphoned the state's roads budget.

Also, Gov. Arnold Schwarzenegger and lawmakers have offered competing measures that would give voters a chance to tighten the clamp on future transportation raids.

Voters have already spoken. In 2002, they approved Proposition 42 by a 7-1 ratio. The measure explicitly dedicated the state sales tax on gasoline to roads and public transit. But an escape clause in the proposition has allowed lawmakers to suspend the requirement and borrow $3.6 billion from the transportation fund.

Where to find the money to refill transit coffers and how far to go in blocking future diversions have emerged as underlying issues heading into negotiations over Schwarzenegger's ambitious and costly 10-year plan to rebuild California.

Schwarzenegger, a Republican, wants to repay the borrowed roads money out of general tax dollars and is sponsoring a ballot measure to establish a prohibition on future diversions.

Democratic leaders have offered to pay off $2.3 billion of the transportation debt with revenues raised through a broader $12.8 billion bond to fund various public works projects.

They, too, hope to satisfy frazzled motorists by tightening protections for the transportation account. But they would continue to allow raids during tight budget years.

Schwarzenegger and legislative leaders have launched private negotiations. This week, lawmakers are expected to begin the contentious task of reviewing nearly 36 measures related to Schwarzenegger's $26 billion public works package that he wants on the June ballot.

Complicating matters is the state's reliance on $1 billion from Indian tribes to help repay the transportation debt. Under the complicated structure of their gambling agreements, many tribes have agreed to commit revenues to pay off bonds sold to build specific projects. The bonds, however, cannot be sold until legal challenges to the agreements are settled.

"The state has won preliminary rounds to clear up the sale of the bonds but appeals are pending," said Nathan Barankin, a spokesman for Attorney General Bill Lockyer.

Some Democrats – in and out of the Capitol – are not sold on the idea of using bond borrowing to replenish the transportation budget. The interest on the $2.3 billion portion of the Democrats' bond could reach $140 million, according to state analysts.

"It's more debt on one credit card to pay off the balance on another credit card," said Los Angeles City Councilwoman Janice Hahn, a Democrat. "It's unfair to taxpayers. This is what makes people mad."

Democrat legislative leaders defend their borrowing plan, saying they would otherwise have fewer dollars to spend on education, health care and other priorities.

Assemblyman Ted Lieu, D-Torrance, has been critical of shorting school funding. Nevertheless, he questioned the wisdom of collecting sales tax at the pump for transportation, spending the money elsewhere and then asking the public to pay again through borrowing.

"It should come from cuts or increased revenue," Lieu said when asked where the state should find the $2.3 billion. "If it comes from a bond, people are double-paying."

Some leading Republicans make the same case. Assembly Republican leader Kevin McCarthy of Bakersfield branded the borrowing proposal "disingenuous."

Transportation dollars appeared safe after voters in March 2002 overwhelmingly passed Proposition 42.

But cash-strapped lawmakers exploited an escape clause buried in the measure that allowed the state to divert the money to other priorities.

The escape provision was crafted to persuade schools, health groups and social service advocates to stay on the sidelines during the campaign, some advisers say.

Any new proposal to bar suspending Proposition 42 during budget crunches would probably draw a firestorm of opposition from various groups, including the potent school lobby.

Schwarzenegger took advantage of the suspension opportunity once, but he's fully funding the transportation plan and has taken steps to replace money borrowed during his term and under former Gov. Gray Davis.

In response, lawmakers have introduced various measures to limit the Legislature's ability to take the money.

"It's too easy to suspend Proposition 42," said Assemblywoman Jenny Oropeza, D-Carson.

Her Assembly Constitutional Amendment 11 would permit borrowing from transportation funds, but limit it to twice every 10 years. The state would also have to pay interest to the transportation account. State Sen. Torlakson is carrying a similar measure.

Assemblyman George Plescia, R-La Jolla, is carrying Schwarzenegger's measure to block future shifts without exemptions.

Compromise is imperative. Two-thirds of the Legislature must approve bonds and any accompanying constitutional amendment to protect transportation funding before they can be submitted to voters.

Schwarzenegger's spending plan for 2006-07 would repay $920 million of the past debt, in addition to committing to allocate the full $1.4 billion share of the sales tax on gasoline to transportation. (A small amount of the tax, by law, goes to two other programs.)

Schwarzenegger also proposes to pay off $430 million in 2007-08 budget and the final payment of $746 million in 2008-09.

SChwarzenegger has certainly unleased the dogs of war.

I'm surprised the Austrain has not approached Harry Ried, through Uncle Teddy, to fork over some of Nevada's California gambling proceeds.

It's also funny when you look at what was being proposed under Prop 76 for those same raided Prop 42 funds. In essence, they proposed to defer repayment of the funds over a 15 year period, and to issue bonds secured by those repayments. My borrowing is better than your borrowing?

California's initiative process is need of reform. Prop 39, 57 and 76 are excellent examples.

Johnson never intended either the referendum nor the initiative processes to bypass the due process protections accorded the electorate in taxation matters. The super-majority was an original constitutional protection that survived until the late 1980s when the Legislature, seeing the success of a very popular tax limitation initiative, started promoting referendums to bypass the super-majority protections.

California needs to back tract and place limitations on initiatives or referendums that indulge taxing or bonding issues requiring these measures to achieve super-majority approval before becoming law. Prop 39, as an example, has wreaked havoc on local government finances allowing the political elite in Sacramento to abdicate their responsibilities and turn a blind eye to the factors leading to school overcrowding.

The initiative, in the hands of unscrupulous politicians like Wilsonegger can and will lead to financial chaos in California.

Borrowing or new taxes isn't going to save Calif. They need to deport 6 million people, stop giving away citizenship and aim to maintain a stable population and economy. Otherwise they will remain in a vicious cycle of needing greater economic output to help pay for unwise policies and social idealogy of yesterday.

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