California Budget Fix Hinges on Twin Ballot Issues


While Arnold Schwarzenegger has posted impressive political victories in his first 60 days as California's governor, he faces a tough campaign for a pair of ballot measures he needs to safeguard his political future and stave off chaos in state government.

Proposition 57 would issue $15 billion in bonds to retire debts that California has accrued from deficit spending in previous fiscal years. Its companion, Proposition 58, would require the state to adopt balanced budgets in the future.

Voters must approve both measures on March 2 for either one to take effect testing Schwarzenegger's ability to win public approval for what he is touting as his "California Recovery Plan."

"Never again will government be allowed to spend money it doesn't have," the Republican governor said in his Jan. 6 State of the State speech. "Never again will the state be allowed to borrow money to pay for its operating expenses."

But in an ominous piece of budget math, the state's fiscal 2005 deficit currently estimated at about $15 billion could nearly double if the measures go down to defeat.

The new bond measure is designed to replace $10.7 billion in deficit payment bonds issued by the state in 2003, said Brad Williams, a senior economist with the nonpartisan Legislative Analyst's Office. The $10.7 billion bond, along with nearly $2 billion in pension plan payment bonds, faces an uncertain future, since the two have been challenged in court as unconstitutional by state taxpayer organizations.

If the two ballot measures fail, Schwarzenegger administration officials have hinted that they would be forced to raise taxes and make draconian program cuts that go far deeper than the painful rollbacks already laid out in the proposed budget released on Jan. 9.

However, analysts are quick to point out that a governor who sweeps into office as a tax-cutting reformer and then hikes taxes and slashes popular programs could quickly run afoul of the famously quick tempers of California voters. Schwarzenegger was voted into office in November as part of the state's first-ever recall of a sitting governor, Democrat Gray Davis.

"I think it's make or break for the governor and the state," said Bob Stern, president of the Center for Governmental Studies, a nonpartisan research organization based in Los Angeles. "If the voters turn it down, they are in real trouble. You're talking possible bankruptcy, massive program cuts on a scale that we have not seen. The governor needs to make it a personal crusade."

While he may be a political novice, Schwarzenegger has displayed prodigious communications skills, an ability to negotiate with the heavily Democratic Legislature, nearly unlimited access to a hyperventilating media corps and a deep reservoir of public good will. In addition, the governor has a substantial campaign war chest and state Controller Steve Westly, a Democrat, as his bond campaign committee cochairman.

In many ways, the governor's State of the State speech served as a campaign kickoff, as he praised the Democrat-dominated state Legislature for its compromise vote to place the two initiatives on the ballot and called on members to work for its passage.

Schwarzenegger will need all the help he can get.

He is asking voters to approve a complex package. They have to OK a multi-billion-dollar bond issue to wipe clean the state's budget deficit as well as a constitutional amendment that, in addition to requiring balanced budgets, prohibits any future bond issues to cover deficit spending.

Complicating the issue further, there will be at least two other measures on the March ballot. One would change the majority needed to approve state budgets in the Legislature from two-thirds to 55 percent. The two-thirds rule is considered sacrosanct by state taxpayer organizations, who have vowed to protect it.

The other measure is a $12.3 billion school-construction bond issue. This, combined with the governor's deficit bond, will present California voters with the largest single bond request ever, a tough sell in a battered economy. And while Schwarzenegger has Controller Westly's backing, state Treasurer Phil Angelides, a Democrat and likely gubernatorial candidate in 2006, has harshly criticized the proposal and is campaigning against it.

"Two measures are harder than one to pass, and voters tend to vote no when they're confused," said the Center for Governmental Studies' Stern. "The question is, will Angelides or any of the other opponents have the money to confuse the voters?"

Stephen Robitalle is an Oakland-based freelancer who writes about politics and public policy.


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