Debra J. Saunders

	JWR's Pundits World Editorial Cartoon Showcase Mallard Fillmore Michael Barone Mona Charen Linda Chavez Ann Coulter Greg Crosby Larry Elder Don Feder Suzanne Fields Paul Greenberg Bob Greene Betsy Hart Nat Hentoff David Horowitz Marianne Jennings Michael Kelly Mort Kondracke Ch. Krauthammer Lawrence Kudlow Dr. Laura John Leo David Limbaugh Michelle Malkin Chris Matthews Michael Medved MUGGER Kathleen Parker Wes Pruden Sam Schulman Amity Shlaes Tony Snow Thomas Sowell Cal Thomas Jonathan S. Tobin Ben Wattenberg George Will Bruce Williams Walter Williams Mort Zuckerman Consumer Reports

The Name is Bond, Recovery Bond

http://www.NewsAndOpinion.com | It's natural for California voters to oppose Proposition 57, the $15 billion recovery bond measure proposed by Gov. Arnold Schwarzenegger. Bonds are supposed to pay for capital expenditures — like building bridges and schools. Governments aren't supposed to sell bonds in order to pay for operating expenses.

Thus, Republicans, such as Sen. Tom McClintock of Thousand Oaks (Ventura County), oppose Proposition 57 because they believe in implementing across-the-board cuts to balance the budget. But it's nearly impossible to imagine the Democratic Legislature approving McClintock's suggested 13.4 percent across-the-board cut — or voters accepting big reductions in public school funding.

I've spoken to Democrats who are angry at Schwarzenegger's Day One executive order rescinding the car-tax increase that the Davis administration allowed to go into effect. They don't want to do any favors for the recall-elected governor. So, in a fit of pique, state Dems refused to endorse Proposition 57 during their convention this month.

There's just one little problem: If Proposition 57 doesn't pass, California could go bust. Broke. Bankrupt. All but closed for business. And begging.

Voters have to approve both Proposition 57 and its companion measure Proposition 58, which would require the Legislature to balance budgets with prescribed reserves, in order for Proposition 57 to become law.

State Finance Director Donna Arduin has told reporters that if Proposition 57 fails, her back-up plan is to borrow $10.7 billion in accordance with a measure passed by the Legislature last year and signed by Gov. Gray Davis. (Note to Schwarzenegger critics: The bulk of Proposition 57 borrowing would finance pre-Arnold debt — red ink attributable to the California Legislature.)

Of course, borrowing $10.7 billion also would be problematic — first, because the voters will have rejected issuing bonds to pay current bills but also because the Pacific Legal Foundation has a pending lawsuit to kill the Davis measure. If the court agrees that it is illegal to sell bonds of more than $300,000 without a vote of the people, the state would be broke — and fast.

Finance Department spokesman H.D. Palmer noted that if the voters or the courts kill the bonds, the state still would need to borrow money. The money guys probably would rely on a mechanism called stand-by agreements — "the financial equivalent of mortgage insurance." Thus, a penniless state would be paying top dollar to borrow money to pay the bills.

"Forget partisan politics, and forget all the rhetoric and personalities. This is about mathematics. It's about numbers," the Proposition 57 campaign's in-house Democratic sage Darry Sragow explained.

Actually, it's about this number: some $30 billion in a worst-case scenario. That's how much the state would have to borrow through June 2005 if Proposition 57 fails. It's close to $1,000 for every man, woman and child in the state. It's a big chunk of change for a $97.2 billion annual budget.

"You can't raise taxes that much," Sragow noted. The Legislature could raise the top tax bracket for rich Californians — and risk chasing some out of the state — then raise the sales tax by more than 2 cents per $1, and still not close the gap.

And you can't cut spending that much. Sure, there are bureaucracies that could survive big cuts, but few Californians would accept that the state should slash classroom spending by 15 percent or benefits for the disabled because the Legislature couldn't control spending.

Last year, the Field Poll found that more voters opposed than supported a big bond issue to balance the budget, noted Field Poll Director Mark DiCamillo.

Voters thought a big bond was "like taking out a second mortgage to pay off your credit-card debt," said DiCamillo.

It's a good analogy but one best understood in the context that it involves borrowing to pay off old debt, not current expenditures. "A credit adviser would probably tell you that if you're facing bankruptcy, you should consolidate your debts in some low-interest instrument, and that's what Schwarzenegger's trying to do," DiCamillo noted.

I'm not saying Schwarzenegger is doing everything right. The Legislative Analyst, while generally approving of his budget proposal, still found a $6 billion gap in 2005-2006, (and possibly larger if some projected savings do not materialize).

This is clear: If Californians reject this measure, they will have cut off their noses to spite their face.

Every weekday JewishWorldReview.com publishes what many in Washington and in the media consider "must reading." Sign up for the daily JWR update. It's free. Just click here.

Comment JWR contributor Debra J. Saunders's column by clicking here.

Debra J. Saunders Archives