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Gov. Arnold Schwarzenegger acknowledges the crowd after his introduction at a rally in Fresno whi

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March 2 Election: Bills aim to resolve deficit

Propositions 57, 58 provide revenue, balance budget, establish reserve

Richard Clough
Published: Monday, March 1, 2004

With an estimated budgetary shortfall of $15 billion for the coming year, two propositions on the March 2 ballot aim to bring California out of debt.

Propositions 57 and 58 are complementary bills providing revenue for the state to pay the budget deficit and enacting measures to try to prevent future deficits.

Proposition 57, known as the Economic Recovery Bond Act, authorizes the state to sell up to $15 billion in bonds to pay off the existing deficit. The proposition would increase by $4 billion the previously authorized bond of $10.7 billion.

Currently, the deficit is being financed by short-term borrowing, because the previously authorized bond is being challenged in court and has not yet been issued.

Proposition 58, known as the California Balanced Budget Act, requires the annual budget proposal submitted by the governor be balanced, limits future borrowing by the state, and establishes a state budget reserve.

In the days leading up to the election, Gov. Arnold Schwarzenegger has traveled around California to garner support for the two propositions which, he says, will consolidate the budget and help eliminate the deficit. The two propositions are being considered together because Proposition 57 cannot be enacted unless Proposition 58 is also passed.

Many of the proponents of Proposition 57 support the bill because they believe it ensures the state will not run out of money and does so without raising taxes.

The Los Angeles Area Chamber of Commerce was one of the first organizations in California to publicly support the two propositions. Its support is derived largely from the lack of preferable alternatives said Brendan Huffman, director of public policy for the L.A. Area Chamber of Commerce.

Huffman said irresponsible spending has created a state budget problem so large, it must be dealt with immediately.

“The Legislature does not have the political will to solve this problem,” he said.

Proposition 57 is criticized because some say it pushes California deeper in debt rather than ending the deficit.

Richard Rider, chairman of the San Diego Tax Fighters, said instead of borrowing, the Legislature needs to instill strict spending limitations to bring California out of debt. The proposition allows the Legislature to continue spending and raising taxes, he said.

If the proposition is passed, it would take between nine and 14 years to repay the $15 billion bond, according to the Legislative Analyst’s Office.

In recent years, some administrations have allowed budget deficits to carry over from one year to the next. According to the LAO, Proposition 58 limits this option by putting restrictions on borrowing and forcing more immediate action to pay deficits.

Proposition 58 requires the governor submit a balanced state budget proposal by Jan. 10 of each year, though the actual state spending need not necessarily be balanced.

The bill also prohibits most future borrowing to pay the budget deficit but does not prohibit all types of borrowing.

“What (Proposition 58) does do is allow short-term borrowing, which is what got us into this mess in the first place,” Rider said.

In addition to spending limitations, Rider proposes the privatization of many government operations like prisons as an alternative to the bill.