Reading the text of Proposition 57 will remind you of what it felt like to open your January Visa bill, except it’s one million times worse. Literally.
Like a credit card statement, the state’s money has already been spent, and Proposition 57 is the easiest way to pay the bill coming due. In June, California must pay off close to $15 billion of its debt. Proposition 58 will keep this situation from happening again, but both must be approved for either to be enacted.
The $15 billion borrowing initiative found its way onto the ballot belatedly, after Gov. Arnold Schwarzenegger realized “opening the books” for cuts was not going to yield any substantial savings. Now, he’s run out of options. If Proposition 57 passes, California will borrow money from investors to pay off its debt while making interest payments for approximately the next 10 years.
The prospect of paying down a $15 billion debt for the next decade leaves the constituency caught between a rock and a hard place. Why should voters bail out a state government that has spent itself into an inexcusable deficit?
Because Proposition 57 is the most viable solution to pulling California back from a fiscal disaster, other alternatives either failed or were rejected. Cutting spending might have lightened the debt, but it would have spread the pain elsewhere. (This approach left the University of California with no outreach programs, soaring student fees and fewer spots available for incoming freshmen). Raising taxes might have paid down the debt, but Schwarzenegger has opposed tax increases since the beginning of his campaign.
Passing this bond is a bipartisan effort. Unions, business leaders, teachers and law enforcement groups all support the campaign, and it’s spearheaded by the Republican Schwarzenegger and a Democratic Controller Steve Westly. Former Gov. Gray Davis actually proposed a similar $10.7 billion bond package last year, but it was held up in court because a taxpayers group contended it violated the state’s constitution by approving state debt without a statewide vote.
If this bond doesn’t pass, Schwarzenegger’s staff has said it will rely on the Davis bond as a backup – and even then, the state will need to come up with another $5 billion in cuts or revenue before June. Either way, Californians are stuck with the bill. Schwarzenegger’s strategy for eventually paying it is unclear; it might mean higher taxes, though optimists hope an inevitable upswing in the economy will increase tax revenue enough to make a significant hike unnecessary.
To keep this scenario from happening again, voters also need to pass Proposition 58. It requires the state to pass a balanced budget as well as accumulate an $8 billion rainy day fund for future economic downturns. As the constitution is written now, the Legislature is permitted to approve a spending plan where expenses exceed revenue. Proposition 58 prohibits the state from long-term borrowing, so bonds like the one this year would be avoidable.
Voting for the propositions is an all-or-nothing shot; both must pass by 50 percent, or they both fail. Schwarzenegger has staked his 2004-2005 budget plan on their success.
For some, voting yes on Proposition 57 is a difficult decision, but it’s the best choice left. Proposition 58 will prevent a similar deficit in the future and will force the Legislature to write a spending plan the bank can back up. Voting yes on both propositions will get California back on track.