Suit to Block Bond Sale May Add to State Deficit

The Pacific Legal Foundation lawsuit seeks to keep Gov. Arnold Schwarzenegger from selling bonds to cover a scheduled payment into the pension fund for government employees. The sale of the bonds, which taxpayers would have to pay back over 20 years, was part of the governor's plan to balance the budget.

A Sacramento County Superior Court judge blocked the state from doing much the same thing under former Gov. Gray Davis. This latest challenge is rooted in the same premise: Any long-term borrowing of that size -- without voter approval -- violates the state Constitution.

"This is a borrowing without approval of the voters," said Harold Johnson, an attorney with the foundation, which filed the lawsuit on behalf of the Fullerton Assn. of Concerned Taxpayers in Orange County. "The lawmakers of this state are getting into a credit card habit. It is time for a constitutional reality check for these reckless spenders."

The constitutional debt clause on which Johnson is building his case says the state cannot borrow more than $300,000 to pay day-to-day expenses without voter approval.

Some budget analysts were surprised to see Schwarzenegger propose the borrowing after having ridiculed the similar plan by his predecessor while campaigning for election. But administration officials say their proposal is different because it is coupled with changes to the state pension system that will generate enough savings to more than pay back the cost of the bond. Those savings would come by allowing workers to take money out of their pension funds before retirement in return for giving back some of the state's contribution to their account.

"We think we are on solid legal footing," said finance spokesman H.D. Palmer.

But Fred Silva, a budget analyst at the Public Policy Institute of California, said the administration is in a tough spot.

"The debt clause in the Constitution is pretty clear," he said. "It says the state can't sell bonds of this amount for operational expenses. What they want to use this money for is clearly an operational expense."

Daniel J. B. Mitchell, a professor of public affairs at UCLA and an expert on the state budget, called the bond plan a budget "gimmick."