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Props. 57 and 58 Must Pass

February 29, 2004

Most Democrats in the state Legislature, as well as Controller Steve Westly, are on Gov. Arnold Schwarzenegger's side in supporting Proposition 57, the $15-billion deficit bond issue on the March 2 ballot. But the bond has sharp critics on both the right and the left. Their arguments are passionate, but they don't solve the problem.

The most prominent critic is Democratic state Treasurer Phil Angelides. He says it's bad fiscal policy to burden future Californians with debt payoff. But because Angelides is likely to run for governor in 2006, and because fellow Democrat Westly is in the opposite camp, his criticisms come at a discount.

State Sen. Tom McClintock (R-Thousand Oaks) leads the conservative opposition. He argued in a Commentary piece in The Times this week that a 13.4% cut in spending would give the state a balanced budget by the end of the next fiscal year "without tax increases, expensive borrowing or raids on local governments." Such cuts would devastate programs, particularly education, and not retire the old debt addressed by the bond. Aid to local governments has already been cut -- again nothing to do with Proposition 57.

On the same page, professors Paul O'Lague and John Bachar erred in saying Proposition 57 would raise sales taxes by a quarter cent and that it would increase fees for public service and higher education. Fee increases are already needed to prevent future debt. If the debt bond fails, fees will have to be increased even more.

Schwarzenegger got off on the wrong foot with relentless fundraising on behalf of the bond among the very financiers who would, at least indirectly, benefit. The governor's aides conceded that this was "probably unfortunate," but voters seem inclined to forgive him. Public opinion has inched toward support of the debt bond and its necessary companion, Proposition 58, the "balanced budget act." The most recent Field Poll showed that voters who knew little about the bond tended to be opposed. When it was explained, many switched to supporting it.

A year ago, the solution to debts born of plunging revenue and unchecked spending seemed obvious: a combination of budget cuts, about $10 billion in borrowing and some temporary tax increases. Unfortunately, Republican lawmakers rejected any tax increase and Democrats balked at deeper cuts. The legality of the borrowing plan, without a vote of the people, was questioned. Schwarzenegger crafted a new plan to restructure the debt in a $15-billion bond. Granted, Schwarzenegger himself made the debt nearly $3 billion worse in his first week by repealing part of the car tax.

Even with Proposition 57 and Schwarzenegger's proposed cuts, the state still faces a deficit of $6 billion or so in its next budget. Schwarzenegger, unlike most of the Legislature's Republicans, has never said "never" to taxes. His next campaign may be inside the Capitol, persuading members that more cuts and a modest temporary tax are unavoidable. But Proposition 57 and its companion, Proposition 58, must pass first to clear the decks.

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