In a prelude to the coming battle over the budget, state Treasurer Phil Angelides on Thursday warned Gov.-elect Arnold Schwarzenegger that trying to borrow more money to pay off the shortfall could have dire consequences.
Angelides, a Democrat who is expected to run for governor in 2006, made his comments at a news conference where he released the state's debt affordability report. He railed against a proposal that so far only exists in theory: to wrap a budget shortfall of as much as $20 billion into one giant bond issue that would be paid back over 30 years. The idea is rumored to be a central component of the incoming administration's budget plan.
"After all we've been through in the recall, it would be a travesty not to reduce the deficit but enlarge it," he said, arguing that the move would dramatically increase the costs to Californians.
Officials with the new administration scoffed at the warnings.
"Phil seems to have taken to a daily news conference in the last week or so," said Schwarzenegger spokesman Rob Stutzman. "He'd be well-served, as would be everyone else, to be patient and await an actual, literal proposal."
Other Republicans in the Capitol, however, say the proposal is very much in play as the new administration struggles to balance the budget. The idea would be to wrap $11 billion in borrowing approved in the current budget -- but which has run into legal trouble -- into a bigger bond that would pay off the shortfall accumulated since then plus the first year of a $4-billion car tax cut. To avoid similar legal problems, the larger bond would be put before voters for approval.
The bond would be paid back over 30 years, instead of five, as was proposed in this year's budget. Angelides presented charts showing that the cost of the extended bond, per household, would be $3,457 over the life of the bond -- more than three times the amount per household, $1,076, under the borrowing plan approved in this year's budget. Instead of paying less than $1 billion in interest to borrow $11 billion, taxpayers would pay $20 billion in interest and fees to borrow $20 billion, Angelides said.