Gov. Arnold Schwarzenegger took office Monday promising to forge a "miracle of Sacramento."
"I realize I was elected on faith and hope," he said. "And I feel a great responsibility not to let the people down."
Such honorable sentiment should be given a real chance. And what the new governor called the "miracle of Sacramento ... based on cooperation, goodwill, new ideas -- and devotion to the long-term good of California" can't change the basic laws of economics. There's no way to spin it: More debt for California, which already has the highest deficit in the nation, is bad economics.
Yet, with his first official action, Schwarzenegger put the state an additional $4 billion a year in the red by rescinding the increase in the state vehicle license fee. That fulfilled his popular campaign promise to kill the car tax hike. But the action boosts the size of the projected budget shortfall in the coming year to a staggering $14 billion.
And Schwarzenegger said he will call the Legislature in a special session starting today to wrap all the state debt -- including existing loans -- into one massive bond issue to be put before voters March 2.
The new governor said during the campaign that even his children knew that you couldn't spend more money than you brought in. Yet what he is proposing, against all responsible fiscal advice, is to saddle the next generation with today's debt. Bonds usually are floated to build infrastructure such as schools and water projects that provide decades of service to the people. Nonpartisan Legislative Analyst Elizabeth Hill says the idea of a catchall debt bond issue should be the absolute last resort before fiscal disaster.
And such a bond plan is enormously expensive, with interest and other charges possibly amounting to $20 billion, on top of the $20 billion that would be borrowed to cover last year's $10-billion debt, other borrowing and the cut in the car tax. This pay-later scheme would rip a $1-billion-plus hole in the annual state budget for the next 30 years, the prospective life of the bonds.
Hill is correct in saying the budget problem can be solved with additional cuts in state spending and some new taxes. For instance, the $10 billion of debt incurred to balance last year's budget could be retired over five years with a temporary half-cent increase in the sales tax. Such a plan wouldn't free the state from the need to borrow; but a partial pay-as-you-go plan would mean that Californians would be in hock for only five years instead of 20 or 30.
Rather than rely on miracles, California would be best served by acting like any other prudent consumer with too much debt: borrowing less, paying off bills and living within a budget.