Bonds We Dislike, but Need

Voters confronting the California ballot March 2 will be faced with Gov. Arnold Schwarzenegger’s $15-billion debt-financing bond measure, Proposition 57, on top of a giant $12.3-billion state school bond issue. They’ll be lucky to stay upright after the shock. And they won’t check the “yes” box on that much debt without rock-solid assurances that it won’t happen again.

Most Californians believe that state government should pay its bills on time, like a responsible family does. The family sits down and makes the tough choices -- no new television for now, make the car run a year longer. That sounds good, but millions of American families instead buy the TV, buy the car and pile up crushing credit card debt. The fortunate ones then may refinance their houses or consolidate their debts.

That’s the spot California is in today as Schwarzenegger campaigns across the state for passage of his Economic Recovery Bond Act. Winston Churchill famously said of democracy that it is “the worst form of government except for all those others that have been tried.” The same is true of the debt bonds. The alternatives are budget cuts that would give the state a Third World safety net or much higher taxes. Probably both, according to state Budget Director Donna Arduin, a tough conservative.

It seems early to be thinking about the March election. But with little more than a month to go, the governor has an uphill climb in selling this bond issue -- in other words, more debt -- to cover the state’s past budget malfeasance.

As more voters become familiar with what it is and what it is not, they ought to support Proposition 57. It’s the least damaging way for California to begin to emerge from its fiscal abyss.

General-obligation bonds have been used in the past for transportation, parks, water projects, school buildings and other long-term investments. With Proposition 57, the state is spreading debt as many as 14 years into the future. No bricks and mortar. Just a piece of paper.

The idea is repugnant. But it’s essential. If it fails, Schwarzenegger will be forced to turn first to a $10.7-billion bond issue that was approved by the Legislature last year but is facing a legal challenge because it does not require a vote of the people. If it is struck down, the state will run out of cash June 30, when its latest round of short-term borrowing comes due. With each crisis, investor confidence will ebb and future borrowing will be at loan-shark rates.

Proposition 57 takes effect only if voters also approve a companion measure -- Proposition 58, the California Balanced Budget Act. It would require that the budget sent to the governor by the Legislature not exceed projected revenues. It also would bar officials from ever again using bonds to cover a budget shortfall, a provision that Schwarzenegger must persuade voters is meaningful.

In good times, as much as 5% of state revenue, up to a maximum of $8 billion, would go to a reserve fund for emergencies or to accelerate repayment of the bonds. In bad times, the governor would have authority to swiftly cut spending.

No matter how it is packaged, the state will be borrowing billions of dollars. It can do it the safe, legally foolproof way or the risky way. Proposition 57 is the safe way. We urge Californians to cast a “yes” vote on Propositions 57 and 58 on March 2.