Despite the Ads, Armageddon Is Not Nigh

Gov. Arnold Schwarzenegger has warned that “Armageddon” cuts will be necessary in California if Proposition 57 -- his $15-billion bond measure to retire state debt -- doesn’t pass on Tuesday. There are no alternatives, he says.

But can that be true? Aren’t there always alternatives (even if governors don’t always like them)? You wouldn’t know it from the governor’s advertisement blitzkrieg in favor of the proposition. Nor will Californians get much information from the obtusely worded ballot description.

Here’s what it says: “The Economic Recovery Bond Act. One-time bond of up to $15 billion to retire deficit. Fiscal Impact: One-time increase compared to previously authorized bond, of up to $ 4 billion to reduce the state’s budget shortfall and annual debt-service savings over the next few years. These effects would be offset by higher annual debt-service costs in subsequent years due to this bond’s longer term and larger size.”

Quite a mouthful. And a little disingenuous.

In fact, Proposition 57 would more accurately be called the “Economic (Un)Recovery Bond Act.” And perhaps the description ought to volunteer that the $15 billion that Schwarzenegger wants you to borrow, with accrued interest, would cost every family, including yours, $2,000 to pay off. It would also mean that sales taxes would be increased by one-quarter cent, and you and your kids would pay higher fees for public services and education.

At the moment, California’s bond rating is near junk-bond status -- partly because we already have $110 billion in bonds, so additional payments would exceed $1.42 billion per year, maybe $21 billion over the life of the bond, none of which goes into services. That’s enough to run Medi-Cal or higher education for more than two years.

Maybe the ballot explanation for Proposition 57 should also include a word or two on alternatives -- most of which the public has never heard. For example: “If you vote no, the California Legislature will be forced to consider, as one possibility, raising a small temporary surcharge on the 3.1% (not you, probably) of Californians who make $200,000 and up per year. That will generate $26 billion in two years, enough to cover the old and new debt.”

Voters need to be much more informed to make important decisions when the very financial fabric of services, education and social programs is at stake. But the majority of us are usually not, especially in the light of lopsided TV ads financed by contributions from the bond industry.

Furthermore, on such important matters it is not enough for our governor to claim there are no alternatives. There should be public discussions on all the realistic options, including increasing taxes on the state’s wealthiest residents. The governor opposes raising taxes because he knows that most voters object to it. But most voters are not aware that lower-income households already pay a larger percentage of their earnings (11.3%) than the very top (7.2%). California is the fifth-largest global economy and is home to almost 100 of the nation’s 216 billionaires. Tax rates on high-income categories have decreased substantially over the years. Many of the people in these categories at the federal level report more than 70% of their income from capital gains, which is now taxed well below the taxes on earned income that the majority pays. Revenues generated by a small and temporary surcharge would generate billions of dollars without changing the lifestyle of any of the 3.1% of Californians who are high-income earners.

It’s obvious to anyone who runs a household on a limited budget that one shouldn’t spend what one doesn’t have, although it’s hard when we are bombarded by offers from credit card companies and now from our governor as well.