Bond a Solution, or Business as Usual?

In his campaign to win voter approval of a $15-billion debt measure on the March ballot, Gov. Arnold Schwarzenegger portrays its bipartisan support as a major break from political gridlock in Sacramento.

Yet the proposal reflects an enduring mainstay of business-as-usual in the state capital: A bipartisan unwillingness to confront the politically tough choices of higher taxes or drastic spending cuts, analysts say.

In the three years since California’s fiscal crisis struck, lawmakers have repeatedly resorted to borrowing billions of dollars to cover deficits. By pursuing that course, they have minimized potential harm to their reelection campaigns.

This year, the new Republican governor and his Democratic allies are asking voters -- for the first time -- to ratify that approach by passing the debt proposal, Proposition 57.

In effect, passage of the measure would spare Schwarzenegger and the Legislature from the full brunt of voters’ anger, which could erupt, were they to bring California’s budget into balance this year with taxes and cuts.

Campaigning for the measure Thursday at a San Gabriel Valley brewery, Schwarzenegger warned of tax hikes and “incredibly severe cuts” if voters reject the borrowing. To bolster his case, he cited the overwhelming support of Democrats in the Legislature.

“What makes this really great is we’re doing it together, the Democrats and Republicans, because so many times in the past, Democrats and Republicans have been fighting,” the governor told workers and invited guests at the Miller Brewing Co. plant in Irwindale.

Surrounded by thousands of crates of beer and scores of yellow forklifts in a hangar-size warehouse (“Love the smell,” Schwarzenegger said. “Love the smell.”), the governor depicted the measure as California’s only viable option for fiscal recovery. At his side was Democratic state Controller Steve Westly, a first-time elected official whose campaign events with Schwarzenegger have raised his own political profile. The two must persuade voters to approve the bonds because previous borrowing plans sanctioned only by lawmakers are under court challenge.

Although some analysts have backed the governor’s bond approach, others say it is extremely rare for state or local governments to float long-term bonds to pay operating expenses. That practice was a key factor in leading New York City to its 1975 fiscal meltdown.

“This is not very good fiscal policy,” said Steven P. Erie, director of UC San Diego’s Urban Studies and Planning Program.

Normally, bonds are reserved for building schools, hospitals, highways and other construction projects with tangible benefits that last for generations. Erie called Schwarzenegger’s deficit-borrowing proposal “a politically driven initiative” that illustrates a basic survival trait of elected officials: the avoidance of political pain.

“The worst thing a politician can do is bring bad news to voters,” he said.

State lawmakers have faced giant budget shortfalls since 2001, but have thrashed about in search of consensus on the painful steps needed for fiscal recovery. Republicans have refused to raise taxes; Democrats have insisted on it. The two sides have agreed to only limited cuts.

To break the stalemate, lawmakers have turned to borrowing, a politically more palatable solution than deep cuts.

It is an approach with strong political appeal to Schwarzenegger, who promised during the recall campaign that he would not raise taxes. His first budget counts on the $15-billion in debt that goes on the March 2 ballot.

Most of it would refinance borrowing that lawmakers approved last year under Gov. Gray Davis. But several billion dollars of the borrowing -- the amount varies according to who is counting -- would be new. The measure would increase California’s deficit borrowing by $4 billion, according to the secretary of state’s voter guide. It would take as much as 14 years -- rather than five under current law -- to repay the debt.

At the Miller brewery, Schwarzenegger and Westly stopped short of their previous warnings of fiscal “Armageddon” if voters turn down the proposal -- but not far short.

“This may be the most important vote that anybody ever casts in this state,” Westly said. California’s economy is the world’s sixth-largest, and “the eyes of the world are on us.”

Darry Sragow, a Democratic consultant working for Proposition 57, said it was “perfectly appropriate” to warn of fiscal Armageddon: “ ‘Armageddon’ is fine and ‘driving off a cliff’ is fine, but the campaign has to balance that with other messages.”

Schwarzenegger tried to strike that balance Thursday by touting a companion measure, Proposition 58. It would bar the state from future deficit borrowing, require enactment of a balanced budget and set up an emergency reserve. Neither ballot measure will take effect unless voters pass both of them.

“We want to make sure that the politicians never ever get us into this kind of mess again,” Schwarzenegger said.

Early polls have found that voters support Proposition 58, but oppose Proposition 57, the bond measure.

For now, there is no organized campaign against the measures, leaving Schwarzenegger a clear field to make his case. He is raising millions of dollars to run television ads in February.

Jaime Regalado, executive director of the Pat Brown Institute for Public Affairs at Cal State Los Angeles, called the debt proposal “extremely worrisome” for California, but said it was “politically expedient” for elected officials to support it. If it fails, he said, the main consequence would be that Schwarzenegger and legislators would be forced to make unpopular decisions.

“It’s not an accident he’s using very apocalyptic language,” Regalado said.