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Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: DuckTapeSunroof who wrote (495587)	11/19/2003 4:12:59 PM
From: Kenneth E. Phillipps	Read Replies (1) \| Respond to of 769670

Editorial: Just say no to debt Borrowing more is no budget solution Bee Editorial Staff Published 2:15 a.m. PST Tuesday, November 11, 2003 Gov. Gray Davis is headed for the dustbin of history largely because he could not lead California out of its unprecedented budget crisis. The task now falls to his replacement, Arnold Schwarzenegger. The governor-elect's budget decisions in the next few weeks could make or break his governorship. Will Schwarzenegger demand that the state's citizens and its other politicians balance the state budget now? Or will he join the something-for-nothing crowd to force future generations to pay the bill for today's services? The early signs are not encouraging. The incoming governor's team has been floating the idea of ratifying the state Capitol's budget cowardice of the last few years by repackaging the state's various fiscal dodges and fiddles into a long-term bond of $20 billion or more, which would be submitted to voters and paid off over the next generation. The technical term for this move is "refinancing," but the correct description is "fiscal suicide." It's the political equivalent of giving your credit card to a heroin addict. California has two budget problems. It has a built-in structural deficit in its budget, an annual gap between current levels of taxes and programs, of about $8 billion. And it has a large overhang of debt from the failure of the Legislature and governor to balance its last two budgets. The unbalanced budget bill passed by the Legislature last summer included about $17 billion in internal and external borrowing to pay for that overhang and paper over the deficit. But two pieces of that external borrowing -- pension bonds to defer the state's obligation to make its payments to retirement funds for public workers, and $10.7 billion worth of what might be called "fiscal irresponsibility" bonds to make up for the Legislature's failure to balance the budget -- are under court challenge. If they are declared illegal or can't be sold, the state will have an enormous hole in its finances. Schwarzenegger was elected on the promise of being able to lead California to a fix for that crisis. But the idea being floated isn't a fix. It's a capitulation to the status quo of evasion. Selling long-term bonds to refinance California's inability to balance its budget doesn't solve the long-term problem of its structural budget deficit. In fact, it makes the long-term problem worse. Borrowing $20 billion to pay for services government would saddle the state with extra debt service costs each year equivalent to what it annually spends on community colleges. In addition, it would push California beyond what it can prudently borrow. According to the annual debt affordability report released last week by state Treasurer Phil Angelides, the rollover borrowing already approved by the Legislature would drive the state's ratio of debt service to revenues above 6 percent, generally considered the upper limit. That irresponsibility endangers the state's future ability to do the kind of borrowing that makes financial sense -- to finance schools, college buildings, water projects and other long-lived infrastructure that support California's economic growth and future prosperity. California can't grow or borrow itself out of its deficit. The only real remedies are cuts in spending and higher taxes, and they need to come now, before the state sinks deeper into debt. If Schwarzenegger wants to be something more than a new face on bad old habits, he will reject any proposal that rolls over the state's irresponsibility and challenge California, lawmakers and citizens alike, to get on the path of fiscal sanity. - Get the whole story every day - SUBSCRIBE NOW!