- Proposition 57 ($15b general obligation bond over 5 years to amortize the state debt) This was one of our Governator’s signature proposals. Its purpose is to stretch the state’s current debt from an immediate obligation to one stretched out over five years. Its repayment plan is entirely from the general fund, using some creative routing through sales taxes to equilibrate this in the first few years. (Basically, 0.25c of sales tax would go towards paying this, and the state government would pay back the local governments so that all the obligation falls centrally rather than on local districts)
This measure represents a substantial financial gamble. The bet is that, by zeroing the debt right now, we can get the economy into a stable enough state quickly enough that we’ll be able to repay this bond. If it’s wrong, we’ll face an increased debt load in coming years, and basically we’ll be stuck in the current bad economic situation for longer still; if it’s right, we’ll come out of the bad economic situation quickly.
I’m not entirely sure what to make of the odds on this. I will say this: For what it does, this bill appears to be well-crafted and well-thought-out. The repayment schedule is reasonable. Also, (important!) it’s tied to Prop 58 – neither goes into effect unless both pass.
I’m going to be particularly cynical about this one. The real advantage of having Schwarzenschnitzel as governor isn’t necessarily that he’s got perfect skills or background, but that he’s got friends in high places. In a federal administration as corrupt as this one – and I will argue that it is fiscally very corrupt, especially with regards to how it deals with individual states – friendship ties like this one count for a lot, and I believe that on this basis alone Gov. Schwarzenegger will be able to rout more resources into the state. Essentially, I’m going to gamble on his skills as an actor and as a politician – I think that, given some intial resources, he’ll be able to pull in enough business to the state to make this work. So I’m going to vote yes on this bill, and (tentatively) recommend that others do so as well.
- Proposition 58 (Various complicated reforms of the budget process, #2) This one is even more complicated than prop 56. It’s directly linked to prop 57 – if both don’t pass, neither goes into effect. The main effects of this bill are: (1) It mandates that the budget, as passed, be balanced (expenditures <= revenues) (2) If at mid-year there's a budget problem, e.g. substantial shortfalls, the governor is permitted to call an emergency session of the legislature, at which point they can use whatever hacks necessary; (3) It establishes a "budget stabilization account" (basically the same as the account established by prop 56, above) into which there would be an automatic transfer of funds every year (starting at 1%, going up to 3% over the next few years) until it reaches a target size of $8b or 5% of the total budget, whichever is greater. In case of fiscal crises (supra) this transfer could be suspended by order of the governor. Half of this money per year, up to a lifetime total of $5b, would go into repaying the prop 57 debt; the rest of it goes right back into the general fund.
No, I don't really understand what the point of this last manoeuver is. If they want to allocate money annually to paying down the bond debt, that makes sense; but this fund seems to just move the money around and not actually do much else.
The first two parts, at least, make some sense; they're a balanced budget measure with an escape clause. The net effect of this is pretty questionable. Balanced budget amendments tend to just mean that the budget fights get nastier, more cuts are made, and more spectacular financial shell games get played to achieve basically the same as would have been achieved in the first place. The exit clause is easy enough to invoke – in fact, if the governor ever receives a budget he doesn't like, he can immediately declare a fiscal crisis and force revotes without the balanced budget restriction. (Note, btw, that this bill tends to concentrate a lot of power in the governor's hands. Nothing huge, but it indicates the design style)
Basically, this bill is one enormous loophole. The only provision that really does anything is the part that pays down the bond measure to which it's linked. What I find more interesting is the effect if both prop 58 and prop 56 pass. In that case, we have a balanced budget measure with a required 55% vote instead of 66%; that should cut down on the logjams considerably, and may actually lead to reasonable budget measures. Similarly, the restrictions on the prop 56 budget fund (if I'm reading this correctly) would also apply to the prop 58 fund in some way, and those restrictions are much tighter (the fund can only be used in case of deficit, etc.) and IMHO quite a bit saner. The combination of these two measures could actually be quite good for the state.
On its own, therefore, I'd call prop 58 a turkey; bound with prop 57, it's a marginal win (and still a gamble). I'm going to vote for it because it's essentially part of 57, but not because it achieves anything monstrously useful. Prop 56 is much more likely to achieve some benefit, and the combination of all three may be the best overall bet.
Yonatan Zunger’s Blog 
I talk pretty often with the officials of the city I cover, including the City Manager and his assistant, about stuff like this. Budget reform is badly needed in California, and everyone on the inside is pretty glad that Schwarzenegger’s gotten on the ball about this so quickly. I know *I* am.
Our assemblyman, Joe Nation, said recently that Arnold actually wanted a $30-billion bond that would be paid off over 30 years! They talked him down to the $15-billion one, paid off over a much shorter time.
Thanks for writing these up. I hadn’t looked through the measures thorougly, but was teetering on the school bonds one. It struck me as fishy that they were asking for such a huge amount of money right now.
My understanding is that bond measures in California tend to rarely win. California is (nee Prop 13) a very anti-tax, anti-local/community investment state. I can only assume that it has something to do with the goldrush mentality – come here, get rich, and leave.
WA doesn’t even have a state income tax. A very interesting comparison.
Arnold was asked in an interview I saw roughly three times, point blank, “what happens if the props don’t pass,” and he completely dodged with “I just don’t even want to contemplate that” every time. Very, very interesting.
Given a dodgy economy, flaky voters, terrible education investment, out-of-control housing costs… makes ya wonder… at least the weather is good. :p