Guest Contributor
Joe Armendariz
Joe Armendariz is Executive Director of the Santa Barbara Industrial Association and the Santa Barbara County Taxpayers Association.

The Journey to Fiscal Sobriety...
NO on 57 & 58
[Joe Armendariz] 2/26/04

At first glance, Proposition 57 and Proposition 58 would seem to make sense. After all, nobody denies the fact that, while in office, Gray Davis and his band of Democrats in the legislature, spent every penny they took in and a whole lot more. This profligacy created an operating deficit so massive that even Democrat Treasurer Phil Angelides couldn't lie about it with a straight face. In retaliation, California voters, from one end of the state to the other, voted overwhelmingly to throw Davis out on his ear and elect a new Governor to clean up the mess.

Unfortunately, our new Governor, in an honest attempt to fix the problem, fell for the oldest trick in the book; he made a deal with the same politicians who created the mess in the first place. First, by agreeing not to make any meaningful cuts in the stable of sacred cow programs. Second, by agreeing not to ask the voters to force the legislature to limit the rate of annual growth in state spending. What did the new Governor receive in exchange for his good-will and desire to compromise? He got a vote from the legislature to allow him to ask taxpayers for a $15 billion dollar line of credit and to also amend the state constitution in order to require the legislature to balance the budget without the use of long-term borrowing. That is what 57 and 58, if approved, will do. Unfortunately, it won't work.

To really understand why Proposition 57 and 58 won't solve California's fiscal crisis, voters need to understand what these "co-joined" initiatives won't do. Let's start with Prop-57, the so-called "deficit-recovery-bond". Prop-57 attempts that which has never been accomplished before; to borrow our way out of debt. All 57 does is refinance our existing, legally-dubious, bond indebtedness that never should have been assumed in the first place. Let's make no mistake about this; the legislature needed to borrow money to balance the state's budget because they allowed spending to increase by over 40%, at an annual rate, while tax revenues were increasing, at an annual rate, by 23%.

Prop-57, in effect, codifies the fiscal irresponsibility of the Davis Democrats by refinancing our existing, unproductive, debt at a lower interest rate. It does absolutely nothing to rid us of that existing unproductive debt. Indeed, if passed by voters, Prop-57 will cost close to $25 billion dollars and, as a result of that obligation, not a single new school, road, water treatment plant, or bridge will have been built, renovated or replaced. Indeed, not a single penny of the money authorized by Prop-57 goes toward investing in badly needed infrastructure at a time when the need to invest in Californias infrastructure couldn't be more apparent. In fact, just the opposite will happen. Because state bonds are paid back with sales tax and income tax revenues and because state bonds have first-claim on the general fund, the dollars used to pay back this $15 billion dollar loan will, in actuality, come at the expense of other priorities such as roads, water treatment plants, schools, etc.

And what of Proposition 58 the so-called balanced budget amendment? Surely every voter can appreciate the value of requiring a balanced budget. Particularly in light of what they are being asked to do with respect to Prop-57. Unfortunately, and once again, the very same politicians who put us in the mess we're in, have crafted, for our approval, a measure riddled with loopholes large enough to accommodate Arnold's hummer with plenty of room to spare. Yes, Prop-58 requires the budget to be balanced. Yes 58 prohibits long-term borrowing. Yes it encourages the establishment of a reserve. Yes it allows the Sacramento politicians to spend too much. Wait a minute, what was that? Proposition 58 allows the Sacramento politicians to spend too much? Yes!

Let's make no mistale about the following: Proposition-58 DOES NOT LIMIT annual spending to anything other than the amount of annual revenues received. In other words, if revenues increase by 40%, government spending can increase by 40%...as long as the budget is balanced, the letter of the law will have been followed under Prop-58. Thanks, but no thanks.

For every addict, the road to recovery starts with a single step. And there comes a time in an addict's life where tough love must prevail. And I'm not talking about tough-love Cruz Bustamante style, where taxes are raised on hard working families so that the spending lobby can consolidate its power in Sacramento. I'm talking about the kind of tough-love where you take away the drugs, or the alcohol, or whatever the addicts particular poison might be. In the case of the Sacramento politicians, the poison is excessive borrowing and relentless over-spending. So, the road to recovery is never an easy one, or painless. But, only by defeating Propositions 57 and 58, on March 2, can the journey to fiscal sobriety for the Sacramento politicians finally begin.

copyright 2004 Joe Armendariz

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