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Tim Leslie - Contributor

Tim Leslie represents California’s 4th Assembly District.

The Right Thing to Do
Consolidating the State's debt...
[Tim Leslie] 2/5/04

Much has been made lately over Governor Arnold Schwarzenegger's advocacy of a debt consolidation bond. A number of constituents have shared with me significant concerns about this proposal, many of which I share. When all is said and done, however, I have come to believe it is the right thing to do.

Imagine discovering, just days after getting married, that your new spouse owes $250,000 in consumer loans and credit card debt. If you had unlimited income, you'd likely pay the loans off right away. Given finite resources, however, three actions would be critical. First, do all you can to reign in excessive spending. Second, refinance debt into the lowest interest loan you can find. And third, cut up the credit cards and pay off obligations as quickly as possible.

These are essentially the goals Governor Schwarzenegger has set out for his new bride, the state Legislature. Immediately after taking office, Schwarzenegger proposed major spending reductions to slow the flow of red ink. Legislative Democrats refused to approve these cuts, but the governor still managed to achieve at least partial savings through administrative reductions.

Next, he proposed a debt consolidation bond. Over the past several years, Governor Davis and the Legislature approved massive borrowing in order to keep spending levels high. Most of Schwarzenegger's $15 billion bond would go towards refinancing this old debt at the lowest rate available. If this debt is not refinanced, the state will still have to take out loans to cover $14.1 billion in notes coming due in June-just at a higher interest rate. Only a small portion of the bond is "new money" to help the state get through its current catastrophe.

Finally, Governor Schwarzenegger wants to cut up the credit cards the Legislature used to get us into this spot. Linked to the bond is a provision that would place limits on future spending growth. These limits are not as strong as I would have preferred, but they will help. Additionally, these provisions also require that a significant portion of growth in state revenues be dedicated to early repayment of the bond.

I greatly respect the fiscal tight-fistedness of State Senator Tom McClintock, who suggests a different tact. He would prefer to roll over our existing loans into more short-term, higher interest debt. Then, he would cut spending by 13.4% across the board. This route would likely allow a more rapid escape from our current mess. However, any loan rollover could be ruled unconstitutional. More significantly, the plan would not work without the massive spending cuts. And, given that much of the state budget is composed of locked-in spending, the cuts required to reach a full 13.5% reduction would be bloody. Even if Republicans could muster the strength to be so bold with the scalpel, the majority party would certainly repel their efforts-resorting instead to huge tax increases. Last year, Legislative Democrats whittled even the most minor cuts proposed by Governor Davis down to nothingness. Senator McClintock and I will remain stalwart advocates of cutting waste and curbing unnecessary spending, but a 13.5% reduction is simply not politically feasible.

Admittedly, no proposal, however bold, will solve our state's massive problems overnight. It took a half-decade of recklessness to get us to this point, and it will take years to fully recover.

However, the governor's three-part plan will get us moving solidly in the right direction. We will be able to cover our bills-paying for both past excesses and our ongoing obligations-even as we get our fiscal house back in order. The commonsense budget the governor proposed for 2004-05 is a heartening step along this path. Even Sen. McClintock described it as the best state budget he has ever seen.

We must know, however, that this will all unravel if the bond is not approved. Current spending cut proposals, which some have called "draconian," will seem like child's play. Furthermore, taxes will almost certainly rise significantly, cutting into Californians' income and costing jobs just as our economy struggles to regain its feet.

This bond is not the path I would have hoped for our state, but it may very well be the only prudent means we have of righting the wrongs of the past. The consequences of five years of unrestrained spending must finally be faced, once and for all.




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