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Harold Johnson- Columnist

Harold Johnson is an attorney with Pacific Legal Foundation. A Sacramento-based public-interest law firm, PLF has a long history of litigating for tax restraint, including in support of Proposition 13 following its enactment in 1978.

Politicians In Bond-Age
If bonds are part of the budget, voters must have a say
[Harold Johnson] 6/27/03

For all the rancor in Sacramento over how to fashion a budget, Gov. Gray Davis and Republican leaders are in accord on one element: big borrowing. Both sides favor floating more than $10 billion in bonds, to be paid off over five years or longer, to shrink the state's mammoth deficit. The two sides differ only over the source of the funding for this new debt. The GOP would use existing revenues; Davis proposes a hike in the sales tax.

But even if this difference is reconciled, another, more significant obstacle to closure exists, courtesy of Democratic Sen. Eugene Casserly.

If the name doesn't ring a bell, it's because Casserly died more than a century ago. His influence extends across the decades, however, through a plank he added to the California Constitution at the drafting convention in 1879. The rule he sponsored -- Article XVI, section I of the Constitution -- prohibits the state from borrowing more than $300,000 unless voters approve in a statewide election.

Unlike many of the blithe spenders in Sacramento today, Sen. Casserly and other delegates to the 1879 Constitutional Convention were no-nonsense folks, deeply skeptical of the idea of government paying its bills by saddling future generations with debt. Accordingly, the Constitution is quite restrictive in the purposes for which multi-year borrowing is allowed. Under Article XVI, debts of more than $300,000 are permitted only for a specific, "single object or work." Borrowing to buy parks or build schools passes this test. But long-term debt to meet payroll and to keep government buildings open, does not; clearly, the general operations of government do not constitute a "single object or work."

Not surprisingly, the players in Sacramento don't seem eager to acknowledge the electorate's role in the process. Neither the governor nor legislators have stressed to the media that they'll have to schedule a popular vote on a key element of their budget. But if the final recipe includes debt financing on the scale proposed, they have no alternative -- at least if they want to avoid a lawsuit that could torpedo their handiwork.

To be sure, court decisions allow the state to take out short-term loans, paid back over several months (not years) with tax dollars that will soon be in the pipeline. Such "revenue anticipation" instruments are being used right now to keep the state operating through the summer. But long-term borrowing on the scale currently being contemplated has never been attempted by the state, for any purpose, without an up or down vote at the polls.

Davis' sales-tax increase, if enacted by the Legislature, would also be subject to a vote of the people, at least indirectly. If lawmakers approved a tax hike to pay off the deficit bonds -- but the bonds themselves were rejected by voters -- there would be a legal argument that the tax increase should be eliminated, as well.

In short, if the governor and the Legislature want to pay down the deficit today by taking out loans that will be due over many tomorrows, they must ask voters not just to pass the proposed bonds, but also to amend the constitution in order to permit government to operate through deficit financing. A recent memo from the Legislative Counsel's office concurs with this interpretation.

Legislators seeking such far-reaching changes would constitute an ominous development. Voters have cause to pause before allowing government to start paying its way by floating bonds. There are already too few restraints on impulsive spending in Sacramento. Giving lawmakers more opportunity to buy wish lists on credit could put the state on a fast boat to bankruptcy.

The legal realities may not be comforting to legislators eager to conclude work on the budget with a minimum of political pain, but an unavoidable fact remains: the people have the constitutional right to vote on any long-term bond strategy that ends up as part of the deficit fix. If the budget includes a plan for major borrowing, either it gets taken to the polls -- or it could well get taken to court.



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