Contributors
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.

Harold Johnson represents one of the Sea Scouts challenging Berkeley's anti-Scout policy before the California Supreme Court. Mark S. Pulliam, a Pacific Legal Foundation trustee, is an attorney in San Diego with sons in the Boy Scouts.

State Credit Card Torn Up -- Finally
An end to illegal bonds?...
[Harold Johnson] 1/19/05

In his struggle to terminate overspending at the Capitol, Gov. Arnold Schwarzenegger is receiving help from a politician of the other party: Democratic Sen. Eugene Casserly.

If the name doesn’t ring a bell, it’s because Casserly died more than a century ago. His influence survives, however, in a plank that he added to the California Constitution in 1879. Article XVI, Section I prohibits the state from borrowing more than $300,000 unless voters give their approval in a statewide election.

When obeyed, this rule should curb reckless spending binges. If legislators want to indulge in deficit spending, they must ask voters for permission - an often-intimidating prospect for many politicians.

One of the highlights of the hard- headed state budget unveiled by the Schwarzenegger administration last week is that it honors the Casserly rule. Unlike some budgets of the recent past, it does not rely on bond- market borrowing that has not been OK’d at the polls.

This win for the Constitution and the taxpayers is the result of protracted political and legal struggles. Two years ago, the Legislature and Gov. Gray Davis were so nervous about how voters would respond to their scheme for nearly $11 billion in long-term borrowing to cover the scandalous deficit that they had run up that they tried to tiptoe around the Casserly rule. They decided to take their massive bond issue straight to market without submitting it to voters.

Their ploy drew a courtroom challenge from the Fullerton Association of Concerned Taxpayers and the Pacific Legal Foundation (where I am an attorney) and was ultimately scuttled when a self-styled fiscal conservative from Hollywood was elected governor. At his first press conference after the October 2003 recall vote, Arnold Schwarzenegger insisted that any bonds must be done “the right way, the legal way.”

So he asked voters to approve Proposition 57. It authorized, in the legally correct manner, the deficit debt that Davis and the constitutional scofflaws in the Legislature had tried to smuggle past the electorate. Also on the March 2004 ballot ­ and also receiving a “yes” vote ­ was Proposition 58, prohibiting any future bond encumbrances to fund year-end deficits.

But the temptation to try spend- and-borrow shenanigans continued. This past year, the Legislature authorized $2 billion in long-term bonds to cover current government pension costs ­ without voter approval. Surprisingly, the new governor signed on.

However, when another legal challenge ensued, Finance Director Tom Campbell quickly waved the white flag ­ or, more accurately, the banner of fiscal responsibility. He announced that he would not rely on the illegal bonds but would slice outlays instead. That’s cause for applause, because state spending has been on a rocket in recent years, and the responsible response is frugality, not more bondage. (Yes, the new budget does include some back-and-forth shifts among state accounts. Deeper cuts would be preferable, but these internal borrowings don’t make the state a debtor in the bond market, so they stay within constitutional bounds.)

Bottom line: The new budget moves us a significant way toward the “payas you go” principle endorsed by the state Constitution’s authors. The virtues of this approach were explained by the state Supreme Court more than a century ago in Nogues v. Douglass:

“[T]he framers of [the Constitution, with its debt limit] knew that it was not the practice of governments, well-conducted, to borrow money for the ordinary expenses of government. ... [They] doubtless thought it unjust to throw the burden of paying the present expenses of the government upon posterity, who would be compelled, in addition, to pay their own expenses .”

Moral principle and budgetary prudence concur: It is wrong to pay the normal expenses of government today with debt that will burden new generations of Californians tomorrow. The Sacramento pols must have their credit cards taken away ­ both to wean them from their spending addiction and to protect our children from being stuck with their bills. CRO

This piece first appeared in the Orange County Register.

copyright 2005 Pacific Legal Foundation

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