New governor could propose borrowing

    When Gov.-elect Arnold Schwarzenegger assumes office on Nov. 17, his advisors and aides will propose different strategies for tackling the California’s multibillion-dollar deficit and how to balance the state’s budget. According to a Los Angeles Times article on Nov. 14, suggestions include a possible $20 billion bond as well as possible cuts to mental health programs and higher education.

    According to the Times article, the Schwarzenegger team has consulted with several institutions about the possibility of securing a bond that could be used for the current fiscal year to pay off past debts for bonds ruled by the court as illegal. The loan would include a mandatory spending cap.

    Education could be affected by the bond, many say. According to Director of Government Redesign Carl DeMaio from the Reason Foundation, a national research and education organization that has been approached by Schwarzenegger aides for advice, a loan would prevent additional cuts to the education system and buy some time to address budget issues.

    “”This would postpone massive cuts on education right now,² DeMaio said. “”There are a number of inefficiencies in education and the University of California and community colleges would have 18 months to assess their budget, renegotiate with staff and cut through red tape.²

    Some UCSD professors who are following the different proposals for the budget agree that a loan would bring positive short-term results.

    “”The loan would probably be good for students in the short run,² political science professor Gary Jacobson said. “”Otherwise, cuts in funding for higher education would result in more fee increases, more crowded classrooms and delays in completion of required courses.²

    However, some say that in the long run, it would bring negative outcomes and in turn affect projects that would benefit education.

    “”Bonds are a double-edged sword for education,² said Thad Kousser, an assistant professor of government. “”Borrowing our way out of this fiscal year means that cuts to higher education and fee increases can be avoided with a sufficiently large bond, but the problem is that states can only carry a certain amount of debt.²

    According to Kousser, a bond would affect capital improvement since the state uses its credit to cover projects such as building schools.

    “”In the long term, since California … has credit limits for higher education, this means that we won’t be able to build new campuses from bonding,² Kousser said. “”The more bonds the state takes, the higher the interest, so you can’t just borrow an infinite amount of money.²

    Representatives from institutions that were approached for advice by the governor’s administration said the loan could be a way for Schwarzenegger to offset the state’s projected $10 billion deficit for the coming year and to avoid further cuts. For some, it is also a way for the new governor to keep his campaign promise of avoiding any tax hikes and rescinding the car tax increase.

    “”The major issue is the cash bill crisis,a DeMaio said. “”You have two choices: Make immediate reforms and have reductions now ‹ and most of those would probably be service reduction ‹ or buy yourself some time to reduce.””

    However, a representative from the Howard Jarvis Taxpayers Association, another organization that has been consulted by Schwarzenegger aides, said that a loan would come with conditions and should be used only to cover illegally obtained loans by outgoing Gov. Gray Davis.

    “”We are not considering a proposal for additional debt, but to repl

    ce debts that already exist and that were obtained illegally,”” said HJTA Executive Director Kris Vosburgh. “”We sure are not advocating a $20 billion additional loan.””

    Schwarzenegger is expected to present his budget proposals to a special session in the California State Legislature on Nov. 18. According to the Los Angeles Times, he is likely to bring the bond and the spending cap before voters in March 2004 and would need legislative approval by Dec. 5.

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