Editorial: Governor is right to pay debt first

Since coming into office,

Gov. Arnold Schwarzenegger has resisted calls to raise

taxes, instead urging the Legislature and California residents to be patient and allow his pro-economic growth approach to pay dividends.

It has started to, in a big way. Thanks to a surging economy — and a record April for tax collections by the state government — more than $5 billion in unexpected revenue has flowed to the state.

More importantly, the governor reportedly plans to hew to his fiscal philosophy amid calls to spend the windfall on the many pet projects supported by state lawmakers.

Schwarzenegger is expected to anounce Friday his intention to use $3.2 billion of the $5 billion windfall to pay down the state’s debt, further reducing a shortfall that had grown to $16 billion under former Gov. Gray Davis.

Schwarzenegger also plans to devote billions of additional dollars to education funding, in an agreement that will largely settle the contentiousness arising from education budget cuts imposed in Schwarzenegger’s first two years in office. The additional funding would be earmarked for schools over several years, and would start with $2 billion in the budget year beginning July 1.

We are heartened by the governor’s decision to put money toward paying down the debt, as we having been urging for months. It’s sound financial policy — at a time when the state is ready to embark on a necessary but expensive public works program to be financed by bond measures, it is important that our fiscal future not be mortgaged in the service of present-day needs.

The new budget proposal by the governor would represent a neat political double play — it addresses concerns that the state was not doing enough with its rising pool of revenues to pay down the debt, while also making good on Schwarzenegger’s often-stated commitment to education.

More than that, however, it proves that Schwarzenegger was right to chart a prudent fiscal course and reject calls to raise taxes. Instead, he stated clearly and consistently that the only way out of the financial catastrophe he inherited was to improve the business climate in California, allow for economic growth, and use eventual revenue increases to pay down the debt and fund strategic needs rather than let windfalls be gobbled up in a frenzy of special-interest spending.

The state is now poised for its largest budget reserve since 1978 and is on its most solid financial footing in years. For the first time in a long time, California is doing things the right way.

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