‘Tough love’ reins in state bonds

Just in time for Independence Day, California taxpayers won freedom from one particularly onerous form of stealthy deficit spending. A three-judge panel from the 3rd District Court of Appeal in Sacramento ruled July 3 — only one week after hearing arguments — that the state could not legally issue bonds to pay public employee pension costs without first obtaining approval from two-thirds of both legislative houses and a statewide voter referendum majority.

Gov. Arnold Schwarzenegger and Democratic legislative leaders had proposed selling $525 million in new bonds to ease the worsening pension crunch, thus freeing more revenue for current expenses. It was a key element in a typically complex California plan to close estimated budget gaps of $3.5 billion next year and an even bigger $5 billion in 2008-09.

Theappellate court’s denial — which the state is not appealing to the California Supreme Court — puts lawmakers back at square one for balancing California’s 2007-08 budget, now already late for the June 30 deadline. Republican legislators are resisting the $104 billion spending plan because they believe this budget would leave California with an unmanageably large 2008-09 deficit.

Former Gov. Gray Davis’ administration originated the pension bond plan. Schwarzenegger endorsed it in 2004 and proposed paying some of the state’s annual obligation to the Public Employee Retirement System with a $560 million bond sale — which his advisers claimed would not need voter approval. But the bond issue was challenged by a Southern California anti-tax group, who prevailed in a 2005 lower court decision.

Consumer rights advocates hailed Tuesday’s appellate ruling as an important precedent limiting the state’s ability to borrow money for current expenses. “If they had gotten permission to do this, we could have seen massive deficit spending,” said Harold Johnson, an attorney for the victors. “It’s a big victory and a sobering message for the spendthrifts in the Legislature. They can’t use the credit card to cover ongoing costs of government.”

Any step that impels state leaders to confront fiscal realities without living in fantasy is good news for the public. California for too long has led the way among state governments that routinely balance their budgets by overdependence on accounting gimmickry, shaky assumptions and ballooning debt burdens.

Avoiding tough budgetary decisions and repeatedly leaving financial messes for the next generation of lawmakers to sort out almost overspent California into bankruptcy in 2001 when the economy plunged. It is time for our elected officials to change course and stop taking the easy way out.

This pension bond limitation may be only the first judicial wake-up call coming for statehouse spendthrifts. California’s nonpartisan legislative analyst has calculated the state still faces as much as $2 billion in potential cost increases from other pending court battles.

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