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| Office of the Chancellor / Public Affairs |
Friday, August 8, 2003
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Daily Bulletin 8-8-03 Budget passed, but now it faces legal challenges |
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| California's Legislature passed a budget, finally, and the governor signed it. But that's hardly the end of the story. The primary foundations of the recently approved budget have come under legal assault, which could undermine the whole structure. The state budget contains a variety of the usual questionable schemes, from deferring costs to wishful thinking about future savings and revenues. And it leaves the state with an $8 billion deficit at the end of the year. But nearly half of the remaining solutions -- state borrowing and the vehicle license fee increase -- have come under legal fire. The Pacific Legal Foundation, a conservative organization, argues the state can't issue the proposed $10.7 billion in bonds to cover the deficit without going to the voters. It says it will file suit if the state tries to issue the bonds. The state's constitution says that any debt over $300,000 has to be approved by the voters, yet through the magic of legislative thinking, borrowing $10.7 billion to cover the state's operating expenses isn't considered debt. State officials argue that the Legislature has to appropriate money each year for the next five years to pay off the bonds. If lawmakers don't do so, it's not a legally enforceable debt, so it shouldn't count against the state's debt limit, says the state attorney general. Of course, that means taxpayers will pay higher interest rates for such borrowing, too. Similar logic applies to the $1.9 billion bond the state plans to issue to pay its obligations to the Public Employees Retirement System. Because the PERS contribution was already required by law, it was an existing debt -- so the bonds would not require a public vote, state officials claim. The Howard Jarvis Taxpayers Association doesn't buy that reasoning, and has filed suit against the pension bonds, arguing they should go to the voters. The Jarvis group has also sued the state over the increase in the car tax, which was done administratively instead of by a vote of the Legislature. That follows the way the original tax cut was written, but it puts another $4.2 billion budget piece in question. Since the money from the tax goes to local government, if the state loses that suit, it could simply pass the fiscal pain on to cities and counties, who would have to make cuts in service or raise revenues. There's no guarantee any of these lawsuits will be successful, but the state has run into trouble in court before over its budget schemes, including a large payout for playing games with school financing back in the 1990s. But the questionable financial practices that prompted the suits explain why the state's credit rating with Wall Street continues to sag. They see that the edifice is built on shaky ground, and could come tumbling down. If that happens, who knows where the debris will land -- but California
taxpayers know all too well who will get the bill for it. |
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These news clips are provided by the Public Affairs Department of The California State University. They are intended for the internal use of The California State University system and should not be redistributed. Questions and submissions may be sent to publicaffairs@calstate.edu. |
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