When Arnold Schwarzenegger ran for governor last year, he pledged to repeal a recent increase in the car tax, restructure the state's debt and balance California's budget without raising taxes.

He repealed the car tax hike on his first day in office, by executive order.

Restructuring the debt is proving to be a little more complicated.
And unless the governor wins voter approval for two measures he and the Legislature placed on the March 2 ballot, Schwarzenegger will have little chance of balancing the books without new taxes.

Even if the voters pass the governor's proposals - Propositions 57 and 58 - Schwarzenegger's real work is just beginning. The $15 billion bond measure, accompanied by a measure creating a new rainy day fund in the state budget, would simply stabilize California's finances. Then the difficult task of balancing the annual budget can begin.

To understand the predicament, it's important to break the problem into two pieces. One piece is the state's accumulated debt, the money that's already on the credit card. The other is the picture going forward, the ongoing gap between the state's projected revenues and its expenditures.

The debt, created by a series of annual budget deficits, is about $10 billion. For the state, that's the equivalent of someone earning about $75,000 a year carrying a $10,000 balance on their credit card. It's money the state already has spent beyond what it has the ability to pay for. One way or another, that debt is going to have to be repaid, probably over a number of years.

Looking forward, the projected gap between revenues and spending is about $15 billion next year. That number represents the new deficit that would emerge, on top of what's already on the credit card, if state tax receipts come in as expected and we continue to spend at levels now required by law. Again, it's the equivalent of someone earning $75,000 a year with a household budget, thanks to ongoing commitments, that is $15,000 out of whack.

Former Gov. Gray Davis and the Legislature last summer agreed to repay the accumulated debt by floating a $10.7 billion bond measure - a form of borrowing - that would have been retired over five years.

But the state constitution prohibits borrowing more than $300,000 without a vote of the people. A lawsuit challenging the bond on that basis had a good chance of succeeding.

Recognizing that an adverse court decision was possible and would have left the state's finances in further disarray, Schwarzenegger proposed taking that question to the voters to make the borrowing legal. And as part of what would be a three-year plan to bring the budget back into balance, including the need to cover for his car tax cut, the governor has enlarged the proposed bond to $15 billion.

The bond would be repaid by setting aside about $1.3 billion a year from the budget, money that would otherwise be available to pay for new programs and services. Depending on how the economy performs, the debt would be retired in 9 to 15 years.

Next, Schwarzenegger turns to the ongoing problem. To close the $15 billion gap between projected spending and revenues, he proposes about $8.3 billion in cuts to state and local government, about $3 billion borrowed through his bond measure, and about $2 billion in other loans and fund shifts. His plan also envisions more than $1 billion in savings because the annual debt service on his bond would be less than the payments on the bond that had been part of Davis' plan.

Schwarzenegger concedes that his plan wouldn't finish the job in one year. Because he relies on some borrowing and other temporary fund shifts in the coming year, when those measures disappear, some of the problem reemerges. At best, his plan slices the problem from a $15 billion annual shortfall to about $4 billion. The independent legislative analyst says the remaining gap would be more like $7 billion.

In either case, there will be more work to do a year from now to keep the budget in balance, even if Schwarzenegger's ballot measures pass and the Legislature approves his spending plan exactly as proposed.

If Schwarzenegger's bond fails, and the Davis bond is struck down by the courts, California would face a fiscal crisis of unprecedented proportions. It is difficult to see how the state would get itself out of such a mess, and no one has proposed a credible plan that would do so.

I don't agree with everything in Schwarzenegger's plan. But it does represent a good-faith effort to fulfill three pledges he made to voters last year: repeal the car tax increase, restructure the debt, balance the budget.

The governor's off to a strong start. Passing Propositions 57 and 58 would give him at least a chance to finish the job.