When it comes to solving California's financial crisis, there are three basic options:
You can raise taxes.

You can cut spending.

Or, you can borrow.

Most of the debate on the state's budget mess has revolved around the first two -- where to save money through spending cuts, and how to raise money through higher taxes and fees.

But the third option -- borrowing -- is the one that will be before voters on March 2.

The Election Day ballot contains two bond measures:

One, Proposition 57, calls for California to sell a staggering $15 billion in bonds to help cover this year's operating expenses.

The second, Proposition 55, would raise $12.3 million to build and renovate schools -- from kindergarten through university level -- for the state's growing population.
Over the next several days, The Bee will make its editorial recommendations on these measures and others on the ballot. But it's important first to understand how bonds work:

When a family wants to buy or build a house, it generally goes to a bank or other lending institution for a loan. When a state or local government needs big money to build something, it issues bonds. Through underwriters, these bonds are sold to investors who are repaid the principal, with interest.

Bonds usually are appealing because they carry little risk; a government body will almost always pay them back.

Every community has public facilities that have been financed with bonds, from parks and prisons to power plants and school buildings.

California State University, Stanislaus, offers many examples of what bonds have built in California. Demergasso-Bava Hall, the $18 million building holding classrooms, computer labs, the student radio station and various offices, was made possible through the 1996 state education bond. Much of the money for the year-old Mary Stuart Rogers Educational Services Gateway Center came from a 1998 state bond.

While it's easy to see what bonds have built, it's not as easy to understand how bonds are paid off. The answer depends on the type of bond.

LOCAL BONDS: When a school district wants to sell bonds to build a new campus or renovate an old one, it needs voter approval. Some bonds require 55 percent approval of those voting; others need two-thirds approval. There are different rules governing bonds passed by different majorities.

In the case of local bonds, citizens know what they're getting -- because officials tell them -- and how much they'll be paying for a bond. The amount, based on the assessed value of their property, appears to the penny on the property tax bills that come out each fall.

REVENUE BONDS: Sometimes a government agency sells bonds to finance a project that will, in turn, generate money that can be used to pay off the bond. These arrangements, usually called revenue bonds, don't require voter approval because the debt isn't paid through individual taxes.

For example, revenue bonds have been used to build toll bridges and college dormitories. In both cases, the people who cross the bridges or live in the dorms pay a fee, which goes to paying off the bond.

A specific example: The Modesto Irrigation District sold revenue bonds to build the surface water treatment plant at Modesto Reservoir. This provides water to businesses and homes in the city of Modesto. The bonds are being paid off by revenue received from water customers through their monthly bills.

GENERAL OBLIGATION BONDS: These bonds have traditionally financed much of California's infrastructure -- buildings, roads and other capital projects -- and are paid for, with interest, out of the state's general fund.

Some proponents suggest there are no "tax consequences" to bond measures such as Proposition 55 because it is such a bond. That's simply not true. While the price tag isn't visible to individual taxpayers through a property tax bill, there are certainly costs -- and benefits.

California has more than $29 billion in outstanding general obligation bond debt and another $21 billion that has been approved by voters but not yet sold. The payments for those bonds -- both principle and interest -- come out of the state's general fund.

This year, those bond payments total about $2.5 billion, according to the legislative analyst's office. Next year, they will total $3.5 billion.

Proposition 55, if passed, would add another $800 million a year to the debt payment. Proposition 57 would increase it by another $1.2 billion.

Add it all up -- the current payment, next year's increase, and the additional costs of Propositions 55 and 57 -- and you have California paying $5.5 billion a year on its bonds.

The state writes the checks, but who actually pays the bill?

The people of California, through their income taxes, property taxes, sales taxes, vehicle license fees and other payments to the state. And the bigger the required bond payment, the less money California has available for everything else.

In his new textbook, "Governing California," California State University, Stanislaus, political science Professor Lawrence L. Giventer explains the importance of citizens understanding bonds, budgets and the flow of public money:

"Why do we need to know about such matters?" he asks rhetorically. "Because, despite all the statements of good intentions, political rhetoric and comprehensive plans, money is the final and most basic expression of public policy -- what the government will do and how it will do it."

Bond measures such as those coming up March 2 are significant in that they represent major decisions about how the public's money should be spent and invested. The public has the final say on these types of decisions. So the public needs to know what it's voting for or against.

For more information about bonds, see the legislative analyst's office's Web site, www.lao.ca.gov, or the Web site of the state treasurer, www.treasurer.ca.gov/Bonds/bonds.htm. Giventer's textbook is available on the Web or at the Cal State bookstore.