Propositions 57 and 58 are looking to bail out the state’s deficit with long-term borrowing – to the tune of a $15 billion bond measure.
Proposition 57, the Economic Recovery Bond Act on this Tuesday’s ballot, would issue a bond of $15 billion in general bonds in order to help California solve its present budget crisis. Prop 57 was introduced along with Proposition 58, the California Balanced Budget Act, which aims to force the legislature to develop balanced budgets. The wording of both bills indicates that the two are dependent on one another. In order for Prop 57 to pass, 58 must also be approved by voters, and vice versa.
Prop 57 would expect the state to repay the loans in nine to 14 years, at a annual interest rate of one-quarter cent of California’s sales tax revenues. The bond established in Prop 57 would take the place of a bond authorized by the state Legislature last year.
Prop 58 would require the Legislature to pass a budget that either meets or exceeds the estimated revenue. It also gives the governor the authority to proclaim a fiscal emergency under certain instances, such as when he determines that the state faces a substantial shortfall. If that happens, the governor would, under the proposition, propose new legislation to fix the financial crisis, and a special session of legislature would be convened. The Legislature would also be required to pass the governor’s legislation or an amendment version within 45 days; otherwise, it would be prevented from acting on any other bills or adjourning for a joint recess.
Under Prop 58, an incremental reserve fund would also have to be kept. One percent of the General Fund revenue, or $850 million, would be transferred to the reserve in 2006-07. Two percent, or $1.8 billion, would be moved from the fund to the reserve in 2007-2008. The increase in transferred money would continue until 5 percent of the fund, or $8 billion, is transferred annually.
UCSB Financial Aid Office Assistant Director Bill Shelor said that because Gov. Schwarzenegger said he would not raise taxes, the state is only left with the options of raising user fees or Prop 57. Base fees for the UC system will still increase if Prop 57 passes, but by less than they would otherwise.
“Assuming Prop 57 passes,” Shelor said, “base fees for students will still increase, but they will increase 10 percent for residents, 20 percent for nonresidents and 40 percent for graduate students. But if Prop 57 fails, these rates will only increase [further].”
Opponents of the bill said the bond only serves as a cover for all of the spending done in the past. Joe Armendariz, executive director of the Santa Barbara County Taxpayers Association, said the issue of raising tuition is only a temporary solution. Armendariz said that without reform of the state bureaucracy, there will not be a significant change overall in student fees.
“If Prop 57 passes – and the legislature uses $15 billion to cover operating expenses and then refuses to make any meaningful reform the size of state bureaucracy – what you’re going to see is that tuition continues to go up because there’s so much fraud and so much abuse in the budget process that there’s no opportunity to save money because there’s no incentive to do so,” he said.
Armendariz said the bond measure missed the opportunity to create reform in budget processes because it fails to put a spending cap on Sacramento politicians.
“It makes no provisions for controlling the velocity in annual spending,” he said. “One of the things California voters need to know is that the biggest problem facing California in terms of its fiscal crisis is not that we haven’t had a balanced budget per se – it is that the politicians of Sacramento have been allowed to spend two, three, four times the rates of inflation in population.”
Armendariz also said that Prop 58 only balances a budget – it exempts short-term borrowings, which only bring more overspending that the bill tries to eliminate.
“There are so many unknown quantities that government ought not get into the business of spending more than it is necessary to spend in order to deliver the programs and services that people are entitled to: education, healthcare, public safety. It codifies into law the irresponsible overspending that occurred over the last several years.”
The attempts of Props 57 and 58 to fix the debt problem, Armendariz said, only mask the current problem and in fact don’t work to solve anything.
“Prop 58 allows [those who receive bond money] to do what they want to do with $15 billion – which is, in this case, nothing other than operating expenses – and then pay it back with debt. Then they send the bill to our children and grandchildren. It’s really an unprecedented demonstration of fiscal irresponsibility.”
With or without Prop 57’s passage, students still might find their loans coming up short when the next round of fee increases comes up. In the past, whenever there was an increase, the university would take a third of the revenue from the increase and re-disburse it to students whose federal loans did not cover the increase. But, with Schwarzenegger’s proposed budget cuts, the university will only be able to give 20 percent of the money made from free increases back to financial aid.
Shelor said this year is not the largest increase in base fees for the UC system. For the 2003-2004 academic year, fees rose $795. Next year, base fees can be expected to rise at least $498. What makes the future rise in fees different from previous years is the limited financial aid available to students.
“Federal loans work for all 50 states; folks in Washington couldn’t care less about the UC regents,” Shelor said. “The federal loans are not sensitive to the increased fees at UC. The Pell Grants stay the same. This is the first year that Cal Grants will not be able to pay the full base fees.”
The future increase in fees will also have an effect on the school’s ability to distribute financial aid to students, said Shelor.
Shelor also said that the failure of Prop 57 and subsequent fee increases also indirectly affects enrollment at UC campuses.
“UC would not be able to enroll everyone eligible. In order to stay within its budget, the UC system will not be able to support the same amount of students,” he said. “The Financial Aid Office will still do its best to support students, but we cannot stress how important it is to file the applications for federal aid. I find it funny that the filing deadline and election fall on the same day, March 2.”