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Arnold Greenlights $10.7B Bond

After saying for weeks there would be no option for putting a big bond measure on the spring ballot, Gov. Arnold Schwarzenegger quietly gave the green light Friday to a plan to borrow $10.7 billion without voter approval.

Last summer, the Legislature authorized the bond sale as part of the budget agreement signed by former Gov. Gray Davis. But taxpayer groups, as well as many Republican lawmakers, criticized the deal, saying borrowing of that magnitude should be approved by voters.

One group, the Pacific Legal Foundation, filed a lawsuit in September, arguing the proposal to sell $10.7 billion of deficit-financing bonds should be ruled invalid because of provisions in the California Constitution that prevents the Legislature from taking on more than $300,000 in long-term debt without approval of the voters.

Shortly after being elected in the Oct. 7 recall election, Schwarzenegger said voters should approve the bonds; he's since proposed a $15 billion bond measure as part of his budget package now being debated in the Legislature.

Schwarzenegger also said repeatedly he had no backup plan if lawmakers did not agree to put his bond measure or an alternative he approved on the ballot.

But Friday, members of the California Fiscal Recovery Financing Authority voted to move forward with the Davis bonds. The governor controls five of the seven members of the board.

Arthur Mark, attorney for the legal foundation, said that he was surprised that Schwarzenegger allowed the authority to move forward given his apparent commitment to putting the bonds to a vote.

"I really don't want to comment on the governor's policy decision here," Mark said. "But it did take us by surprise. We heard the same things you have from the administration about their plans for bond financing."

If Schwarzenegger and the Legislature push the $10.7 billion bond deal ahead, his group will maintain its legal challenge, Mark said.

Vince Sollitto, a spokesman for Schwarzenegger, said the governor remains committed to his budget package, especially the call to put the bond package before voters.

"The governor has said repeatedly that if we don't put the bond package on the ballot and the bonds are not sold, the state will be out of money in June," said Sollitto. "He is pushing hard to get his measure on the ballot."

Schwarzenegger doesn't consider the authority's action as providing the state with a backup to an agreement on the governor's budget package, Sollitto said. "The action today merely continues the bond portion of the existing budget."

Lawmakers have been locked in a tough fight over the governor's budget package since he called them back into special session two weeks ago. Both Democrats and Republicans seem to agree the $15 billion in bonds should go before voters, but the two sides are hung up over a spending cap.

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