SACRAMENTO, Calif. -- Governor Arnold Schwarzenegger's plan to borrow $15 billion faces a tough fight in Tuesday's election, worrying voters and Wall Street alike and presenting the former action star with the biggest challenge of his young political career.
Proposition 57 authorizes the state to borrow up to $15 billion to pay off short-term loans that come due in June and to help close next year's budget gap, expected to be about $17 billion.
Most experts agree that without the bonds, California's already bleak economic outlook would turn decidedly worse. The measure also could have an effect on other areas of the nation's economy, as Wall Street investors are closely watching the vote.
"I think a lot of people are still making up their minds; I know I'm still debating it," said Edmond Costantini, a retired college professor from Davis. "I keep thinking about what harm would be caused by voting no and then what the alternatives are. I don't like the options."
While California still boasts a $1 trillion economy -- the sixth largest in the world -- the state continues to spend millions more every day than it takes in. The existing deficit is about $9 billion. Next year's shortfall will be about $17 billion and the gap in 2005-2006 will be least another $7 billion -- and that assumes voters approve the big bonds on Tuesday.
To allow the borrowing, voters also will need to pass a companion measure, Proposition 58, which would restrict future borrowing by the Legislature and require the creation of a reserve fund.
Schwarzenegger, elected just four months ago, has had little time to do anything but campaign in support of his recovery package. Warning voters about tax increases and severe spending cuts, he has barnstormed the state to meet with voters and raise money for a TV ad blitz costing more than $10 million.
Tomorrow, the campaign ends with a whirlwind bus tour that will run from Los Angeles to San Jose -- aimed at recreating the big crowds and enthusiasm of the final days of his campaign in October.
Schwarzenegger's efforts have been a big help for Proposition 57. A month ago, most polls suggested that only about a third of likely voters approved of the borrowing. Last week, the California Field Poll showed support for the measure had jumped to 50 percent in favor, 36 percent opposed and 14 percent undecided.
Still, the cost of the governor's plan is enormous. The $15 billion bond measure, largest to ever go before voters in any state, will cost about $4 billion in interest over nine years.
Also, the governor's bonds share the ballot with another popular borrower -- public schools. Proposition 55 would allow the state to borrow $12.3 billion worth of bonds to pay for classroom repairs and construction.
Many analysts said it is hard to believe voters will approve a combined $27.3 billion in new debt.
"Most of the polling I've seen shows that when you strip away who is backing what, most people like the schools bonds over the deficit bonds," said Democratic political strategist Gale Kaufman. "You're not getting anything with the deficit bonds, just paying off old debt."
If Schwarzenegger loses, budget experts said his best option is to resurrect $10.7 billion in deficit-financing bonds approved by the Legislature and former governor Gray Davis last summer. The so-called Davis bonds are included in the current budget.
But the state hasn't sold the Davis bonds because of a lawsuit contending that voters must approve such large amounts of borrowing. Schwarzenegger has moved to defend the bonds in court as a back-up plan to the bond measure.