Sacramento Report

BOND FIGHT LIKELY WILL GO DOWN TO LAST MINUTE

Even casual followers of California state politics are aware of Governor Schwarzenegger's call for a massive dose of new state spending on infrastructure. In his State of the State message given in January Schwarzenegger offered a list of priorities - levee construction and repair, school construction, improvements in the water delivery system, state highway construction - and then called on the state legislature to approve a series of general obligation bonds (G-O bonds) to fund these programs.

In an attempt at memorable rhetoric the Governor repeated the phrase "I say build it" throughout the speech while detailing a laundry list of needed projects. It's often said that perfection is in the details and so far the political debate has not produced a detailed program to anyone's satisfaction.

First consider the ground rules. Any G-O bond requires the ultimate approval of the voters. The legislature can place a bond on the ballot with a two-thirds affirmative vote in each house followed by a gubernatorial signature. March 10th is the deadline for any legislative referral of bonds for the June, 2006 primary ballot.

Governor Schwarzenegger his indicated a preference for the June ballot, meaning that at this writing (2./21/06)less than three weeks remain for the legislature to work out a deal. Because of the requirement of a supermajority vote in each house, the Governor can't simply cut a deal with the legislature's Democrat leadership.

The minority Republicans can block any program but only by maintaining a near unanimous opposition. That's unlikely to happen but it does give the legislative Republicans a seat at the negotiating table and complicates the deal somewhat. (To do the math, the two-third vote requirement means 54 of the 80 members of the Assembly and 27 of the 40 state Senators must vote AYE.

The Democrat majorities stand at 48-32 and 25-15 in the respective chambers, meaning at least 6 Assembly Republicans and 2 Senate Republicans must join with Democrats to approve any deal. Those numbers would increase should any Democrats not get on board.)

Schwarzenegger supposedly prefers the June ballot in the belief that having the bond deals completed will improve his reelection changes. This position presumes first that the public will approve whatever bonds the legislature puts on the ballot.

Although any polling data offered should be viewed skeptically - no precise proposal has been finalized and the impact of a bipartisan deal on the public mood can't be measured until that deal is actually cut - a fair number of Republican consultants suggest off the record that passage of a full bond proposal will prove difficult.

Schwarzenegger's political staff counters by arguing that the public will embrace a bi-partisan effort for infrastructure investment, particularly in the post-Katrina environment.
For Democrats, these negotiations are nearly a free ride. The Governor's broad ambition - at various times he and his staff have spoken of a package approaching $50 billion - insulates them from the traditional "tax and spend" criticisms.

The entire debate is over the level and composition of the new spending programs that the G-O bonds will approve. For Democrats, negotiating with a republican governor who is calling for new spending is playing politics with the house's money. They can't lose; the only question is how much new spending they will win for their constituencies.

Readers of this magazine likely have a particular interest in the debate over housing bonds. The Schwarzenegger Administration decided not to include any affordable housing funding in its original proposal because "it wanted to keep overall (state public) debt below 6 percent of the state's yearly general revenue" according to Mike Genest, the Director of Finance for the Governor (as quoted in the Sacramento Bee, 1/8/06).

California currently has a debt-service ratio of 4.5% (percentage of annual budget dedicated to infrastructure). The overall Schwarzenegger infrastructure proposal will boast that figure to 5.9%, leaving no room for a housing component the Administration deems less of a priority.

Democrats not surprisingly have a different take.

Both the Senate President Don Perata and Assembly Speaker Fabian Nunez have introduced legislation proposing infrastructure bonds that include dedications for regional planning and affordable housing. Expect this debate to echo that heard in the legislature during 2002 before the body approved SB 1227 (Burton), the Housing and Emergency Shelter Trust Fund bond. (This proposal, tagged Proposition 46, won approval from the voters with 57% of the vote in November, 2002.)

Then and now many Republican legislators object in principle to the construction of public housing. They also carry a particular suspicion regarding "smart growth" proposals, viewing them as no-growth measures in disguise.

Further resistance will come over the inevitable Democrat attempt to include a prevailing-wage requirement on any public housing construction. Republicans will fight the prevailing wage and also seek tort reform regarding construction-defect lawsuits. These attempts won't succeed specifically but will generate some leverage for Republican attempts to drive down the amount of bond money ultimately dedicated to housing.

Look in the next issue of Apartment Journal for an update on how the legislature ultimately acted on the question of housing bonds.
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