[BATN] Column: Financing megabondage could be sticking point Date: 24 Feb 2006 12:41:43 -0800 Published Wednesday, February 22, 2006, in the Sacramento Bee Column Financing bonds could be sticking point on infrastructure accord By Dan Walters Republican Gov. Arnold Schwarzenegger and the Legislature's Democratic leaders are patting each other on the back for their recent collegiality and pledging that they'll jointly fashion a multibillion-dollar infrastructure improvement program this year. Quietly, however, major conflicts are emerging on how the massive public works program would be financed, mirroring the division that underlies the state's five-year-long political stalemate over closing the state budget deficit. Schwarzenegger wants infrastructure bonds to be largely financed from a budget that's already gushing red ink and is resisting major new taxes, such as a boost in the gas tax. But his approach would commit a substantial portion of the state budget to bond service for many years, thereby denying those funds to other forms of spending, and that raises the hackles of Democratic legislators. The conflicts over financing surfaced obliquely Tuesday when Schwarzenegger's budget director, Mike Genest, and Assembly Speaker Fabian Núñez made a joint appearance, along with the Legislature's budget analyst, Elizabeth Hill, on a panel to discuss chances for infrastructure improvements. Núñez told the panel, part of a seminar on governance issues sponsored by three foundations, that Democrats want to hold the level of bonding to less than half of the $68 billion that Schwarzenegger is seeking over the next decade and also envision more user fees -- possibly including gas taxes -- to offset their cost. Committing too much from the budget to infrastructure, Núñez said, "can create a human infrastructure deficit" -- his way of saying that money spent on public works bonds is not money available for health programs and education, the Democrats' top priorities. Later, in formally unveiling his alternative proposal, Núñez declared: "Supersizing bond proposals doesn't make them better. To get the biggest bang for our buck, it's fiscally prudent to address our greatest needs while also striving to erase our structural deficit." The Núñez alternative would hold the bond commitment to about $30 billion over four years -- a step he said would entail debt payments "less than half of the governor's $4.4 billion" and thus keep more money in play for other spending. The alternative would also rearrange priorities, eliminating the prisons that Schwarzenegger wants, putting more money into non-automotive mass transit and school construction, and adding resources, such as parks, and housing to the list. Genest, however, insisted that the debt service costs of the Núñez alternative would not be substantially less than those of the Schwarzenegger plan, at least in the initial years, because of lag time in getting projects built and bonds issued. And he told the panel discussion that the governor's plan represents the priorities that the administration carefully chose from a list of potential recipients. The emerging conflict over the size and repayment of bonds reflects the long-standing stalemate over whether the state budget deficit should be eliminated -- if, in fact, it is to be erased -- through holding down spending or raising taxes. The political reality is that the voting public appears to want neither, and both parties are being coy about their true intentions in this election year. Schwarzenegger has preached spending restraint but in his latest budget proposal appears to have abandoned budget-balancing in favor of more spending as he seeks re-election. Democrats want more taxes -- perhaps $10 billion more a year to cover the deficit and finance more school spending -- but are equally shy about pushing them, saying they'll wait until after the election. As a result, the budget deficit remains stuck at around $7 billion and may even grow later in the decade. It's unclear whether the differences over financing infrastructure improvements could be fatal, but at the very least, they make agreement on a package for the June primary election increasingly unlikely. And were the March deadline for placing measures on the June election to pass without action, the whole infrastructure discussion -- the one about which there is such public comity these days -- could become entangled with the annual budget wrangle and what could be a very fractious campaign for governor. Reach Dan Walters at (916) 321-1195 or dwalters@sacbee.com Email article texts/URLs for posting to . Manage your subscription by sending a blank email message to: BATN-subscribe@yahoogroups.com to subscribe, BATN-unsubscribe@yahoogroups.com to unsubscribe, BATN-digest@yahoogroups.com to switch email to digest mode, BATN-normal@yahoogroups.com to switch email to normal mode, BATN-nomail@yahoogroups.com to switch email delivery off. See http://groups.yahoo.com/group/BATN for web access & archives.