(January 16, 2004) Voters can help the state take a vital first step toward putting the California economy on the road to recovery by supporting Propositions 57 and 58 on the March ballot.

Passed together, Propositions 57 and 58 — the Governor’s California Recovery Plan — will prevent another budget deficit disaster and ensure the state enacts balanced budgets in the future. This plan is essential to bringing California out of the fiscal mess Governor Schwarzenegger has inherited and is strongly supported by the California Chamber of Commerce.

Proposition 57 is a one-time $15 billion Economic Recovery Bond to refinance the budget deficits inherited by the Governor due to past mismanagement of the state’s finances.

Proposition 58 requires California politicians to balance the budget every year and prohibits bond financing of future deficits. It also creates a “rainy day savings account” to be used to pay off bonds early and help the state through future economic downturns.

Reasons to Support

Both pieces of the plan are critical. If either proposition is defeated, neither will go into effect.

• Proposition 57 will keep California out of bankruptcy while the state puts its financial house in order. California’s budget deficit can be divided into two components:
• the first is the past deficit, incurred before Governor Schwarzenegger took office;
• the second is the excess between recurring expenditures and estimated revenues.

The Governor has dealt with the future deficit in his proposed budget, but the state, like any other bankrupt debtor, needs additional time to pay back its accumulated deficit. Proposition 57 merely allows the state to extend its payback of the inherited debt over a longer time. If California had to come up with the $15 billion debt payback by this June, when the fiscal year ends, the state would either have to enact draconian budget cuts or severe tax increases.

• Proposition 58’s balanced budget requirement will ensure that politicians don’t again spend the state into near bankruptcy. Also worth noting is the provision in Proposition 58 calling for the debt to be paid off at a faster rate if California’s economy surges and results in a surplus in the General Fund. The Chamber applauds this provision, which ensures that California’s surplus is used in a responsible manner to stabilize the state’s financial situation.

Bipartisan, Growing Support

Support for Propositions 57 and 58 is bipartisan and growing. Heading the campaign for passage of the measures are Republican Governor Arnold Schwarzenegger and Democratic Controller Steve Westly.

In the recall election, California voters sent a clear message: job growth and economic recovery in California are essential. Governor Schwarzenegger has made it clear that stimulating California’s jobs climate is a top priority in his administration. In March, voters will have an opportunity to keep California on the track toward economic recovery and fiscal responsibility by supporting Propositions 57 and 58.

California’s business community needs the stability this plan offers, so investors feel comfortable about investing in this state. As the national economy begins to rebound, businesses that are creating new jobs will look to various states for their new ventures. High costs and a state government in financial disarray are severe disincentives for businesses to locate or expand here.

Although businesses expressed a renewed optimism about California’s business climate following the election of Governor Schwarzenegger, his recovery plan will provide businesses with additional assurances that California’s economy and financial situation are on the road to stability.

The long-term solution to California’s budget woes is to generate essential General Fund revenues through job creation by fixing the California workers’ compensation and unemployment insurance systems and enacting the Governor’s California Recovery Plan.

The bottom line is that California must stop spending more than it takes in. Governor Schwarzenegger’s plan ensures a balanced budget process essential for the future health of California’s business climate. By providing businesses and investors with assurance that California is on the road to economic and fiscal stability, a “yes” vote on Propositions 57 and 58 will help foster an environment to stimulate job growth in our state.

Allan Zaremberg is president and chief executive officer of the California Chamber of Commerce.