PROPOSITION 58 UNDER ATTACK WEAKNESSES COULD BRING DOWN BOND PROPOSAL.

Byline: Steve Geissinger Sacramento Bureau

SACRAMENTO - The Proposition 58 spending measure on the March 2 ballot was supposed to propel Gov. Arnold Schwarzenegger's Proposition 57 deficit bond plan to victory, but could instead bring it down.

Proposition 58 - which the governor intended to be a tough companion limit on spending - wound up a weakened twin that also has to pass in order for the $15 billion bond measure to go into effect.

The Republican governor, who has won the backing of nearly all Democratic Party leaders, has taken the lead in urging voters to approve his $15 billion deficit bond proposal and the companion ``balanced budget'' initiative.

``By voting yes on Proposition 58, you are basically taking the credit cards, cutting them up and throwing them away so that the politicians over there (at the Capitol), those big spenders, will never ever get the state into this kind of trouble again,'' he said at a recent appearance. Specifically, Proposition 58 would:

--Require enactment of a balanced state budget.

--Establish state budget reserve requirements.

--Prohibit future deficit bonds.

--Create a formal process for midyear budget adjustments.

Proposition 58 foes say the state constitution already requires the governor to propose a balanced budget each year that includes a cash reserve.

But the balanced-budget requirement does not currently apply to the financial plan ultimately passed by the Legislature and signed by the governor. And the constitution also does not specify the size or conditions under which funds must be placed in reserve, as does the initiative.

Opponents also say the constitution already prohibits long-term borrowing from being used to balance the budget, as would the initiative. But, at the same time, foes say the measure contains a major loophole - it does not ban short-term loans.

Moreover, according to opponents, the proposition's budgetary course- correction provisions are redundant because the Legislature has met in special session during the past three years to consider midyear proposals to address budget shortfalls.

However, there's no formal process in the constitution - as there is in the proposition - to require that midyear corrective actions be taken when the budget falls out of balance.

Proposition 58 grew out of demands Schwarzenegger initially made to Democratic leaders that he would not support a deficit bond without a permanent cap on spending. The governor first sought a cap that would limit spending increases to population growth and inflation.

But Democrats fought the plan, saying the cap was too restrictive and did not take into account programs such as education and public health, in which costs often grow faster than either population or inflation.

Schwarzenegger and Democrats finally agreed on what has become Proposition 58.

Despite the attacks on the proposition, the state's independent, nonpartisan legislative analyst has concluded that its budget-balancing and borrowing-limit provisions might force officials to take more immediate actions to correct budgetary shortfalls and create larger budget reserves.

Steve Geissinger, [phone]

sgeissinger(at)angnewspapers.com