Jun 17 - Legality of Assembly's Budget Borrowing Plan in Question

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The Attorney General's office has thrown a monkey wrench in the Assembly's plan to help ease the state's $19.1 billion deficit. That plan, reduces cuts proposed by the Governor and makes up the difference through the establishment of a new tax on oil extracted from California and, a complicated borrowing scheme that uses the California's successful beverage recycling program as security.

However, this plan may be deemed illegal under Proposition 58, according to the AG's office. The 2004 voter-approved Proposition prohibits various kinds of future deficit financing, including forms in which repayment stems from a "designated source of revenue."

Schwarzenegger considers the Assembly proposal illegal under Proposition 58, and had asked for the Attorney General's legal opinion. AG's office released their legal opinion on Tuesday, conceded that the proposal to borrow against the Bottle Bill is not legal.

In the letter from AG's Office to Schwarzenegger's legal affairs secretary:

  • We conclude that a court could reasonably determine that the proposed transaction violates Proposition 58.
  • In the case of the proposed securitization, the bonds would be repaid solely from the future revenue stream produced by the regulatory fees.
  • We believe that a court could reasonably conclude" that elements of the Assembly's borrowing plan "were simply a series of steps by which the state obtained money to fund a year-end state budget deficit in violation of Proposition 58.