(September 26, 2003) -- The Howard Jarvis Taxpayers Association has won a court decision blocking the state of CA from incurring over $2 billion (including interest) in debt without voter approval.

The lawsuit stems from a validation action filed by the state of CA, seeking Superior Court approval for a $2 billion bond issuance not submitted to voters for approval.

"The state published notice of its lawsuit in five California newspapers. Only the Howard Jarvis Taxpayers Association (HJTA) made an appearance in court on behalf of the state’s taxpayers," and HJTA press release says.

The pension bonds were part of the state legislature's budget-balancing strategy to borrow money by issuing bonds to make this year’s annual payment to the California Public Employees' Retirement System (CalPERS) for state employee retirement benefits.

The court ruling presumably throws the state budget out of balance...and a similar lawsuit challenging $11.1 million in so-called "deficit bonds" was filed this week by the Pacific Legal Foundation.

If the ruling stands, state lawmakers could be confronted with making spending cuts, raising taxes, or a combination of both.

CalPERS is a retirement/pension system that elected officials have established for themselves and other government employees. CalPERS provides retirement and health benefits to over 1.3 active, inactive and retired members of state, school district and local government entities.

HJTA said issuance of the pension bonds "would free up money in special funds that is earmarked for PERS, allowing the state to transfer that money to the General Fund and spend it on other things."

Article 16, section 1, of the CA constitution prohibits the state from undertaking any debt over $300,000 without first obtaining voter approval.

HJTA sued. The state defended by arguing the constitutional provision should be construed to allow an exception for "obligations imposed by law," that its obligation to PERS is imposed by law, and financing that obligation through bonds is just substituting one debt for another.

HJTA argued that the constitutional section cannot be read to allow the exception urged by the state, and even if it could, the state wasn't just substituting one debt for another.

"Testimony at trial proved that the state planned to use bond revenue not just to pay PERS, but to pay approximately $80 million in bank and lawyer costs. Moreover, the state was taking on a debt of hundreds of millions in future interest payments," said an HJTA release.

At the conclusion of trial, Sacramento Superior Court Judge Thomas Cecil ruled in HJTA's favor that article 16, section 1 of the CA constitution cannot be read to allow the exception urged by the State, and that the State was not simply substituting one debt for another.

"This is a significant victory for taxpayers," said HJTA president Jon Coupal, adding "It sends a message to the state that the proper way to balance the budget is by living within the state’s means, not shifting today’s expenses onto the backs of tomorrow’s taxpayers."