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    Suit Filed Challenging Constitutionality Of CA Budget's Deficit Reduction Bonds

    (Sept. 26, 2003) -- Just days after the Howard Jarvis Taxpayers Association won a Sacramento Superior Court decision blocking the state of CA from incurring over $2 billion (including interest) in debt without voter approval. the Pacific Legal Foundation has filed suit challenging the constitutionality of the state budget’s $11 billion deficit-reduction bonds.

    The suit, also filed in Sacramento Superior Court, targets the linchpin of the budget adopted after weeks of impasse by state lawmakers: the CA "Fiscal Recovery Financing Act." The Pacific Legal Foundation's complaint alleges the Act is unconstitutional because it lets the state borrow billions of dollars through the use of long-term bonds without voter approval...and even if this were approved by the voters, the purpose is an unconstitutional attempt to pay past and ongoing state operating expenses rather than to fund infrastructure projects.

    Article XVI, Section 1 of the CA Constitution says that the state may not incur debt in excess of $300,000 without a vote of the people, except in the case of war, invasion or insurrection. Pacific Legal Foundation attorneys argue that in creating the CA Fiscal Recovery Act, the Legislature illegally skirted this state Constitutional provision by trying to redefine the terms "debt" and "liability," effectively creating a debt-financing instrument that will put CA $11 billion in the red.

    In a written release, Pacific Legal Foundation attorney William S. Mount said, "The CA Constitution -- in very clear language -- forbids the Legislature from covering an annual budget deficit or its accumulated debt through the use of long-term bonds without a vote of the people." Mr. Mount added, "The CA Fiscal Recovery Financing Act should carry the more accurate title of The California Long-term Fiscal Bondage Act."

    The release quotes Thomas Babcock of the Fullerton Association of Concerned Taxpayers, the plaintiff in the suit, as saying the budget's "dubious borrowing ploy amounts to the 'Enronizing' of state finances.

    Pacific Legal Foundation attorney Harold Johnson added, "This budget red ink is a disaster for California. In essence, state elected officials are using one credit card to pay off debt they accumulated on another credit card."

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