ARUN RATH, HOST:
The end of an era here in California - this week, the state made a final payment on $15 billion of deficit bonds issued in 2004, back when Arnold Schwarzenegger had just become governor. The state basically took out a massive loan with interest during especially hard times. And on Wednesday, the state finally got that debt off the books. John Myers is California politics and government editor at KQED in San Francisco. He described the kind of budget the state faced back in 2004.
JOHN MYERS: A very bad one. If you look back at California at that period, we were projected to have a $35 billion budget deficit, absolutely monstrous-sized deficit that had been left by the previous governor, Gray Davis, which is why voters fired him in late 2003 and hired Arnold Schwarzenegger. Schwarzenegger promised to solve the problem, but solving the problem was not going to be easy. There was a lot of polarized politics in the state capital in Sacramento. And the real pressure was that the state was projected to run out of money in a matter of months. And so something had to be done fairly quickly.
RATH: And Gov. Schwarzenegger pushed a combination of two ballot propositions - Prop 57 and Prop 58. What did they do?
MYERS: Yeah, so these were two measures that he called an economic recovery plan. I think it was a bit of an oversell. But Proposition 57 - the first one - was borrowing. It was a $15 billion bond to be paid back over time with a portion of state sales taxes. And the second measure, Proposition 58, was a balanced budget amendment, which really didn't have a lot of teeth in it. It was a very loose balanced budget amendment. But probably most importantly, it said that the state could never borrow for a deficit again. So he pushed those two measures. Schwarzenegger campaigned hard using his celebrity status. And in the end, 6 out of 10 voters on Election Day said yes.
RATH: Here's what then Gov. Schwarzenegger had to say at a rally back in 2004.
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ARNOLD SCHWARZENEGGER: What we are doing with those two initiatives is exactly what a financial advisor would do. If you go to the data financial advisor and say look, I have a spending problem. I am a spending addict. I cannot help myself. Can you help me? He would say yes, let's consolidate all the debt. Let's refinance it. And then let's cut up the credit card and throw it away. This is exactly what they do.
RATH: Now, John, you covered this at the time. Tell us about the whole sales pitch.
MYERS: Schwarzenegger traveled up and down the state at shopping malls, at political rallies. And he would hold up a great, big cardboard credit card. And he said we've got to cut that credit card in half. I mean, there was no sales pitch that was too big for Arnold Schwarzenegger.
The reality was - is that it was borrowing new money. It was sort of refinancing debt, but really it was a bridge loan. And, you know, we haven't talked about how much interest the state has paid back here. But let me give you a number - a million dollars a day, every day, for 11 years. That's how much the interest alone cost on borrowing all of this money, the interest in all of that that we just paid off this week.
RATH: More than 10 years later, how would you say this has worked out for the state?
MYERS: Well, certainly, the state got through the worst times. But again, in that million dollars a day, every day, for 11 years, that's a lot of interest. I don't think that the voters really understood that. Schwarzenegger did not sell that part of the plan when he was out campaigning for the deficit bond that it was going to cost all of this in interest. I think there are definitely lessons learned.
The politics of California were so polarized back then. And of course, we have seen that now on a national level. There are, you know, some lessons about what happens that the political system can't resolve at some point. And I think, too, there's probably a lesson for voters that borrowing money in state bonds is not free money and that it does come at a cost. All of those interest payments could have gone for something else in California.
That money - just as an example - could have paid for the state's share of the University of California system for like 15 or 16 months. I mean, it is a lot of money. And these were choices that the voters were making. I think that might be the real lesson learned.
RATH: That's John Myers of member station KQED. John, thank you.
MYERS: You're welcome. Transcript provided by NPR, Copyright NPR.