Arnie 'stakes all' on $15bn loan

Two months after taking office Governor Arnold Schwarzenegger is using his star power – and risking his considerable reservoir of goodwill – to persuade California voters to approve loans worth $15bn (€12bn) to ease the state’s budget crisis.

The bond issue is the lynchpin of the Republican governor’s recovery plan and opinion polls suggest it is going to be a tough sell.

Only about a third of the voters support it and many say not even the former Hollywood action star’s personal backing will get them to change their minds before the March 2 vote.

“It’s a really, really stupid thing to borrow money to pay for normal operating expenses,” said Bob Moss, 70, a retired engineer in Palo Alto.

Moss said he would not mind paying more taxes instead, because “if I don’t pay them my grandchildren will pay twice as much”. He has nine grandchildren.

In the next few days, Schwarzenegger is expected to begin barnstorming the state, visiting shopping malls and convention centres, going on talk radio and making other appearances to build support for the biggest bond issue ever to go before any US state’s electorate.

He has some impressive advantages at this stage: his immense popularity, the excitement and high hopes raised by his ousting of Democratic Governor Gray Davis in a turbulent recall election, his Hollywood-instilled skills as a communicator and his unique ability to command the media’s attention.

Some say failure of the bond measure would cripple Schwarzenegger’s political standing in the short and long term.

Schwarzenegger’s recovery plan for the Golden State also includes billions in spending cuts – with no broad-based tax increases – and a proposed constitutional amendment mandating a balanced budget and restricting future borrowing.

The bond proceeds will be used to pay off loans that come due in June and to help balance next year’s budget.

Without it, Schwarzenegger and other state officials say, California faces a financial meltdown.

Still suffering from a flat economy and the aftermath of the high-tech industry’s implosion four years ago, California has the nation’s lowest credit rating and spends billions more each year than it collects in taxes.

“Borrowing money to pay a debt doesn’t solve anything. It only puts off the problem,” said Charles Cooke, a grape grower from Sonoma Valley.

“But I’ll probably support it because I’d hate to see what happens if it fails.”

Most state politicians back the bond plan.