SAN FRANCISCO – California voters rejected five of six special election ballot measures Tuesday, including all three propositions that would have helped the state with its immediate budget fix.

Voters rejected Proposition 1C, which would have had the biggest impact on the budget by authorizing the state to issue bonds backed by lottery revenue.

The state’s 2010 budget assumed 1C would pass and allow California to issue $5 billion in lottery bonds before July 2010. Those bonds, and their proceeds, are now off the table.

Voters also rejected propositions 1D and 1E, which would have directed a combined $840 million to the general fund in fiscal 2010 by diverting voter approved taxes that are designated for specific programs.

The ballot measures and the special election were the product of weeks of negotiations that resulted in February’s budget deal, a combination of tax hikes, spending cuts, borrowing, and payment deferrals to close what was then projected to be a $42 billion budget deficit for the combined 2009 and 2010 fiscal years.

Since then, the gap has grown by $15 billion, according to the state’s budget forecasters, with a further $6 billion gap created by the defeat of the budget ballot measures.

The only measure to pass was Proposition 1F, which has no practical impact on the state’s governance, but allowed voters to vent their frustration by banning lawmakers and state constitutional officers like the governor from getting pay raises in years when the state is running a deficit.

The defeated Proposition 1A would not have had an immediate impact on the state’s budget or its cash position, but its biggest backer, Gov. Arnold Schwarzenegger, believed it would have made long-term improvements to the state’s cyclical boom-and-bust budget cycle.

The measure would have required that any “unexpected” general fund revenue the state receives above a ten-year trend line be deposited into an expanded rainy-day fund.

Proposition 1A would also have extended tax increases approved in February to four years from two; its failure means that the state is likely to confront another budget gap when those taxes expire in 2011.

Proposition 1B was a companion measure that would have required supplemental payments to school districts, but only if 1A passed.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.