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Fortnightly Magazine - November 1 1998

implications of invalidating the revenue reduction bonds issued by the California Infrastructure and Economic Development Bank to securitize stranded costs and fund the state's guaranteed 10-percent rate cut. As I understand it, the MetWest study predicts that if Prop 9 should pass, the state government would be forced to back the bonds anyway, and to do so would have to hike the personal income tax rate by 38 percent (or the sales tax rate by 3.25 cents on the dollar) to raise the funds needed to cover the bonds. The San Francisco Chronicle says in its Oct. 6 editorial that state schools could lose $65 million in taxes.

Snyder disagrees. He claims the debt will lie with the utilities.

"That's a phony argument. There is no tax liability for cities and towns. The utilities are trying to fool you. They report on their form 8K's that they have a liability to pay the bonds."

NOT EVERYBODY BELIEVES THAT PROP 9 WOULD LEAVE utilities liable on the rate reduction bonds. In an editorial against Prop 9, published on Oct. 7, the San Diego Union Tribune wrote: "The bonds won't just vanish. The state entered into a contract on the bonds, and there are constitutional mandates against reneging on contracts. Bondholders would sue the state and win. State taxpayers would wind up repaying the bonds."

In a May 22 letter, the California Department of Finance said that Prop 9 could lead to state liability for repaying the bonds that "could directly affect every program in the state budget."

"Never before has an initiative forced default on already sold bonds," adds Allan Zaremberg, president of the California Chamber of Commerce and chairman of the "No on 9" Coalition, which commissioned the MetWest study.

"If Proposition 9 passes on Nov. 3, we'll be in court on Nov. 4," said Deann 'DeDe' Hapner, vice president for regulatory relations at Pacific Gas & Electric Co., speaking at a utility conference in Pittsburgh on Oct. 5. Hapner stressed that in her opinion, PG&E would win the suit: "The proponents were in a hearing in the state legislature last week," she said. "They admitted that parts of Proposition 9 were unconstitutional."

How did Snyder see his chances?

"Different polls come out with very different results," he explained. "They're all over the lot. Some show us prevailing, some show us losing. But one thing is clear. The advertising that the No on 9 Coalition is doing doesn't seem to have much of an impact."

Snyder's assessment jived with what I was hearing from other sources. The consensus seemed to be that the most recent polling data was running slightly against Prop 9.

"The reason," said Tom Smith, Texas Director of Public Citizen, the Ralph Nader group, "is that money wins. It's not just the utilities lobbying against the measure. It's all the cities and towns and local governments saying that their tax positions will disintegrate. That's the message that seems to be having an effect of voters. Not the utility advertising."

Snyder was ready to put a good face on a