California Approves Bond Issue, but Fiscal Problems Remain
By JOHN M. BRODER

LOS ANGELES, March 3 — Gov. Arnold Schwarzenegger won a significant political victory with the voters' approval of a $15 billion bond measure on Tuesday, but he is a long way from being free of California's dire financial problems.

The governor raised and spent $8.5 million to promote the bond issue, which will be the largest single municipal debt financing in American history. Voters approved the issue 63 percent to 37 percent. A companion measure, requiring a balanced budget and outlawing similar borrowing in the future, passed by 71 percent to 29 percent.

"We have removed the financial sword that was hanging over California's head," Mr. Schwarzenegger, a Republican, said at a rally.

Wall Street reacted favorably on Wednesday. Standard & Poor's, which had assigned California the lowest credit rating among the 50 states, said the measure's passage avoided a short-term cash crisis and said it would consider raising the rating. Moody's Investors Service raised the state's bond rating outlook to stable from negative.

But David Hitchcock, an analyst at Standard & Poor's, noted that California's debt rating would "improve to the extent the state uses the time provided by the new bond proceeds to reduce its structural deficit."

Roughly $12 billion of the new borrowing will go to retire existing debt, much of which comes due in June. What sums that remain are to be used to patch holes in the budget for the fiscal year that starts July 1.

After the current debt is retired, the state will still face a major gap between projected revenues and spending over the next several years. Mr. Schwarzenegger has proposed cuts in programs, including state health services and higher education, to reduce the gap, or "structural deficit." But the Democratic-controlled Legislature has balked, and the budget gridlock remains