Foolish California bonds put taxpayers at risk
If you had just won the lottery, would that be a good time to go further into debt or would it be smarter to pay down the debt you already have?
Most Californians would like very much to be debt-free, and the thought of being able to pay off their mortgage, car loan and student debt is surely attractive.
In some respects, thanks to the forced generosity of California taxpayers, California has won the lottery.
Our highest-in-the-nation tax burden has left our treasury full with billions in surplus revenue.
One would think that with all that revenue, our elected leadership would be a little more circumspect in taking on new debt or at least manage the debt we have more effectively. But this is California.
The Golden State is awash in debt consisting mostly of unfunded pension obligations. Unfortunately, our leadership continues to press on the accelerator in taking on new debt.
Just a few weeks ago, this column criticized a big $15 billion school bond that will appear on the upcoming March ballot, ironically designated as “Proposition 13.”
As we pointed out, there are two big concerns with this proposition.
First is that it would borrow $15 billion from Wall Street and then make taxpayers pay it back plus 80 percent in total interest costs. That’s an additional $12 billion we’ll be forced to pay.
Second, and by far a more serious problem, a hidden provision of the bond proposal would increase the current caps on local school bonds. Lifting the caps puts homeowners directly at risk of much higher property taxes.
But as bad as the “new” Prop. 13 is, it almost looks responsible compared to what is currently being floated in Sacramento.
Senate Bill 45 is a “climate change” bond ostensibly for the purpose of addressing various climate and environmental dangers in California. The bill is a holdover from last year, when it failed to clear the state Senate.
Even a cursory review of SB45 suggests that it is little more than a grab-bag of proposals onto which the proponents have slapped the label “climate change” in the hopes getting support both within the Legislature and with the public.
As currently drafted, the $4.2 billion in bond proceeds would be split among several purposes including $1.6 billion going to wildfire and drought prevention and $1.2 billion funding safe drinking water initiatives.
Granted, some of the purposes for which SB45 would provide funding are worthwhile. There is no doubt that water quality issues, especially in the Central Valley, are an immediate and pressing problem. But that problem can be resolved with existing revenues from the general fund without going further into debt.
Finally, this bond violates all the criteria for responsible bond financing, which includes the constitutional requirement that a bond should be issued only for a “single object or work.”
That single object or work must have statewide significance if payment involves a general obligation bond that all taxpayers are responsible to repay. Moreover, the “single object or work” should have a useful life that extends beyond the term of the debt repayment.
General obligation bonds should not be encouraged when ongoing state revenues are strong and proper fiscal restraint is not being exercised in the budget process.
If voters approve this policy, there will be no incentive for necessary reforms and fiscal discipline.
Like problem gamblers, Sacramento politicians seem addicted to debt no matter what the circumstances.
But we should reject their gambling with California’s future financial security.
Jon Coupal is president of the Howard Jarvis Taxpayers Association (hjta.org).