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Old 12-18-2009, 08:19 PM
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Default California politicos bewail rising burden of debt

California politicos bewail rising burden of debt


Quote:
By Dan Walters

Dec. 15, 2009

Capitol politicians bemoaning the size and cost of the state's bonded debt is something like drunkards arguing over hangover remedies.

Members of the Assembly Budget Committee, most of whom voted for tens of billions of dollars in new bonds, including $11-plus billion in new water bonds, convened Monday to worry publicly about how the debts will be repaid from a state budget awash in red ink.

"We need to figure out how much borrowing we can realistically and sustainably afford," committee chair Noreen Evans said, terming bond costs "the Pac-Man eating up the general fund." Evans was one of the few Assembly members to vote against the water bonds.

Servicing outstanding general obligation bonds now costs the state more than $6 billion a year almost exactly the size of the current fiscal year's deficit and costs are expected to balloon as more authorized, but unissued, bonds hit the market.

Treasurer Bill Lockyer and the Legislature's budget analyst, Mac Taylor, told legislators that they expect bond service to hit 10 percent of state spending in a few years, twice the level that most authorities deem prudent. And Lockyer noted that California, which has the nation's lowest credit rating because of its persistent budget deficits, pays higher interest rates than many Third World countries.

That's not only a fiscal problem but a political one. It's dawned on groups dependent on the state budget especially government worker unions that a dollar spent on bond service is a dollar that's not available to them. Thus, liberal lawmakers who support more debt to finance more spending are running afoul of liberal groups who want to spend very limited state dollars elsewhere which is why some unions may oppose the water bonds.

California has $83.5 billion in "outstanding long-term debt," Lockyer told the committee, mostly general obligation bonds. The cost of servicing that debt has increased 143 percent in the last decade, while general fund revenue is up just 22 percent.

One big push came in 2006 when Gov. Arnold Schwarzenegger, seeking re-election, persuaded the Legislature and voters to approve nearly $40 billion in new public works bonds. But only a third of those bonds (and another $5 billion placed on the ballot via initiative) have been sold, a big chunk of the nearly $50 billion in as-yet-unsold bonds still to be peddled if they can be peddled.

"There's quite an appetite for new projects but I haven't figured out yet how we'll pay for them," said Lockyer, who's become a debt critic and believes the state needs a "master plan" for financing future infrastructure. He said California's reputation for financial irresponsibility has damaged its ability to borrow and, "It's going to make it harder and harder."

So we have another crisis born of political expediency and another indication that California's governance has become utterly dysfunctional.
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