Are we Californians a bunch of drunken sailors? Even if very few
of us get any closer to the ocean’s surface than sitting on a sandy
beach, that’s what we’ve acted like for the last four years –
essentially since Arnold Schwarzenegger became governor.
Are we Californians a bunch of drunken sailors? Even if very few of us get any closer to the ocean’s surface than sitting on a sandy beach, that’s what we’ve acted like for the last four years – essentially since Arnold Schwarzenegger became governor.
It started with his $15 million budget balancing bond act, passed in 2004, the one he campaigned for by pledging to “throw away the credit card” if it passed. Well, it passed and will cost the state about $30 billion over 30 years, since eventual interest payments on government bonds generally total about the same as the original principal amount.
Schwarzenegger broke that promise, as he has many others. He’s backed other bonds for highway construction, water purification, school buildings and bridge building over the last four years. In all, we taxpayers have borrowed almost $60 billion in just over four years, an unprecedented total.
And there’s a good chance we’ll take out new loans for an additional $20 million in November, when four significant bond issues will be up for yes or no votes.
Every one of these things – like all the bond propositions of recent years – is for a good cause. The fall ballot features votes on funding for high speed rail that would eventually serve the bulk of the state between San Diego and San Francisco, with frequent service also to Sacramento, Los Angeles, Fresno and Bakersfield. Just to start that project, state legislators are asking voters to approve $9.95 billion in bonds.
There’s also almost $1 billion in bonds for building and renovating children’s hospitals. Another $5 billion is proposed for helping develop alternative fuel vehicles (read electric- and hydrogen-powered), with just short of $1 billion more proposed to help war veterans buy houses, condominiums and mobile homes.
Put them together, and over the 30-year repayment period, those bonds would cost taxpayers almost $32 billion. Combine that with what’s been borrowed in the last few years, and California is looking at repayment costs that might exceed $4 billion per year for 30 years to come. As the late U.S. Sen. Everett Dirksen once said when considering a federal budget, “A billion here, a billion there, and pretty soon you’re talking real money.”
Then there’s the small matter of tying the hands of future legislators. The state’s existing obligations to pay principal and interest on past bonds is one major reason for the budget battles that paralyze Sacramento each summer.
Yet, no one even considers an alternative to borrowing. There is one, of course. It’s called pay as you go.
If present lawmakers had any faith in themselves or in the courage of the legislators who will follow them, they’d stop borrowing. They would realize they could pay the same amount each year that they now spend on servicing bonds, complete all the projects now proposed, and pay them off 15 years earlier than under present proposals.
But they don’t even consider this.
Remarked Schwarzenegger the other day to a newspaper editorial board: “Don’t you see? Bonds are a gift from the future.” In his self-described wisdom, the governor doesn’t see bonds are really a way of tying the future’s hands and stealing its options.
No one else in Sacramento seems to understand this, either. “It’s the general consensus that bonding is the way to finance major government construction projects,” said one state Senate committee chair. “That way you have the money up front, it is reliable, and you don’t have to worry. Plus, the impact of inflation minimizes the real value of the payments you make.”
You don’t have to worry, that is, until you see what other programs must be cut because of all those massive interest payments.
Here are a few points to consider about pay-as-you-go: 1) Very few bond issues are spent all at once. The money is usually parceled out over a minimum of five years, and often much longer. Especially with major building projects like new freeways or rail lines, it can take a decade or longer before the state has even bought up the full right of way needed to begin construction.
2) If the public sees progress on a project like high speed rail or school renovation and continues to see a need for it, those projects will have no trouble getting general fund money from year to year. But in case of emergencies like earthquakes or large-scale fire reconstruction, pay-as-you-go allows for temporary suspension of some projects while money flows to more urgent ones.
3) You end up cutting the full cost of any construction in half.
But these facts are ignored by state legislators. They’d rather look like heroes and stars today with borrowed money than make life more secure for those who come later.
Which means one basic question before voters this fall is this: Will we continue trying to borrow our way into future showpiece projects, or will we wise up and start to solve our budget problems by saying no to bonds, regardless of how worthy their goals might be?
