Debt for bonds looms over state

Published online on Saturday, Oct. 10, 2009

By its nature, politics is a short-term busi- ness and seemingly becoming more so, driven by 24/7 media cycles.

Conversely, the issues that politicians confront are becoming not only more complex, mirroring social and economic conditions, but longer term. And the conflict between those two trends largely explains why, for the most part, California's array of problems remains unresolved.

The short-term mentality is so pervasive that when someone looks beyond the immediate horizon, it's as startling as it is refreshing. And that brings us to a report that raises serious questions about our ability to meet infrastructure needs.

California voters have been very willing to approve bond issues for all sorts of activities, seduced by the claims that borrow- ing will not, unto itself, raise anyone's taxes, such as the $3 billion in bonds for stem-cell research. The result has been a steadily rising debt and potential debt that claims a steadily rising chunk of the state's deficit-ridden general fund.

The new report by Treasurer Bill Lockyer says that if the state issues the new bonds now envisioned and revenues continue to stagnate, debt repayment would grow from 6.7% of the general fund -- already relatively high -- to 10% or beyond by 2015.

"So it is more urgent than ever to arrive at con- sensus about infrastructure needs and financing costs and to incorporate careful debt planning into the budget process," Lock- yer says. He proposes creating a long-term decades-long infrastructure plan to replace the current election-by-election crapshoot.

The report was issued as Gov. Arnold Schwarz- enegger and legislators were wrangling over whether to place as many as $12 billion in new general obligation bonds before voters to finance not only physical improvements in the state's water system but what amounts to payoffs to various interest groups for their pet projects to win support.

A big new water bond, Lockyer warns in his report, is a "case study" on using GO bonds carelessly, warning that it would cut deeply into the state's ability to finance ongoing expenses.

"The case for user-funding for most water system improvements is compelling," Lockyer said, "both as a matter of equity and fiscal prudence."

Californians have treated bonds as a bottom- less pit of free money, but as with the state's chronic budget deficits, we are learning that there's no free lunch and that if we want something from government, we must be willing to pay for it.