For Taxpayers, Bonds Are A Gamble
Forgetting restraint…
[by Jon Coupal] 1/12/06

While the governor campaigned up and down the state last fall for his reform measures, he stressed the importance of Proposition 76 -- a very modest restraint on state spending -- by saying California needed more: more water, more energy, more schools, more of everything. Few observers made note of the seeming contradiction between slowing the growth in state spending and the need to pay for additional construction programs.

Now that his plan for $68 billion in new bonds to fund infrastructure has been fully revealed, the intent of his earlier remarks is clear. By reducing the growth in autopilot spending that has shackled the state with an ongoing structural deficit, the governor hoped to free up budget money for infrastructure improvements, as well as restore the state's credit rating, which is currently in the cellar, so that bonds could be approved at a reasonably inexpensive rate of interest.

Although voters rejected the governor's reform plans, he is pressing ahead with new debt and spending. Perhaps the blow of his special election losses has been softened by the fact that an improving economy is generating what is likely to be a onetime state surplus. Although an analysis by Elizabeth Hill, the state's legislative analyst, concludes that next year California will return to the structural deficit conditions created by the disgraced Gray Davis and his big-spending allies in the Legislature, the current governor and lawmakers are already discussing how to spend the additional revenues on program expansion.

Back at the millennium, when the state was riding high with surpluses -- $28 billion over three years -- taxpayers advocated spending the extra money on onetime expenditures like schools and infrastructure improvements. If revenues subsequently declined, which they did when the dot.com bubble burst, the state would not be obligated to fund expanded programs, and residents would enjoy the benefits of new schools and highways, without the need to approve expensive new bonds.

Still, the governor deserves some credit for acknowledging a genuine need to overcome years of neglect of the state's facilities and infrastructure and for his desire to build for the future. The fact that he has broken up his spending plan into increments over a number of election cycles will be appreciated by voters, who can focus on the merits of each individual program, rather than having to approve one giant "Christmas tree" hung with myriad projects, artfully designed to distract the eye from careful evaluation.

However, $68 billion in new debt -- nearly $140 billion including interest -- is enough to induce shock and awe in even the most jaded taxpayer. What will assure that taxpayers will be getting good value for their money? Even these incremental bonds, like an elephant cut out of a herd, are still huge and hard to thoroughly examine.

Taxpayers would feel more comfortable knowing that monies will be spent where promised. Flood control monies should go to flood control and not to open space purchase or other unrelated programs, which should be voted on separately. Money for highways should go to highways, and not to bullet trains. Once programs are funded, taxpayers should receive assurance that they are being built in the most economical manner possible, including the use of private contractors where warranted.

Taxpayers will continue to be skeptical until all of the details are revealed, and maybe even after that.

It is our hope that the governor and the Legislature, looking at an election year, do not decide to use the temporary surplus to screen out the state's ongoing budget problems, so they feel free to promise more to everyone, from program expansions to a building program that would make the pharaohs blush.

If they choose this shortsighted approach, they are just whistling by the graveyard, where the reputations of Gray Davis and his fellow big-spenders are buried. CRO

copyright 2006 Howard Jarvis Taxpayers association

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