McClintock is an expert on matters of the State
budget and fiscal discipline. He is a Senator
in the California State Legislature and ran
for Governor in the 2003 recall election. His
valuable website is found at www.tommclintock.com [McClintock index]
politicians admire Brown’s commitment to public works,
they would do well to study his discipline in public finance.
Brown was a fiscal conservative – he left the state
with a gaping deficit and a pile of debt. By the end of his
administration, the state had a $711 million general fund
deficit and total per capita spending had ballooned from
$856 to $1,442 (all in 2004 inflation-adjusted dollars).
Debt service costs had increased from 0.3 percent to 2.2
percent of the state’s general fund. But at least he
bought a lot of cool stuff.
standards, though, he was a paragon of fiscal restraint.
California’s operating deficit today is four times
larger than Brown’s – nearly $3 billion. Per
capita spending is over $3,000 -- twice that of Brown’s
final year. Today’s debt service consumes 5.9 percent
of the general fund – more than the entire University
of California budget and two and a half times the percentage
Schwarzenegger grapples with the resulting fiscal paradox
of crumbling infrastructure despite record spending and borrowing,
he should remember three principles of public debt that Brown’s
generation respected and that the current generation has
bonds should only be used for capital projects with a useful
life at least equal to the debt service. If our children
are called upon 30 years from now to repay a bond, they should
have the full benefit of the project built with that bond.
While Brown borrowed for lasting works like university buildings
and state hospitals, our generation has squandered long term
bonds to pay for day-to-day operating expenses, deferred
maintenance and equipment that is obsolete long before the
debt is repaid.
state bonds should be used only for projects that benefit
the entire state. Projects that exclusively benefit local
communities should be paid for exclusively by those communities.
A state university, for example, accepts qualified students
wherever they live in California – a local school does
not. In the past, state bonds were used for university facilities,
while local bonds paid for local schools. Today, state bond
funds are dolled out in a grab-bag of local pork projects,
literally robbing Piedmont to pay Pasadena.
revenue bonds, not general obligation bonds, should be used
for capital-intensive projects that provide direct services
to distinct users. A general obligation bond is repaid directly
by the state’s taxpayers. A revenue bond is repaid
by users of a particular project, such as a bridge financed
by tolls paid by bridge users. Today, general obligation
bonds are used indiscriminately, including a pending $10
billion high speed rail bond that would force taxpayers who
don’t use the train to pay for those who do.
seductive. They promise immediate gratification but they
conceal a heavy price. They are certainly the most expensive
way to finance projects, costing two dollars to retire every
dollar of debt. Moreover, the state’s borrowing capacity
is finite, requiring careful attention to priorities, since
debt once issued cannot be rescinded – only repaid.
And every dollar borrowed by this generation reduces the
ability of the next generation to meet its own needs.
understood this. His recent successors have not. And Gov.
Schwarzenegger is now dealing with the result. He must restore
the public works built by a generation of giants while discharging
a mountain of pointless debt racked up by a generation of
spendthrifts. Only by rigorously applying these principles
can he hope to do so. CRO