OUR VIEW: California's debt a huge budget hog
For years, we've warned that the California state government was accumulating too much bond debt, with responsibility for repaying it, of course, placed on the already-bowed backs of taxpayers. State Treasurer Bill Lockyer just released his 2011 Debt Affordability Report on the state's borrowing and the news is not good.
California's debt burden is 7.8 percent of the state's general fund budget of $88.5 billion for the current fiscal year that ends in June. That 7.8 percent is more than double the 3.4 percent of fiscal 2003-04. And, among the seven most populous states, California is second only to New York with the worst record, whether its debt is measured as a percentage of the state GDP, per capita or as a percentage of total personal income.
Payment on that debt for this year alone will be $6.9 billion. So often, bonds are little more than delayed tax increases, which are likely to be proposed at some point to assure the bonds are repaid.
The increased debt burden was caused by an unprecedented splurge on all kinds of projects in recent years, from parks to rail to propositions such as Proposition 55 in 2004, for $12.3 billion in school construction bonds — which, with interest, will cost $24.7 billion to pay off. Phil Angelides, the state treasurer at the time, promised, "California's economy is capable of supporting Prop. 55." No, it wasn't.
"This is an economic environment in which interest rates are going down," says Esmael Adibi; he's director of the A. Gary Anderson Center for Economic Research at Chapman University. "Yet despite the lower interest rates, the state's debt is increasing. When interest rates start going up — which is not if, but when — the result will be an even bigger part of the general-fund budget. This will mean less money for services."
Fortunately, 93.9 percent of the current debt is fixed-rate interest, Lockyer's office said Tuesday. Only 6.1 percent is in adjustable interest rates that will rise along with overall interest rates. State law limits adjustable-interest loans to 20 percent of the portfolio, but that is too high and should be reduced.
We also recommend:
1. A moratorium on new debt measures put on the ballot by the Legislature.
2. If bond measures are qualified for the ballot, voters need to say "no."
3. A moratorium on issuing bonds that have already been approved by voters, but not yet issued.
A good place to start would be for the Legislature to put on the June ballot a repeal of Prop. 1A from 2008, which called for $9.95 billion in bonds — at a total cost of $19.4 billion to pay off — for the California High-Speed Rail Authority. Little of that money has been spent, although $4.3 billion in federal money has been wasted on the same project.
California needs to get its finances in order. Pay-as-you go is a good budget philosophy for families, businesses — and governments.
