Commentary

California’s Proposed Bonds are Fiscally Irresponsible

Bonds cost taxpayers nearly $2 for every $1 borrowed

A virtual alphabet soup of special interests has predictably lined up to support the $42.6 billion worth of bond initiatives on the November ballot. City and county officials, transportation agencies, housing advocates, environmentalists, school districts, and dozens of other groups are all pushing for the bonds because they will get billions of dollars from taxpayers for their preferred programs after failing to get them funded through the normal state budget process in Sacramento.

Some of the programs in the bond propositions might be justified on their own merits – if they were squeezed into the state budget. But long-term bond financing, the most expensive way to fund projects (costing taxpayers nearly $2 for every $1 they approve), should not be used to pay for current spending or ongoing programs.

The state is already borrowing and spending at an astronomical clip. Sacramento has increased general fund spending by 29 percent over the last three years. Despite billions of dollars in unexpected tax revenue — a 23 percent increase in revenues the last three years – the state government’s operating budget deficit is still $7 billion because of runaway spending.

And if all of the November bonds pass, California will add a stunning total of $80 billion in new debt. California is already paying off $55 billion in General Obligation debt, $10.5 billion from the recent “economic recovery” bonds. And then there’s the $30.5 billion in authorized debt that hasn’t been issued yet.

When individuals or families declare bankruptcy, overwhelming debt is often the cause. The problem isn’t necessarily buying a big house. A house is a physical asset that, particularly in California, tends to increase in value over time. Assets cost a lot, but we can finance them over time because they keep their value, and we simply need to earn enough money to make the payments.

We get into trouble when we start borrowing to spend beyond our means. Millions of families file for personal bankruptcy each year because their current paycheck can’t cover the expenses and the interest on the money they borrowed. Rather than sticking with the TV we have, we use the credit card to charge a new plasma screen.

And that’s what California is doing. Though advertised as infrastructure bonds to rebuild the state, much of the proposed bond money is slated for current, ongoing operating expenses for programs. These programs should be funded by the general fund, the state’s equivalent of a monthly paycheck, just like how typical families pay for basic expenses and not the credit cards.

Proposition 1B, for example, would cost California taxpayers $19.9 billion. The state undoubtedly needs more roads, but most of the bond money is earmarked for ongoing maintenance, transit funding, retrofitting busses, improving security on transit systems, and other non-infrastructure expenses. Thirty years from we’ll still be paying these bills — and our kids will be paying them – but we won’t have new roads to show for them because the money was spent to repair potholes.

Likewise, Proposition 1C will cost taxpayers over $2.85 billion to fund various housing programs. But many of the programs would not build or add housing. Instead they would fund planning initiatives, acquisition of land for parks, stop-gap funding for water and sewer programs, and providing direct subsidies to homebuyers.

Affordable housing is reaching crisis levels for millions of struggling families in urban areas like the Bay Area. California desperately needs to invest in new roads, bridges and levees. But there are right ways and wrong ways to achieve goals. Violating basic principles of public finance and pushing the state and its taxpayers toward bankruptcy is not one of the right ways.

Samuel Staley, Ph.D., is director of urban growth and land use policy at Reason Foundation, a free market think tank based in Los Angeles. He is co-author of the new book The Road More Traveled (Rowman and Littlefield, 2006) on the nation’s transportation and traffic crisis. An archive of his work is here and Reason’s California research and commentary is here.

Samuel R. Staley, Ph.D., is director of Urban and Land Use Policy for Reason Foundation and adjunct scholar of the Indiana Policy Review Foundation. Staley is co-author of the forthcoming book The Road More Traveled: Why The Congestion Crisis Matters More Than You Think, and What We Can Do About It. (Rowman and Littlefield, Fall 2006). An archive of his work is and Reason’s urban growth research and commentary is .

Samuel R. Staley, Ph.D. is a senior research fellow at Reason Foundation and managing director of the DeVoe L. Moore Center at Florida State University in Tallahassee where he teaches graduate and undergraduate courses in urban planning, regulation, and urban economics. Prior to joining Florida State, Staley was director of urban growth and land-use policy for Reason Foundation where he helped establish its urban policy program in 1997.

Staley is the author of several books, most recently co-authoring Mobility First: A New Vision for Transportation in a Globally Competitive 21st Century (Rowman & Littlefield, 2008). Texas Gov. Rick Perry aid Staley and Moore "get it right" and world bank urban planner Alain Bartaud called it "a must read for urban managers of large cities in the United States and around the world."

He is also co-author, with Ted Balaker, of The Road More Traveled: Why The Congestion Crisis Matters More Than You Think, and What We Can Do About It (Rowman and Littlefield, September, 2006). Author Joel Kotkin said, "The Road More Traveled should be required reading not only for planners and their students, but anyone who loves cities and wants them to thrive as real places, not merely as museums, in the 21st Century." Former U.S. Secretary of Transportation Mary Peters said, "Balaker and Staley clearly debunk the myth that there is nothing we can do about congestion."

Staley's previous book, Smarter Growth: Market-based Strategies for Land-use Planning in the 21st Century (Greenwood Press, 2001), was called the "most thorough challenge yet to regional land-use plans" by Planning magazine.

In addition to these books, he is the author of Drug Policy and the Decline of American Cities (Transaction Publishers, 1992) and Planning Rules and Urban Economic Performance: The Case of Hong Kong (Chinese University Press, 1994).

His more than 100 professional articles, studies, and reports have appeared in publications such as The Wall Street Journal, The New York Times, Washington Post, Los Angeles Times, Investor's Business Daily, Journal of the American Planning Association, Planning magazine, Reason magazine, National Review and many others.

Staley's approach to urban development, transportation and public policy blends more than 20 years of experience as an economic development consultant, academic researcher, urban policy analyst, and community leader.

Staley is a former chair for his local planning board in his hometown of Bellbrook, Ohio. He is also a former member of its Board of Zoning Appeals and Property Review Commission, vice chair of his local park district's open space master plan committee, and chair of its Charter Review Commission.

Staley received his B.A. in Economics and Public Policy from Colby College, M.S. in Social and Applied Economics from Wright State University, and Ph.D. in Public Administration, with concentrations in urban planning and public finance from Ohio State University.