Just Say No to More Bond Debt

In a column in today’s Orange County Register, Reason’s Adam Summers writes:

Not only is the era of big government not over, the era of paternalistic government rules the day, as lawmakers and bureaucrats dictate to their “children” subjects how they should live their lives, whether it be how they should save for retirement, what kind of health care they should be afforded, what kind of education their children should be given, or even what types of light bulbs they should be allowed to use. Sometimes, however, the roles are reversed. Sometimes the taxpayer has to play the strict parent and tell the government “No” when it asks to borrow more money. Voters will have the opportunity to do just that Nov. 4. Despite the California Legislature’s chronic inability to balance the budget and the current economic calamity of the housing and credit crisis, several bonds totaling nearly $17 billion are on the ballot. In this age of bailouts, the Legislature and the governor are using the bond measures as a sort of budget balancing bailout. They could not afford to include the programs in the normal annual budgeting process, so they are hoping the taxpayers will bail them out by approving even more debt. Gov. Schwarzenegger recently sent a letter to U.S. Treasury Secretary Henry Paulson warning that California may need a $7 billion emergency loan from the federal government just to cover its short-term, day-to-day operations. If the state couldn’t even afford to pay for its current services, how in the world can we even consider taking on more debt? Like many individuals and families, California has increased its borrowing significantly in recent years. In fact, the amount of general-obligation bonds authorized has more than tripled in six years, from $42 billion in 2002 to $135 billion today. The state’s debt-service ratio, the percentage of the state’s general fund that goes to paying the interest on the bonds the state sells, is estimated to surpass 6 percent in a couple years. According to the independent Legislative Analyst’s Office, the investment community gets nervous anytime a state’s debt-service ratio exceeds 5 percent to 6 percent. We’re already about to break that upper limit. Obviously, if more bonds are approved in this election, that ratio will get worse. The worsening economy means that the state government’s already fragile fiscal condition will also deteriorate. In passing the recent budget, lawmakers largely papered over a $15 billion budget deficit, pushing much of it onto next year (and perhaps several more years to come). Only three months into the fiscal year, the state treasurer is projecting that revenue will fall $3 billion below the estimates built into the budget. Add to this rosy picture the $16.8 billion in bonds on the ballot next month. They include: ïProposition 1A ââ?¬â?? $9.95 billion for a down payment on a boondoggle 800-mile high-speed rail system that is likely to cost much more than advertised and attract fewer riders than proponents claim. ïProp. 3 ââ?¬â?? $980 million for capital improvement projects at children’s hospitals (despite the fact that about $350 million of the $750 million from a bond passed for the same purpose just four years ago still hasn’t been spent). ïProp. 10 ââ?¬â?? $5 billion for various renewable energy, alternative fuel, energy efficiency, and air emissions reduction programs, most of it going to subsidize the purchase of alternative-fuel vehicles. ïProp. 12 ââ?¬â?? $900 million for the veterans’ farm and home loan program (despite the fact that housing markets are crashing, and we simply can’t afford it right now). Given the current condition of the economy in California, even the best bond measures should be rejected in the name of fiscal sanity. The proposals on the Nov. 4 ballot do not even meet this standard. Legislators and the governor have shown they are adept at quibbling like children, but incapable of making sound fiscal decisions. It is time for taxpayers to be the responsible adults and simply say “No” to more borrowing and spending.