The State of California is currently sitting on billions of dollars of uncollected debt that could be worth hundreds of millions of dollars on private debt markets. Rather than raise taxes on the hardworking people of California, state leaders should sell off debt to raise the cash we need—just like private businesses do.
Selling aging debt is a common practice in the private sector and has also been used successfully by many local governments. Selling debt makes a lot more sense than selling buildings you have to turn around and lease back.
The sale of these assets could provide much-needed one-time cash. Combined with rising revenues, these dollars could help protect priority programs and eliminate the perceived need to impose higher taxes on struggling Californians.
Today I called upon the Governor and legislative leaders urging them to consider such a sale in their ongoing budget negotiations.
Below is the text of my letter.
June 6, 2011
Dear Governor Brown and Legislative Leaders:
I am writing to suggest monetizing a portion of the billions of dollars in debt owed the State of California as a possible partial solution to our state’s budget deficit.
Based on my research to date, I believe a state sale of written-off debt and older accounts receivable could produce hundreds of millions of dollars in revenues for the state as soon as the 2011-12 fiscal year. In a preliminary conversation Mac Taylor, California’s Legislative Analyst, indicated to me that the concept is worthy of exploring.
Selling aging debt is a common practice in the private sector and has also been used successfully by many local governments. Although debt sales require a significant discount, a sale can produce much-needed cash that would otherwise be unavailable for the foreseeable future. The alternative approach, keeping old debts on the books at their full-face value, simply serves to create an illusion of value that doesn’t reflect reality.
Over the past ten years, with approval of the State Controller’s office, the Board of Equalization has written-off nearly $1.2 billion in debt. Although still lawfully owed, written-off debts are no longer actively pursued for collection.
Furthermore, as of April 30 nearly $559 million of the Board’s $1.9 billion in outstanding accounts receivable were older than five years. All or a portion of this older debt could also be sold.
Other California tax agencies, including the Employment Development Department and the Franchise Tax Board, have similar, if not larger, written-off debts and aging accounts receivable.
Other non-tax agencies, like the Department of Motor Vehicles and Department of Transportation, also perform revenue collecting functions and are likely owed significant debt, especially if they lack a dedicated collections division. A thorough review should be undertaken to determine what portion of this debt might also be monetized.
The sale of these assets could provide a much-needed one-time cash infusion. Combined with rising revenues, these dollars could help protect priority programs and eliminate the perceived need to impose higher taxes on struggling Californians.
Thank you for your consideration of this matter and your service on behalf of the people of California.
Member, State Board of Equalization