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MEGA-DEBT WITHOUT REWARD
An exclusive column penned for the FlashReport by George Passantino of the Reason Foundation.
October 30, 2006
[Publisher's Note: As part of an ongoing effort to bring original, thoughtful commentary to you here at the FlashReport, I am pleased to present this column from George Passantino of the Reason Foundation. The FlashReport recommends that voters reject the five bond issues on the November ballot, 1B, 1C, 1D, 1E and 84, and this column will help FR readers understand why! - Flash]
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$7,300.That is approximately what each household in California will be asked to cough up to pay for the $42.6 billion bond package on the ballot November 7th, should it pass.
While there is a clear consensus that our infrastructure is in desperate need of repair and expansion there is also a growing cynicism that saddling future generations with $84 billion in bond payments over the next 30 years represents more of the same fiscal irresponsibility we have come to expect from Sacramento.
Despite tens of millions of dollars in campaign spending to support these measures, a hearty array of endorsements from the likes of Governor Arnold Schwarzenegger, Challenger Phil Angelides, and a host of other elected leaders, voters are unenthusiastic about the bonds according to fresh data from the Public Policy Institute of California.
According to their most recent poll, 58 percent think the hefty bond package is too expensive, even though an even larger majority thinks that state government should pay for infrastructure improvements. It is, therefore, no wonder that none of the measures are tracking above the mid to low 50’s of support—hardly a good sign in a state where more than 10 percent of voters remain undecided and late voters tend to vote no.
Fortunately, as the public is increasingly learning, infrastructure can be a priority without issuing Mega-Debt to pay for it. In fact, there are three primary reasons that this bond package should concern voters.
Mega-Debt in a River of Red Ink
While the entire bond package is being billed as an investment in our future, supporters never mention that the state already has more than $45 billion in existing General Obligation or Lease-Revenue debt and another $30 billion in debt that has been authorized but not yet enacted. Sadly, few voters are aware of this reality—making the state akin to a family that spends freely with a credit card but never sees a monthly balance. California currently runs an ongoing deficit of $4 to $5 billion. The annual debt payments for these bonds would only add to the structural imbalance and threaten California’s quality of life.
Sadly, over the past few years, the Legislature and Governor have failed to enact the serious reforms contained in Schwarzenegger’s California Performance Review. This 2,500 page analysis of state spending, offered an estimated $32 billion in savings over five years, but virtually none of the reforms have been implemented.
Before Sacramento asks the taxpayers to cough up more money in the form of new debt, they should make better use of the more than $100 billion spent annually through the State Budget. In 1960, bonds accounted for only 16% of infrastructure spending. By 2003, that figure had skyrocketed to 76 percent. At the same time, “pay as you go” General Fund spending on infrastructure has almost disappeared.
As voters are clearly saying, infrastructure should be a priority. This means it should be a priority in the annual budget too. Dedicating as little as 5% of the annual General Fund to improving our transportation systems would have a far greater effect on our quality of life than the $19 billion Transportation Bond (1B).
Moreover, there are private sector investors that are eager to finance long-term infrastructure projects with private funds through innovative public-private partnerships, not taxpayer debt. Going back to taxpayers for money should be the last resort, not the first.
Bond Investments Likely to have only Limited Results
There is a rule of thumb that long-term debt should only be undertaken to fund long-term capital projects that will outlast their repayment schedule. While building new highways and bridges can be funded with long-term debt, you wouldn’t go to Best Buy and purchase a computer and finance it over 30 years. Sadly, many areas of the bond package do just that. For instance, in the transportation bond, $200 million will go to retrofitting buses and another $1.1 billion will go to improving security in ports, harbors, and transit systems. This money will be used for, among other things, installing new technology systems. In 30 years, much of that technology will be as cutting edge as the 8-track is today.
And far too much of the money will go to ongoing programmatic spending—similar to paying for your groceries with a 30-year loan. For instance, the Housing Bond (1C) would target $625 million of the borrowing on existing homeownership assistance programs (down-payment assistance and taxpayer-subsidized loans or grants). Proposition 1E and 84, which purport to focus on water supplies and resource protection, in reality represent a grab bag of funding for environmental programs, park and recreation facilities, and other non-infrastructure-related water programs.
In general, this bond package reflects what could be characterized as the “manure” approach to spending—spreading it around. Sadly, the bond funds are so broadly distributed geographically and functionally that they will have little impact to most people. While such an approach may be a winning political strategy it is a flawed policy avenue. You will never see a new major highway built with this money because it is spread so thin.
Bonds will Deflate the Cause for Infrastructure Reform
Sacramento often utilizes a “fire and forget” approach to problem solving. An issue will emerge as a public priority. A few largely symbolic steps will be taken to addressing the problem. This deflates the political momentum for the issue. Sacramento then turns to other issues. This bond package presents just such a danger—albeit a very expensive one.
Sadly, I have serious doubts that paying $84 billion and receiving only $42.6 billion will lead to a better California. Instead, if the bonds are approved, the public will, for a short time, believe that something is finally being done.
Only slowly, voters will realize that the roads are as congested as ever, housing is as unaffordable as ever, and our water supplies is under continuing strain. Unfortunately, the voters will have already shouldered the $7,300 per household yolk with no ability to change course.
Real reform will elude us. And generations forward will pay the price of this plan.
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