Reason Foundation

Reason Foundation

Orange County Register

Just Say 'No' to More Bond Debt

Voters have to supply the fiscal restraint Sacramento lacks

Adam Summers
October 23, 2008

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:

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.

Adam Summers is Senior Policy Analyst

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