Instant Gratification, California-Style

Ron Chapple

While feathers are flying over pension reform, another major cost to the state has virtually escaped scrutiny: interest on bonds.

These handy methods of finance allow immediate construction of various infrastructure components - bridges, roads, hospitals - to name a few, with the pay back taking place over 30 or 40 years. It's instant gratification, California style.

California has abused bonds to death.  In fact, California is now one of the most indebted states in the nation. How bad is it? Today California is 7th among all states in its ratio of public debt to personal income; the state ranked 22nd only a decade ago.

Viewed another way, each resident in California--man, woman and child--owes $2,362 in interest on all of California's bonds currently being serviced. Multiply that times 38,000,000 and you're talking about more than $80 billion in bond debt--more than the entire general fund state budget for the coming fiscal year.

Plus, there's another $42 billion in bonds that have been authorized but have not been purchased. Once those bonds are put in play, interest payments could go up another 50 percent.   

Most of the damage in approving bonds has been done by voters, not the legislature. Some of the bond commitments we've undertaken over the past decade include $3 billion for stem cell research, $10 billion for high speed rail, and $14 billion

for water, the environment and parks. But the most outrageous bond commitment occurred in 2004 when the voters passed a $15 billion to make up the state's budget deficit that year. Talk about credit card addiction.

Today California's bond credit rating ranks dead last--50th of the 50 states, which means we pay the highest interest rates on the bonds purchased by the state.

All this comes at a huge cost. When the next fiscal year begins, the state budget will have to commit nearly $8 billion in interest on the bonds that have already been purchased. That figure will be more than 10 percent of the entire budget.

Think of what $8 billion could do for public schools, the university systems, or transportation.

Moreover, local redevelopment agencies are scurrying into the act to sell bonds just in case they are put out of business.

In the first two months of the year, redevelopment agencies sold $700 million of bonds; they sold $1.1 billion all of last year. Local taxpayers foot those bills, too.

The next time you see that oh-so-attractive bond proposal on the ballot, remember that voting to buy it today will mean less money for important public programs to millions of Californians for decades to come. 

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