California politicians are addicted to debt. For voters and taxpayers, it’s time to schedule an intervention. Let’s pick November 5th.
The amount of debt already assumed by state and local governments is easily in the hundreds of billions of dollars. In fact, if debt is defined as legally binding obligations that require future payment, this would include pension debt and promises for lifetime health benefits for public employees on top of more traditional debt such as general obligation bonds, revenue bonds, “certificates of participation,” and a host of other binding commitments. According to a 2022 analysis by the California Policy Center, this amount exceeds $1.5 trillion.
At the state level, politicians love debt because it gives them funding for their special projects or for rewarding their allies, yet they still are able to claim that they are not directly raising taxes. But under the category of “there’s no such thing as a free lunch,” all debt must be repaid at some point. And too much debt, be it servicing bond debt or paying pension obligations, crowds out the ability to meet current needs.
In a welcome development, it appears that voters are becoming increasingly suspicious of politicians who pretend debt is free money. The recent statewide bond measure to address homelessness, Proposition 1, barely passed despite proponents outspending opponents by 15,000 to 1.
Moreover, while Californians still rank education as one of the state’s top priorities, they remain unwilling to write blank checks for bonds being pushed by special interests that include developers and the bond industry. In March of 2020, voters rejected, for the first time in decades, a statewide bond for school construction.
This November, California voters will be asked to once again approve a $10 billion statewide school bond as well as a $10 billion “climate bond.” In addition, voters in nine Bay Area counties will confront a massive $20 billion regional “housing” bond. For myriad reasons, all three bond proposals deserve to be rejected.
First, the school bond. AB 247 reflects typical credit card math by Sacramento politicians because it would borrow $10 billion from Wall Street and then make taxpayers pay it back plus interest. Depending on interest rates, the total cost to taxpayers could easily exceed $18 billion.
While no one disputes the need for adequate school facilities, the problem is that the state’s education establishment has failed to make the case for more capital spending in an era of declining enrollments. And this measure also presents a huge threat to homeowners. While it is true that the bond itself – plus interest, of course – will be repaid out of the state’s general fund, local school districts are required to provide matching funds except on very rare occasions. Those matching funds are generated by local bond measures which are repaid exclusively by property owners.
Another problem with AB 247 is the preference for school construction projects that employ a “project labor agreement.” This is a transparent payoff to the politically powerful construction trade unions. But for taxpayers, PLA’s can easily add 25% to 30% to construction costs as well as exclude responsible construction companies from competing for the business.
As for the “climate” bond, this $10 billion proposal is a scaled-back version of the $15 billion bond introduced earlier in the legislative session. It’s no bargain. Now renamed the “Safe Drinking Water, Wildfire Prevention, Drought Preparedness, and Clean Air Bond Act of 2024,” it would borrow money to cover the expense of running ongoing programs. If the programs are worthwhile, they should be funded in the budget instead of racking up interest charges for 30 years.
In a nutshell, this proposal is inconsistent with the principles of sound debt financing. Bond financing can be justified where the cost of a major infrastructure project – at either the state or local level – is greater than could be funded directly from general fund revenues without making significant reductions in service. But proponents have not made the case for why this grab bag of various projects couldn’t be financed from the general fund, other than the self-inflicted “budget crisis.”
Finally, the largest affordable housing bond in California history will be decided by the voters in nine Bay Area counties. This regional bond proposal, which dwarfs all previous statewide housing bonds, will raise the property taxes on a typical home by thousands of dollars over the life of the bonds. The entire financial obligation will rest solely on the backs of property owners within the nine-county region. Given that homeowners are high-propensity voters, this bond from the Bay Area Housing Finance Authority is already facing organized opposition.
BAHFA is hoping for voter approval of ACA 1, which would retroactively lower the vote threshold for passing housing bonds from two-thirds to 55%. But taxpayers don’t like this kind of political gamesmanship, as evidenced by the negative polling on an earlier version of ACA 1.
An overarching problem for the tax-and-spend crowd is that, when voters are confronted with multiple proposals seeking more of their dollars, they could very well vote no on all of them just out of spite.
Spite or not, that would be the best outcome of all.
Jon Coupal is president of the Howard Jarvis Taxpayers Association.