California addiction to debt proves costly Sunday, March 6, 2011 Schools, taxes, state workers' pensions, prisons - all of these topics get plenty of airtime in Sacramento when our elected leaders are wrestling with the state budget. But there's one big line item that doesn't get much attention, even though it's eating California alive: the cost of our debt service. In the next budget, the state will spend $6.6 billion on debt repayment. According to Moody's Investors Service, California's debt has tripled over the past decade. We wouldn't have to talk about slashing children's medical insurance and older people's in-home care or closing state parks if we weren't paying off the debt we've accumulated. California is addicted to debt. Not only are we in denial, but we're also not even attempting to face the problem. Legislators have already approved an $11 billion water bond for the 2012 ballot. A group of California mayors is floating the idea of a $1.7 billion bond issue to save redevelopment agencies, which Gov. Jerry Brown has targeted for elimination. Education lobbyists and stem cell officials are mulling a return to the ballot for more debt. Meanwhile, there's $42 billion in unused debt still hanging around from 2006, when voters approved an infrastructure package that was unaffordable then and even more unaffordable now. For years, Californians have encouraged this debt binge because we wanted services, and we didn't want to feel the pain of paying for them. Bonds were sold as a tax-free way to get everything we wanted. It turns out that there are costs to everything. Thanks to our structural deficit and what Standard & Poor calls "recurring episodes of insufficient financial liquidity," California has the lowest credit rating of any state. This means that bonds aren't even an affordable solution - taxpayers have to pay about $2 for every $1 borrowed. This situation is unsustainable and unacceptable. Brown seems sincere about sending California to debt rehab. The state will be taking a "moratorium" from bond sales in the spring, according to state Department of Finance spokesman H.D. Palmer. "Based upon our survey of state departments for bonds that they have ongoing, there's about $13 billion right now for projects that are under way," Palmer said. "So we don't think we're going to cause any problems by not going to Wall Street in the spring. And we'll use that time to determine how we can better use the proceeds we have and get more bang for our buck in the future." The spring moratorium is a good start, but it's not enough. Just paying off California's existing debt would require the state to stop issuing bonds for years, not months. Under that scenario, Californians would have to find new ways to pay for the things we want without borrowed money - and so far, the obvious solutions (higher taxes or fewer services) have proved too tough for voters. Even when our elected leaders eschew debt, the initiative process has made it easy for interest groups to put bonds on the ballot. This year's budget should serve as a wake-up call to voters. The annual cost of interest and principal on our debts is approaching the annual costs of higher education and the correctional system. And it may surpass these costs soon, if we keep passing more bonds. The better choice for California would be to spend our hard-earned tax dollars on future investments that will actually pay off - like education, for instance. Interest payments benefit only banks. We urge the voters to keep this in mind when they're faced with the next "cost-free" bond on the ballot. Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/03/05/EDEI1H57IL.DTL#ixzz1FpqAqonf
The problem runs even deeper when you look at individual cities. In Los Angeles, in 2015 public employee retirement benefits will consume 33% of the city's budget and servicing of bond debt will take another 8%. Los Angeles' unemployment rate is 13.5% ("u6" unemployment is over 22%) and the city's base revenues are decreasing. Within the next 3-4 years, Los Angeles will either have to declare bankruptcy or lay off almost half of its entire workforce just to pay its bills. I believe we're going to see a cascade of California cities declaring bankruptcy in the next few years. When I first moved to Orange County California in the early 1990's, the county declared bankruptcy but bounced back quickly because of the 90s Internet/technology boom, throngs of people moving into the state, and massive real estate development. More people are leaving California right now than are coming in and there's nothing on the horizon to save the cities this time around.
as somebody who lives in north county san diego, I think its great if people move away. it has become far too crowded. We need a long recession and city and state bankruptcy to bring CA back into balance.
I love California (even though I don't live there). It makes me sad that the current generation in charge is ruining the state.
Big Troubles in California that is for sure. State government is getting a quick and brutal lesson in basic physics. It is becoming clear that their stated goals for green energy are unrealizable. It all comes down to this simple immutable fact: It is dark at night. ...and its partner fact: The wind generally diminishes greatly at night. Slowly it is dawning on those in Sacramento that electric power is not storable, it is a commodity that must be used the moment it is generated (on the scale of a statewide grid). California only allows "grid tie" solar systems so there is no possibility for homeowners to store solar power in batteries during the day for use at night. A monumentally bad engineering decision. Big Time. Environmental groups and Indian Tribes have effectively killed any effort to construct large solar steam/collimating plants in the deserts and people are rejecting windmill installations statewide. So much for green technology and green jobs. All an illusion. If this country does not start building nuclear plants and commence domestic onshore and offshore drilling we are going to be held hostage economically by those supplying crude oil. Nothing worse than seeing a beautiful idea assaulted by a brutal gang of facts.