Posted on 11/07/2004 11:32:46 AM PST by NormsRevenge
SACRAMENTO -- Borrow, don't tax.
That appears to be Lesson No. 1 that lawmakers and interest groups can take away from last week's election.
Lesson No. 2: If you must impose a tax, do it on a group too small to vote it down, like the rich or smokers.
Voters approved two bond measures -- for stem cell research and children's hospitals -- that will cost the state about $7.5 billion to repay over 30 years.
They turned down a $500 million-a-year tax on telephone bills to pay for emergency services, but they approved a tax on millionaires to pay for mental health services that will generate $800 million a year.
"The cynical lesson is voters will approve spending so long as the bill comes due in the future, or falls upon somebody else," said Jack Pitney, a government professor at Claremont McKenna College.
Lawmakers and other analysts say it still remains politically and financially difficult for the state to borrow more money -- almost as difficult as proposing new taxes -- especially after borrowing so much this year to patch over the state deficit and passing a constitutional amendment that limits future borrowing for the state budget.
That means future debt proposals are likely to come not from the Legislature or the governor, but from outside interest groups looking to address their narrow needs.
"I think you're going to see a lot more of this on the ballot," said Assemblywoman Jackie Goldberg, D-Los Angeles, a member of the Assembly budget committee who favors tax increases over borrowing.
But every time the state's voters elect to borrow money without raising taxes, Goldberg said, it makes the Legislature's job that much harder. The money to pay off the debt has to come from somewhere, and that means it can crowd out funding for education, transportation and other services -- a subtlety often lost in political campaigns.
State Sen. Tom McClintock, R-Thousand Oaks, said borrowing simply passes this generation's problems onto the next.
"The problem, of course, with borrowing is the people you borrow it from generally like to have you pay it back," McClintock said. "In fact, my experience has been they insist on it and they charge interest. Borrowing is the most expensive possible way to finance any government enterprise, because it doubles the cost of the project."
And the problem with taxing the rich, McClintock said, is that the rich find it easier than most to move to other states, and take their businesses and tax revenue with them.
The millionaire income-tax for mental health services, he said, guarantees a certain level of spending. If the wealthy leave the state and the tax fails to generate enough revenue, the rest of the state's general fund -- financed through tax dollars paid by non-millionaires -- will be stuck with the bill.
Gov. Arnold Schwarzenegger remains strongly opposed to any new tax increases, a point he reiterated last week at a post-election press conference when he flatly stated: "I would always vote against a tax increase. I think it just doesn't work."
He argued that by creating jobs and expanding the economy, the state's tax base can grow enough to address its needs without raising taxes or making serious cuts. The state is expected to face a $6 billion deficit in the next budget year.
But Schwarzenegger -- who during the recall campaign promised to tear up the state's credit cards -- has also shown a willingness to borrow in the past year, proposing a $15 billion bond that voters approved in March to cover the state deficit and supporting the $3 billion stem-cell measure approved last week.
Administration officials note that there can be no further borrowing to pay for general-fund debt because of the second half of Schwarzenegger's economic recovery plan, Proposition 58, which voters passed in March to prohibit such borrowing in the future.
The state is making payments on some $40 billion in general-fund debt and it has authorizations for another $34 billion in debt that has not been issued yet, according to the Legislative Analyst's Office.
That figure doesn't include debt that is paid off through special funds, such as Schwarzenegger's $15 billion bond measure, which is funded through a dedicated existing tax.
The state will pay approximately $3.5 billion from its general fund this year just to service that debt, rising up to a peak of $7.4 billion in 2009-10.
The state's debt-service ratio -- its comparison of general-fund debt payment to state revenue -- is currently about 4.6 percent. That is down from its level of 5 percent in the mid-1990s, but is expected to start rising and hit up to 7.5 percent in 2008-09 before declining again.
"It's getting close to the point where you wonder if the voters realize they're going to have to repay this," said John Matsusaka, a business professor and president of the Initiative and Referendum Institute at the University of Southern California.
He said the state still has the capacity to borrow more, and noted that the major credit rating agencies recently upgraded California's ratings. But such proposals would have to come from the governor, not the Legislature, because he is much more popular.
"I think we're getting to the point where there's going to be some hard decisions for Schwarzenegger," Matsusaka said. "He has credibility, but he's really borrowed a lot now, and the question is really going to have to be what are you going to cut if you're not going to raise taxes?
"I think the next year will be really critical to see if he can actually do something about controlling spending -- otherwise he's going to start losing credibility."
Taxing millionaires just means that they will set up their legal residences in another state and forgo California taxes entirely. What a stupid tax.
I was agreeing with McClintock there for a while, but apparently he can't tell the difference between RESTRUCTURING DEBT (which is what Arnold has done, which had to be done, for CA to remain solvent) and taking on idiotic new debt and raising taxes to pay for wishlist projects, such as "mental health".
There is a BIG difference.
I am opposed to "tax the rich" to pay for "mental health", acquiring bonds to pay for a million good sounding causes, like "children's hospitals, police, stem cell research" and so on, while the state is squandering money in the General Fund on useless things.
The problem was that the ads were for those things, without mentioning the cost and there was no real opposition, as in opposition ads explaining to people that you have to pay the piper.
I still have ya under the "Work in progress" column anyway. ;-)
We'll keep chipping away. lol
I'm just glad I'll be out of this Godforsaken state when (not if) it tanks.
btw, all aRnie did was allow the dems off the hook and kept the spigots wide open on their spending on a multitude of social programs, which ironically, aRnie supports continuing to fund as well at current rates.
Some restructuring. ;-)
God bless our troops wherever they may be.
And apparently you have no idea of what "restructuring debt" means. $8.6 billion of Proposition 57 was to payoff prior year deficits that was to be covered by bonds approved under Gray Davis (although the Republicans were fighting it in court as unconstitutional). This was originally estimated to be $10.7 Billion, but was reduced after the final accounting for the year to $8.6 Billion. The Gray Davis bonds had NOT been issued as of the time Prop 57/58 passed nor was he likely to succeed in the court challenge, IMO.
Instead of this relatively modest bond measure (to be paid over 5 years), Arnold gave us a $15 billion dollar plan, the majority of which was used to supplement his excessive spending into the end of FY 2005. He extended the time for repayment, and included provisions where interest payments were deferred, making it an even more expensive proposition. Almost half of Arnold's bonds represented NEW DEBT, not a restructuring.
Despite the new borrowing, the Republican governor and Democratic state Controller Steve Westly have increasingly cast the bond proposal as nothing more than debt consolidation.
(snip)
Privately, state officials and financial experts familiar with the bond measure agreed that it would add new debt. But none would speak on the record, saying they did not want to upset Schwarzenegger.
I'm glad to see that you think "New Debt" is idiotic. I agree, and it is exactly what Arnold gave us. Apparently you are still among the group that wants to avoid truth and "not upset Schwarzenegger." I see no other reason why you continue to post lies on FR.
Decisions, decisions...
Ummmm.... are these mutually exclusive?
Actually, they are often sequential.
The voters have this allusion that a "Bond" is some kind of machine that sits in the corner and prints new money without any cost to the taxpayers...
Thanks to Arnold we have:
Fiscal Conservative? NOT! He's a borrow and spend liberal!
Just how was he helping this state again?
He thinks it will bring medical cures and the people self taxed themself by passing it. It was not passed by the legislature, but the people. That was bad enough.
The people passed it because he asked them to. Too many coolaide drinkers in this state. It is not tearing up the credit cards like he promised that is for sure. This one is solely his responsibility no matter how you look at it. And once again he is not making wise choices. He is not good for this state.
No, the people were going to pass it long before Arnold. The numbers on that one was way up there even before Arnold.
If anything, Arnold jumped on a horse that was already way in the lead.
He should have been against it plain and simple. That is what he campaigned on, tearing up the credit cards. He has not only reneged on that but continued the same borrow and spend policy.
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