Posted on 01/06/2006 10:51:53 AM PST by NormsRevenge
Tonight [Thursday] during Governor Schwarzenegger’s state-of-the-state address, it is widely expected the governor will call for up to $27 billion of bonds to be issued over five years as part of a 10-year, $100 billion public works program.
The bonds would pay to build roads, schools, jails, courthouses, levees and retrofit hospitals. If approved by two-thirds of the legislature, they would go on the June ballot for approval by the voters.
If issued, the bonds would add about $2 billion per year in principle and interest payments to California’s budget burden, adding pressure to increase taxes.
It’s this last issue that should most concern fiscally responsible people because unless we can reach agreement to restrain the rapid growth in other areas of the budget, issuing more debt will compound the budget mistakes of the Davis administration.
Instead of issuing more debt, we ought to consider market alternatives to having the state finance, design, and build new infrastructure.
In Texas, as an example, the state auctioned off the right to build and operate the 600-mile “Trans-Texas Corridor” from Oklahoma to Mexico. The contract calls for an initial private investment of $6 billion for a 316 mile four-lane toll road with an additional $1.2 billion being paid to the state for the right to operate the segment. Think about it: 316 miles of road with the state getting $1.2 billion and not a penny of government bonds issued.
Using the same model, California could obtain the environmental approvals for a truck tollway corridor from the ports of Long Beach and San Pedro to a point 50 miles distant in the Inland Empire and then auction off the right to build and operate the road to a private consortium. Other states exploring truck-only toll roads include Georgia, Virginia and Texas.
What about levees, must they be funded by government? In the Sacramento delta region relatively inexpensive farm land is converted to relatively affordable housing. One of the reasons why this land in inexpensive is that it often floods. This raises the question, why should residents of California who have paid a premium for land with no flood risk pay for people to settle in low-cost, but flood-prone land? The answer is they shouldn’t. Instead, private flood control districts linked to flood insurance premiums can be organized to reduce the flood risk though assessments to fund levees. As the flood risk is reduced, the insurance rates drop and the assessments can be reduced as well.
With transportation and levee improvements privately funded and built, it would allow the state to focus its infrastructure efforts on those areas that would be more difficult to fund through private means. This would reduce the debt burden on taxpayers and reduce the pressure to raise taxes.
Any interest in innovation out there? Or, must we be wed to the old ways of doing business?
A sampling of answers about state's debt and governor's bond plan
The Associated Press
http://www.bakersfield.com/state_wire/story/5811711p-5827880c.html
Q: What is the governor proposing?
A: Gov. Arnold Schwarzenegger is urging lawmakers to put $68 billion in general obligation bond measures on the ballot to help pay for $222.6 billion in transportation, flood control, school and certain other public works projects. The governor also is asking lawmakers to authorize the sale of another $800 million in lease revenue bonds, which don't require voter approval and sell at higher interest rates than general obligation bonds. The general obligation bond measures would be placed on ballots between 2006 and 2014.
Q: What is a general obligation bond?
A: General obligation bonds are a traditional way of paying for public works projects. Sale of the bonds needs voter approval and paying them off, with interest, is the first obligation of the state treasury.
Q: Why can't the state pay for Schwarzenegger's program without borrowing?
A: A number of legislators support using more of a pay-as-you-go approach to financing public works projects, but the sheer size of the governor's plan would make it difficult to finance just by using year-to-year state revenue.
Q: How much bond debt does the state have now?
A: As of Nov. 1, the state had nearly $53 billion in bond debt. Another $37.2 billion in bonds haven't been sold yet because the money hasn't been needed for the programs the bonds will finance.
Q: How much would Schwarzenegger's plan cost the state in interest?
A: It depends on the interest rate the state has to pay to bond buyers. For example, a 4.6 percent interest rate paid over 30 years would cost taxpayers about 85 cents in interest for every dollar in bonds sold, according to the legislative analyst's office.
Q: How good is the state's credit rating?
A: Not good, although there have been improvements in recent years. California is currently tied with Louisiana as the state with the worst ratings. That means it's paying about two-tenths of a percentage point more in interest on its bonds than states with the highest ratings. Steve Zimmermann, an official with Standard & Poor's, one of the nation's major bond rating houses, says the governor's plan shouldn't result in lower ratings and suggests California's ratings would improve if the state could eliminate persistent budget deficits.
Q: Would the governor's plan freeze out other bond proposals?
A: Possibly. Schwarzenegger also is urging lawmakers to approve a constitutional amendment that would limit annual debt service payments to no more than 6 percent of the state's general fund. Administration officials predict that debt service payments, now at 4.5 percent of general fund revenue, would climb to 5.91 percent in 2014 under the governor's plan before declining.
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Sources: Legislative analyst's office; governor's office; Standard & Poor's.
Assemblyman Chuck DeVore represents 450,000 residents of Orange County California’s 70th Assembly District..
And what was presented was a 10 year $200+ Billion package with almost $70 BILLION in general obligation bonds. I can see how well the Republican administration works with the Republican legislature!
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