CA: Governor's bond plan depends on political, financial help

SACRAMENTO (AP) - Gov. Arnold Schwarzenegger's ambitious plan to spend $222 billion on a series of public works projects relies on several financial and political assumptions, potentially complicating his efforts to rebuild the state's freeways, transit systems, schools and levees.

Much of the money would come from sources outside state government - including the federal government and private investments that are all but certain.

The governor also will need a two-thirds majority of the Legislature to approve the proposal, where dissent already is evident, even within his own party.

And he needs voters to approve $68 billion in bonds over a series of elections that would exceed his own tenure even if he's re-elected in November.

"With issues this important, it's much more important to draft them well than to draft them quickly," said Assembly Speaker Fabian Nunez, D-Los Angeles. "To try to craft a 10-year to 20-year plan in just a few weeks is nuts. We have to be realistic about what is doable in this timeframe."

The governor's plan, announced Thursday during his State of the State address, is the centerpiece of his election-year agenda. Over two decades, it would provide hundreds of miles of new highway lanes, 2,000 school buildings, billions of dollars in flood-control improvements, new water storage systems and billions more for modernizing government buildings, such as courts and jails.

Legislation intended to implement Schwarzenegger's plan could be introduced next week. He hopes to put the first bond measure before voters in the June primary, but time to do so is running short. Jan. 26 is the statutory deadline for putting a measure on the ballot, but it can be extended by lawmakers. State Sen. President Pro Tem Don Perata said lawmakers could wait as long as April before placing a measure on a supplemental ballot.

The governor's plan asks voters to approve $68 billion in bonds over the next 10 years. The rest of the money would come from other sources, much of it from federal and local governments and the private sector - sources outside the state's control.

Administration officials said most of that money, about $100 billion, would come from existing sources. But it's unclear how much of that they can count on, especially from the federal government.

U.S. Rep. David Dreier said he supported Schwarzenegger's plan and believed the federal money needed would be available. But he conceded nothing was certain.

"There's no guarantee that everything will fall into place," he said during a Friday afternoon news conference with the governor in the east Los Angeles suburb of El Monte.

Assemblyman John Laird, D-Santa Cruz, noted that for every dollar California taxpayers pay to the federal government, just 79 cents is returned to the state. He said recent cuts imposed by Congress will make that ratio smaller.

There also are questions about whether some counties will need to raise taxes to fully participate in the governor's program. Under the plan, some local money will be required to match the state bond money, and some communities may not be able to do that without raising taxes.

The plan also counts on at least $14 billion in private investment - a figure the governor's office calls conservative. One potential example: The governor's office says shipping companies are willing to invest money in improving roads if access is improved at the state's ports.

Earlier in the day, using a spillway on the American River as a backdrop to highlight his plan for levee improvements, the governor said planning for the future is critical because a population boom is coming.

"As I said yesterday in my State of the State address, the people will be coming and California will be growing, and the needs will get larger and larger, if we build or not," he said. "So therefore it is much better to think 20 years ahead, and to really create a great, great future for California. We need more schools and we need more roads and we need more hospitals and we need to fix our dams."

The governor's plan faces an uncertain future in the Legislature, where a two-thirds majority will be required to put it on a ballot. Several Republicans said they want to see more private industry involvement in public works projects and fewer environmental controls.

"We need to be innovative about getting more bang for our buck by harnessing private initiative, demanding quicker design processes and reforming overly burdensome and bureaucratic environmental laws that have crippled this state," said Sen. Dennis Hollingsworth, R-Murrieta.

The assumed cost savings of using private enterprise was disputed by Ted Toppin, a spokesman for the 10,000-member Professional Engineers in California Government. He said it costs less to use state employees than private firms to do design work.

Whatever plan emerges from the Legislature, voters will have the final say. They will be asked to vote on the program five times between this year and 2014.

The financing questions and sheer scope of Schwarzenegger's plan make its prospects uncertain once it goes on a ballot.

"First is the price tag - it's huge, and the financing details are fairly complex," said Bruce Cain, director of the Institute of Governmental Studies at the University of California, Berkeley. "People are going to want to know how realistic is it that you are going to get this money."

Even some of the governor's most reliable supporters have questions about the largest proposed public works package in California since the freeway- and school-building spree of the 1960s.

Jon Coupal, president of the Howard Jarvis Taxpayers Association, said the group is pleased with Schwarzenegger's efforts to improve the state's business climate and his refusal to raise taxes.

"But we have concerns about the magnitude of the debt that's being talked about here," he said.

One weakness, he said, is that repayment of the bonds is dependent on a good economy, a condition that can change.

"All of these assumptions make the plan problematic, which is why we are treating it as a starting point," said Laird, the assemblyman.

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.

I like the general idea of bonds targeted to specific infrastructure programs. However .....

San Diego County passed specific sales tax increases for additional jails and highway relief around 1988-1990. I worked for the County of SD at that time, and BEFORE the taxes were approved by the voters, the various departments had already divvied up the proceeds. True, every nickel collected from the additional 1 cent sales tax increase went directly into prisons and transportation. However, the Board of Supervisors merely reallocated funds from the "General Fund" that used to be spent on transpiration and prisons, so the net increase in funding was much less than the sales taxes collected, and every other department (including social services) gained from the tax increase as well. In other words, the "targeted" tax increase was no different than any other tax increase, i.e. the politicians spent it on their favored programs, not those for which the tax was passed.

And, NO DEMOCRAT POLITICIAN favors additional or improved roads, except in the politically influential SF Bay area, which gets $0.70 of every tax dollar back (in contrast to about $0.40 per $1 in San Diego and Orange Counties). The only "transportation" roadways which will be improved will be those which carry buses or trolleys.

San Diego County's Transportation management agency (SANDAG, and probably other counties work the same way as well) spends $0.85 of every transportation tax dollar on MASS TRANSIT, including the auto gas taxes and DMV auto tag fees which account for most of the transportation revenue. SANDAG spends $0.15 of every dollar on highway maintenance. There has been NO new highways built in San Diego County in over 30 years. [b]The fact that there is no money for new highways or additional highway lanes in California is by design. SANDAG's latest released 40 year plan continues that policy, i.e. no new publicly funded highways or extensions. The goal is to get Californians to voluntarily relinquish their right to drive an automobile, and to play for the mass transit alternatives using the California auto drivers.

Bottom line: Arnie can plan all he wants. The only thing he will succeed in doing, however, is raising the funds. The Democrats will authorize any and every means to raise taxes and increase funds coming to the public treasury. Once they have the money, they will do whatever the heck they want with the new money, and it won't involve building the public infrastructure Californians actually require.

The Governor is either woefully ignorant of the reality of California leftist politics, or has been wholly captured by the Democrat-left. Based on who he has just hired as his advisers and Chief of Staff (top Grey Davis Democrats), I'd say Arnold has just become a born-again, free-spending Democrat.

SFS

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