Schwarzenegger's bond package facing a dicey fate at the polls

Scripps News ^ | July 27, 2006 | DAN WALTERS

[calcowgirl]

Last fall, when it was evident that Gov. Arnold Schwarzenegger's "year of reform" ballot measure package was doomed and had seriously eroded his popularity, he and his advisors began looking for a political life ring and hit upon "infrastructure" -- doing something about the state's badly neglected highways and other public facilities.

It was, in a sense, a natural choice. Schwarzenegger had assumed the governorship on a three-word slogan, "recover, reform and rebuild." The first referred to the chronically and dangerously unbalanced state budget, the second to making the political system more responsive and the third to improving the infrastructure.

Although Schwarzenegger was unable to balance the budget and his reform package was destined for voter rejection, the decision was made to plow ahead on infrastructure...

By championing infrastructure and winning legislative approval, Schwarzenegger has already reaped much of its political benefit, especially among all-important independent voters and moderates who cherish the notion of bipartisan cooperation.

... new statewide Field Poll ... The poll found support slipping for even the most popular of the bond proposals, a $19.9 billion transportation measure (Proposition 1B), from 57 percent in May to 54 percent now, while none of the others reaches the 50 percent level and the $2.8 billion housing bond (Proposition 1C), is gasping at just 33 percent.

Proposition 1E would spend $4.1 billion on levee improvements, primarily in Northern California, which could make Southern California acceptance uncertain.

It poses a dilemma for Schwarzenegger and other politicians and interest groups, such as construction companies and unions, who want the borrowing to be approved: Whether to concentrate on the measures faring the best, such as the transportation bond and $10.4 billion for schools (Proposition 1D), or continue to pursue a one-for-all, all-for-one approach that could endanger them all.

[kellynla]

"dicey?"
any bond issue is D.O.A.

has it cooled off any in MB?

[Digger]

The public have now grasp the affects of these bonds? Naw. It can't be true.

[calcowgirl]

I hope you're right about the DOA.
Hopefully as people read these things they'll realize they are smoke and mirrors.

Cooled off? A couple degrees, maybe. The ordinary ocean breeze is MIA.

[calcowgirl]

Here's to hoping!

[DoughtyOne]

Someone should float a measure to pay down the state debt with the increased revenues. I'll vote for that before I sign on to any more bonds.

[NormsRevenge]

California Legislative Analyst's Office

November 7, 2006 Ballot Measure Analyses for Public Display
July 25, 2006

HTML

Summary

[NormsRevenge]

November, 2006

An Overview of State Bond Debt

This section provides an overview of the state’s current situation involving bond debt. It also discusses the impact that the bond measures on this ballot would, if approved, have on the state’s debt level and the costs of paying off such debt over time.

Background

What Is Bond Financing? Bond financing is a type of long-term borrowing that the state uses to raise money for various purposes. The state obtains this money by selling bonds to investors. In exchange, it agrees to repay this money, with interest, according to a specified schedule.

Why Are Bonds Used? The state has traditionally used bonds to finance major capital outlay projects such as roads, educational facilities, prisons, parks, water projects, and office buildings (that is, infrastructure-related projects). This is done mainly because these facilities provide services over many years, their large dollar costs can be difficult to pay for all at once, and different taxpayers benefit over time from the facilities. Recently, however, the state has also used bond financing to help close major shortfalls in its General Fund budget.

What Types of Bonds Does the State Sell? The state sells three major types of bonds. These are:

• General Fund-Supported Bonds. These are paid off from the state’s General Fund, which is largely supported by tax revenues. These bonds take two forms. The majority are general obligation bonds. These must be approved by the voters and their repayment is guaranteed by the state’s general taxing power. The second type is lease-revenue bonds. These are paid off from lease payments (primarily financed from the General Fund) by state agencies using the facilities the bonds finance. These bonds do not require voter approval and are not guaranteed. As a result, they have somewhat higher interest costs than general obligation bonds.

• Traditional Revenue Bonds. These also finance capital projects but are not supported by the General Fund. Rather, they are paid off from a designated revenue stream—usually generated by the projects they finance—such as bridge tolls. These bonds also are not guaranteed by the state’s general taxing power and do not require voter approval.

• Budget-Related Bonds. In March 2004, the voters approved Proposition 57, authorizing $15 billion in bonds to help pay off the state’s accumulated budget deficit and other obligations. Of this amount, $11.3 billion was raised through bond sales in May and June of 2004, and $3.7 billion is available for later sales. The impact on the General Fund of paying off these bonds is an annual cost of about $1.5 billion. (Current law also allows for additional debt-service payments from the Budget Stabilization Account—BSA—established by Proposition 58 in order to pay off the bonds earlier.) The bonds’ repayments are also guaranteed by the state’s general taxing power.

What Are the Direct Costs of Bond Financing? The state’s cost for using bonds depends primarily on the amount sold, their interest rates, the time period over which they are repaid, and their maturity structure. For example, the most recently sold general obligation bonds will be paid off over a 30-year period with fairly level annual payments. Assuming that a bond issue carries a tax-exempt interest rate of 5 percent, the cost of paying it off with level payments over 30 years is close to $2 for each dollar borrowed—$1 for the amount borrowed and close to $1 for interest. This cost, however, is spread over the entire 30-year period, so the cost after adjusting for inflation is considerably less—about $1.30 for each $1 borrowed.

The State’s Current Debt Situation

Amount of General Fund Debt. As of July 1, 2006, the state had about $45 billion of infrastructure-related General Fund bond debt outstanding on which it is making principal and interest payments. This consists of about $37 billion of general obligation bonds and $8 billion of lease-revenue bonds. In addition, the state has not yet sold about $30 billion of authorized general obligation and lease-revenue infrastructure bonds. Most of these bonds have been committed, but the projects involved have not yet been started or those in progress have not yet reached their major construction phase. The above totals do not include the budget-related bonds identified above.

General Fund Debt Payments. We estimate that General Fund debt payments for infrastructure-related general obligation and lease-revenue bonds were about $3.9 billion in 2005-06. As previously authorized but currently unsold bonds are marketed, outstanding bond debt costs will peak at approximately $5.5 billion in 2010‑11. If, in addition, the annual costs of the budget-related bonds are included, total debt-service costs were $5.1 billion in 2005-06, and will rise to a peak of $8.4 billion in 2009-10. (These amounts assume additional repayments from the BSA.)

Debt-Service Ratio. One indicator of the state’s debt situation is its debt-service ratio (DSR). This ratio indicates the portion of the state’s annual revenues that must be set aside for debt-service payments on bonds and therefore are not available for other state programs. As shown in Figure 1, the DSR increased in the early 1990s and peaked at 5.7 percent before falling back to below 3 percent in 2002-03, partly due to some deficit-refinancing activities. The DSR then rose again beginning in 2003-04 and currently stands at 4.2 percent for infrastructure bonds. It is expected to increase to a peak of 4.8 percent in 2008–09 as currently authorized bonds are sold.

Effects of the Bond Propositions on This Ballot

There are five general obligation bond measures on this ballot, totaling $42.7 billion in new authorizations. These include:

• Proposition 1B, which would authorize the state to issue $19.9 billion of bonds to finance highway safety, traffic reduction, air quality, and port security.

• Proposition 1C, which would authorize the state to issue $2.85 billion of bonds for housing and development programs.

• Proposition 1D, which would authorize the state to issue $10.4 billion of bonds to finance kindergarten through university education facilities.

• Proposition 1E, which would authorize the state to issue $4.1 billion of bonds for flood control projects.

• Proposition 84, which would authorize the state to issue $5.4 billion of bonds to fund various resource-related projects.

The first four measures make up an infrastructure bond package approved by the Legislature and Governor. The fifth measure was placed on the ballot through the initiative process.

Impacts on Debt Payments. If the $42.7 billion of bonds on this ballot are all approved, they would require total debt-service payments over the life of the bonds of about twice that amount. The average annual debt service on the bonds would depend on the timing of their sales. If they were sold over a 10-year period, the budgetary cost would average roughly $2 billion annually.

Impact on the Debt-Service Ratio. Figure 1 shows what would happen to the state’s DSR over time if all of the bonds were approved and sold. It would peak at 5.9 percent in 2010-11, and decline thereafter.

Prepared by the Legislative Analyst’s Office

[calcowgirl]

Ironic, isn't it?

By approving massive increases in spending, they make the debt service ratio appear more favorable.

No more worries about that deficit spending.

[Lancey Howard]

Who in California is going to have the resources to fight the bond issues? Nearly every scumbag politician, union mouse, and parasite in the state wants these bonds passed. So who is left to take the fight to the airwaves?

This will be the most one-sided campaign in history.

[kellynla]

"I hope you're right about the DOA."

well you keep up with this things better than I,
besides the stem cell research what was the last bond issue that passed??? folks have gotten wise to the bond BS.

"A couple degrees, maybe. The ordinary ocean breeze is MIA."

same down here

say, I've got to drive to Van Nuys tomorrow
how's the 405 from OC to the Valley,
any problems/construction that you know of???

[kellynla]

well CALCOWGIRL and others keep up with the bond issues better than I but folks who pay taxes are the ones who show up to vote and they have gotten wise to the bond issue BS

JMO

[calcowgirl]

RECENT BOND MEASURES

March 7, 2000
12 - Passed - Safe Neighborhood Parks, Clean Water, Clean Air, and Coastal Protection Bond Act of 2000.
13 - Passed - Safe Drinking Water, Clean Water, Watershed Protection, and Flood Protection Bond Act.
14 - Passed - California Reading and Literacy Improvement and Public Library Construction and Renovation Bond Act of 2000
15 - Failed - The Hertzberg-Polanco Crime Laboratories Construction Bond Act of 1999.
16 - Passed - Veterans Homes Bond Act of 2000.
26 - Failed - School Facilities. Local Majority Vote. Bonds, Taxes. Initiative Constitutional Amendment and Statute.

November 7, 2000
32 - Passed - Veterans' Bond Act of 2000. A.B. 2305.
39 - Passed - School Facilities. 55% Local Vote. Bonds, Taxes. Accountability Requirements. Initiative.

March 5, 2002
41 - Passed - Voting Modernization Bond Act of 2002. (Shelley-Hertzberg Act). AB 56.

November 5, 2002
47 - Passed - Kindergarten-University Public Education Facilities Bond Act of 2002. A.B. 47.
50 - Passed - Water Quality, Supply and Safe Drinking Water Projects. Coastal Wetlands Purchase and Protection. Bonds. Initiative.

March 2, 2004
55 - Passed - Kindergarten-University Public Education Facilities Bond Act of 2004.
57 - Passed - The Economic Recovery Bond Act.

November 2, 2004
61 - Passed - Children's Hospital Projects. Grant Program. Bond Act. Initiative Statute.
71 - Passed - Stem Cell Research. Funding. Bonds. Initiative Constitutional Amendment and Statute.

June 6, 2006
81 - Failed - California Reading and Literacy Improvement and Public Library Construction and Renovation Bond Act of 2006

[kellynla]

Excellent post, Marine!

It should be on the front page of every major newspaper in CA come November

[Munson]

The Republicans should of had a counter initative, a Pay as you go infrastructure proposition.

[kingu]

Someone should float a measure to pay down the state debt with the increased revenues. I'll vote for that before I sign on to any more bonds.

The state is experiencing dramatic improvements in revenues; the legislature is spending it as fast as it comes in (well, faster, actually.) So all your measure would do would be to free up the money that is currently paying down the debt so they can spend it on more pet projects.

The capacity for Sacramento to spend money is without limit.

[kellynla]

wow!
was I wrong! LOL
I had no idea so many bond issues had been passed.

guess folks weren't as smart as I thought

[calcowgirl]

The Howard Jarvis Taxpayers Association (John Coupal) started to take some hard (anti) positions.

http://www.freerepublic.com/focus/f-news/1530967/posts
Massive Bond Threatens State's Financial Future

AP actually wrote a pretty could expose of how bad the levee bond measure is, eluding to the fact that the other measures have similar problems with the lack of detail (which they definitely do).

See here (including post #1):
http://www.freerepublic.com/focus/f-news/1666494/posts
Gaps in levee bond raise concerns over flood fixes

And Jon Fleishman, who publishes the FlashReport, has been quite outspoken in opposition.
http://www.freerepublic.com/focus/f-news/1627068/posts
VOTE NO ON THE BONDS - They've been hijacked by gleeful Democrats

[calcowgirl]

guess folks weren't as smart as I thought

Yep!

Most likely you will see some here in the next few months telling us why we have to vote for these.

[Lancey Howard]

The problem is that Arnold wants the bonds, and the rat politicians (obviously) want the bonds. And the unions (including the teachers) want the bonds. That's a lot of money and a lot of TV and radio ads pushing "YES" on the bonds.

The Howard Jarvis folks are going to be outgunned, BIG TIME.

Good luck on stopping the bonds.