California: State government diving deeper into debt. Need to "cut up our credit cards."

Oakland Tribune ^ | July 1, 2002 | Steve Geissinger

[John Jorsett]

SACRAMENTO -- California's top officials are leading what critics call an unprecedented expansion and reshaping of the role bonds play in government finance, urging taxpayers to plunge tens of billions of dollars deeper in long-term debt for an array of needs.

In one of two major new strategies that are alarming critics, state and local officials are urging voters to pass bonds in historic proportions for infrastructure work, tapping the state's remaining capacity for borrowing as the last easy source of cash.

Three statewide bonds totaling more than $18.5 billion will be on the November ballot, along with numerous locally generated bond proposals. And more state bonds are planned, not only for the Nov. 5 election, but also for future ballots.

Though the state is already carrying about $25 billion in long-term debt, its top fiscal officials claim California could safely bear up to $80 billion by 2010.

Critics, however, fear the state is moving toward use of bond money to pay current costs in an erosion of the state's pay-as-you-go philosophy.

Attacking what they view as a dangerous course, one leading taxpayer advocate is warning that Cali-

fornia is entering the "Twilight Zone" financially, and the Republican candidate for state controller has called for a blanket moratorium on long-term borrowing.

In the other new strategy setting off critics' alarm bells, the Democratic governor and treasurer -- facing a huge budget deficit -- also have begun a refinancing scheme for already approved state bonds that is pushing imminent payoffs years into the future, according to records obtained by the Oakland Tribune under the state's Public Records Act.

In the fiscal reshuffling, more than $1 billion in bond payments that would have come due this year and next instead will be paid from 2003 to 2030, treasurer's office documents show. The bonds were approved by voters from 1988 to 1998 for schools, libraries, clean water, prisons, housing, mass transit and earthquake safety.

The treasurer's office acknowledged that the deficit-easing move this spring marked the first time the state has pushed bond payments into the future. Records show the state's other nine bond refinancings -- from 1993 through 2001 -- took advantage of lower interest rates without delaying payments.

Gov. Gray Davis and Treasurer Phil Angelides say the latest refinancing makes good economic sense.

They say it postpones costly bond payments, thereby helping to ease the staggering $23.6 billion budget deficit looming in fiscal year 2002-03, which begins today. Refinancing also saves millions of dollars over the long-term because of the current low interest rates, they say.

"This is a prudent, reasonable strategy that will help California get through the lean times and achieve savings in the near and long term," Angelides said. "The savings achieved through the bond sale will help reduce the need for budget cuts in vital services such as education, health care and public safety."

Similarly, Angelides and Davis say, bonds proposed for upcoming ballots to finance varying needs could be sold at the current low interest rates, with the state's debt load remaining within acceptable limits.

Independent analysts, in general, agree.

But Republicans and taxpayer groups fear the state is hopelessly mortgaging the future of its children, in part to fund current needs.

They say the $1 billion-plus saved as a result of the bond refinancings, for instance, will be mixed into the general pot of monies being used to close the $23.6 billion gap in the state's operating budget in the fiscal year starting July 1.

At the same time, critics fear, the postponement of bond payoffs means taxpayers will be burdened decades in the future with payments linked to school improvements, for instance, that will have worn out long before.

State Sen. Tom McClintock, a fiscally conservative Northridge Republican running for state controller in November, is so concerned he's calling for an immediate moratorium on long-term borrowing.

"Debt service is rapidly consuming an increasing portion of this and future budgets," says McClintock. "When you've just lost your job, you don't take out a home improvement loan."

McClintock has taken to traveling with what he calls the California Debt Clock.

"We're adding over $1 million in new debt per hour, and that's all money that will be tacked onto your future taxes unless we restore sound fiscal management to this state," McClintock says.

"The debt clock helps us communicate to fellow Californians that we need to eliminate the waste and out-of-control spending that's driving up our debt and fueling the call for more taxes," he says.

The interest in approval of new bonds, and in refinancing of existing bonds, picked up earlier this year amid a deepening state budget deficit, historically low interest rates on Wall Street, and pressing needs to expand and refurbish the aging infrastructure in a growing state.

The Democrat-dominated Legislature, at the request of Davis, approved a landmark measure that will put before voters a $25.3 billion school construction bond. The first $13 billion will appear on the Nov. 5 ballot.

"This will be the largest bond issue ever to go on California's ballot," says Davis. "And believe me, we need it. This will improve schools, modernize schools, build new schools and put California's hard-working men and women back to work."

It is but one of several proposed statewide, taxpayer-backed bond measures to address a variety of needs. Sen. Don Perata, an Oakland Democrat, is proposing a $1 billion bond measure for the November statewide ballot, for instance, that would fund various infrastructure and security improvements throughout the state.

"With the current economic outlook, we can't afford not to invest in our future," Perata says.

Likewise, local governments and a wide spectrum of special interests are eyeing similar measures at the local level.

In Oakland, for example, the city is developing a $190 million bond measure for the November ballot that would fund improvements to Lake Merritt and the channel, open space along the estuary, a sports center in East Oakland and an arts center in North Oakland.

The local measures need a two-thirds vote to pass, though local school construction bonds can be approved on a 55 percent margin. Since passage of a November 2000 statewide measure allowing the lower threshold for local education bonds, school officials say they have generally enjoyed a higher success rate.

Supporters of statewide bonds also are taking comfort in how voters have treated their proposals in recent elections. Of the 14 bond measurers on the last six ballots since 1996, voters have approved a dozen of them. Statewide bonds require only a majority vote for passage.

But critics say the one-two punch of local and statewide bonds will sharply jolt taxpayers.

"Taxpayers will be nailed at home in terms of property taxes for local school bond measures and then nailed in terms of general state taxes for any additional bonds that might be issued," says Lew Uhler, the Sacramento-based president of the National Tax-Limitation Committee. "It's going to be a nightmare."

The state's scramble to adopt and sell new bonds is playing out against the backdrop of the state's quest to sell $11 billion in bonds to reimburse state government for the costs of buying its way out of the power crisis last year.

Though the power bonds will be repaid by rate payers rather than taxpayers, they still figure in the minds of financial analysts assessing the state.

Wall Street, however, again demonstrated its confidence in California -- the fifth-largest economy in the world -- by embracing the state's need for billions of dollars in short-term loans in early June. A timetable for that bond sale remains indefinite, pending resolution of some legal concerns about the repayment arrangements.

Angelides has urged the state to issue about $25 billion in new bonds over the next four years to take advantage of low interest rates not seen for 30 years.

The state's current ratio of annual bond payments to general-fund total is lower than that of many large states, says Angelides.

California's bond debt totals about $25 billion. There are, in addition, nearly $14 billion in bonds already authorized by voters but not yet issued.

The current $3 billion in annual bond payments amounts to less than 4 percent of California's general fund, which is comfortably below the 6 percent experts consider reasonable. Under the treasurer's plan, annual bond payments would rise to about 5 percent.

And Angelides says that if the state were to commit a full 6 percent of the general fund to debt service by 2010, California could let its bond total climb to about $80 billion.

But critics say that if all the bond proposals under consideration actually wind up on ballots and are approved, the total annual bond payments would exceed prudent levels.

"How do we shoulder this load?" says Uhler. "We're placing ourselves in real jeopardy. This bodes ill for California."

The state's new strategy of existing bond refinancings that push payments into the future adds a troubling twist to the problem, according to critics.

"Things have become so bizarre and so into the 'Twilight Zone' here in California in terms of fiscal practices that little is surprising to me now," Uhler says.

After initially ignoring Angelides' bond-refinancing plan, Davis embraced the strategy earlier this year when the governor abandoned a proposal to postpone payments to the state employees' retirement fund.

"We wanted to put together what we think is just a smarter package," says Tim Gage, Davis' finance director.

The plan actually costs the state more in interest over the long run but, when adjusted for the declining value of the dollar in the future, saves California about $21 million by 2030, according to treasurer's office records.

It also levels future bond payments, ironing out fluctuations in debt service, and embraces a variable interest rate that officials say doesn't pose the same financial risk as those offered in home mortgages.

More importantly to officials coping with the huge deficit, it postpones more than $1 billion in looming bond payments, without exceeding time limits in the bond-authorizing ballot measures for retiring the debt.

With the first phase of the so-called Strategic Debt Management Plan completed, Angelides expects to carry out a second phase in fiscal year 2003-04 that would delay another $964 million in payments.

One of the plan's critics, however, is seeking the opportunity to block that second phase -- Redwood City accountant Greg Conlon, the Republican nominee to replace Angelides in November.

"It's a sad situation. They're covering up deficits that otherwise would be there," Conlon says. "We don't want to mortgage our future."

"Until we can establish that we're not jeopardizing our credit rating by issuing new debt," he says, "we need to cut up our credit cards."

[Grampa Dave]

Will anyone even use that boardwalk?

That whole area re the politicians seems to have inhaled too much from the 1960's, 70's, 80's, 90's and appears from this boardwalk incidence to be continuing in this century.

Didn't Humboldt county vote big time for Goron, the only county north of the bay area to do so?

[snopercod]

Has Davis realized that this dog don't hunt? I think so.

Then he must have plans to play the bongos and tap dance on the California Constitution. It looks to me that he plans to totally disregard it.

Where is Katherine Connell?

[snopercod]

News Release
Controller of the State of California - Kathleen Connell
300 Capitol Mall, Suite 1850
Sacramento, California 95814

---

Contact:  Stacey Ragland (916) 445-2636

FOR IMMEDIATE RELEASE

  STATE CONTROLLER KATHLEEN CONNELL OUTLINES
RISKS ASSOCIATED WITH BUDGET DELAY

Legislative Employees, Vendors and Local Governments Will be
the First Victims of a Protracted Budget Debate
      

SACRAMENTO, July 1, 2002 - State Controller Kathleen Connell today gave a warning to the Legislature and the Governor that the effects of a delayed budget would soon start to be felt by the State's taxpayers.

"Unfortunately, legislative employees will once again become early victims of a no budget scenario," said Controller Connell. "If a budget is not passed by July 12, these individuals will not be paid. Similarly, vendors that serve the State will begin to face cash-flow pressures, with local governments following shortly behind. Each day the budget stalemate continues, more people, businesses and local programs are affected. And, every day of a delayed budget draws closer the possibility that Court action could cause the rest of the State's workforce to be paid minimum wages."

The new fiscal year begins today, however, without a signed Budget, the Controller's Office does not have the legal authority to make certain payments. State civil services employees will receive their full salaries because it is for services rendered in June. However, legislators, legislative staff, constitutional officers, and appointees will not be paid.

Contractors who provide services to the State will also not receive payment on invoices submitted for goods and services delivered in the current fiscal year.

"Without a budget, I am forced to withhold payment to vendors rendering services after July 1, which will also have a direct, negative impact on California's economy and individual households," said Controller Connell.

Some payments to local governments may also be delayed, including non-salary related trial court payments due July 15, and portions of the highway users tax payment due on July 31.

"Local governments rely on those revenues to meet various financial obligations," said Controller Connell. "The failure to pass a budget is an injustice to taxpayers, as it creates a burden on many levels."

The Controller strongly urged Sacramento leaders to act immediately in reaching an agreement.

"I want to commend the Senate and particularly the leadership shown by Senators John Burton and Steve Peace for resolving many of the difficult issues, and passing a budget timely," stated Controller Connell.

"I recognize that lawmakers are faced with exceedingly difficult choices in an attempt to close a record deficit of as much as $24 billion. However, I now urge the Assembly to come to a conclusion on this budget impasse as soon as possible as more and more taxpayers will begin to feel the financial strain."

###

For more information on the State Controller's Office,
please visit our Web site at www.sco.ca.gov

[SierraWasp]

Well heck! That's no good! She's supporting Burton & Peace and I sure don't want 'em to pass this budget without cutting State employment levels to 1999's booming rate, or at least freezing them, but to increase employment by 5,000 and beating up business, vehicle owners and smokers to just keep on keepin on is sinful!!!

For once, I have to disagree with her. Well, to be honest, I only agree with her when she's making Davis look bad.

[Grampa Dave]

You are right on target.

As a life long Rat, she is supporting two of the biggest socialist/communists tax and spenders in the legislature.

[Grampa Dave]

Just in case you feel hotter than usual after one of your purifying rants, you might want to save this link as a favorite.

It is the link to fires in the USA and Kali if we have any.

With our tv channels and left wing fishwraps, they are more interested in showing Gay Pride Parades and the evil that happens when our tax $'s don't arrive for a dark sider.

So they often omit to tell us real news like a huge fire a few miles from our home. This link can keep us updated during this fire season: (Link to firemaps)

Now, you can continue to rant in safety.

[SierraWasp]

Well, here's another BLAST By Dan Walters in the "Sacramento BEE-ESS" on the same theme! The stalled budget is Enron style deceptive accounting: Mash on this here link

[Robert357]

Where is Katherine Connell?

I think you answered yourself pretty effectively with post 43!

Ah, politics. Yes, the crisis is now at hand ans so, the quesiton is who to blame and how many people to frighten!

Actually, I am not sure that if push came to shove that Governor Davis would be worth minimum wage, as he hasn't shown much in the way of leadership.

[Grampa Dave]

This so good, you need to repost this as a separate thread.

Besure to ping Elk Grove Dan, Ernes at the Beach, Ron Dog, Norm's revenge and the rest of the Simon team.

Great find for an old ranter in those, them, there foothills.

[Robert357]

Wow, Dan sure pointed out the lack of clothes on the emperor!

"It contains significant and difficult cuts -- more than $7 billion," Assembly Budget Committee chairwoman Jenny Oropeza said. But all of those cuts were from the assumption of automatically higher spending, not from 2001-02 spending. The new budget is, in fact, a few million dollars higher.

I guess, just like school lunches, etc., democrats believe that just spending what you spent last year or even a little more is a "cut" in spending. Ah, politics!

Perhaps more significantly is the comparison to WorldCom and Enron and the statement that the budget numbers are a fraud by the State. If this article is picked up by the financial press or a similar theme is repeated, that could spell real trouble for the state of California's credit rating.

In fact the good news out of WorldCom, Global Crossing, Enron, could be that government financial reforms may become necesary to restore investor confidence in government bonds. It could be real interesting if some business leaders challenged Bush when he next talks about the lack of business ethics, to have government live up the same standards that Bush and the Democrats want business to live to. This whole thing could be win-win, if we get lucky!

[SierraWasp]

I don't have time to post as seperate thread, besides, my reply with link yesterday to the Liberal Editorial was even better!!! Check it out:You show this to ElkGroveDan, et. al.

I'm too busy helping folks get back into Cash & Fixed Accounts!!!

[Grampa Dave]

You posted, I'm too busy helping folks get back into Cash & Fixed Accounts!!!

Typical greed comes first from an evil VRWC!

[Robert357]

Wow, talk about biting the hand that feeds and employs the masses! Small business has been the economic dynamo that employs most people and to restrict the use of taking losses off of income as a way of boosting taxes, is just going to drive a lot of firms out of California. What a shame.

[snopercod]

Yes, the crisis is now at hand and so, the question is who to blame and how many people to frighten!

Are you following the budget scenario in Tennessee? Schools shut down, "non-essential" state "workers" furloughed, the usual BS.

[Robert357]

Are you following the budget scenario in Tennessee?

Why yes. Actually if you won't turn me into the Free Republic thought police, I will confess that I listen to NPR sometimes when I commute to work and Rush isn't on.

NPR had a Talk of the Nation special on how terrible things were in Tennessee. They interviewed a single mom manager of a state office who had 3 other single mom's in the same office that was being furloughed (sp?). She lamented about how this was going to put all of them in a bind!

Actually, NPR went on to state that Tennessee had significant financial problems doing the boom times when others states were socking away money in rainy-day funds and adjusting revenues(i.e. taxes) and expenditures. NPR made it sound "unfair" that Tennesse had such bad luck. But they also said that it was of their own doing and had they gotten things in line in the past they wouldn't be in such despirate straights now.

OK I will say it and hopefully not get flamed. I go between wanting to take out my .357 Magnum and shoot the radio after I listen to an NPR program to agreeing with the comentattor. While I sense a real liberal bias, they seem lately to be trying to partially balance things. Just the other day, they had a cowboy poet talking about God & Country and patriotism! Other times they bring on folks to ridicule the Predge of Allegence. I can never tell whether a story will be worthwhile or just stupid!

[snopercod]

It always starts out by sneaking a few minutes of PBS from time to time. Then an occasional peek at Rosie magazine. Pretty sooon you'll be mainlining CNN and subscribing to Mother Jones.

[Robert357]

responding to post 34

Sac Bee article that talks about RAW?s at the very end.

Davis, meanwhile, has had to contend with state Controller Kathleen Connell, who succeeded him in the controller's office and has been feuding with him for nearly eight years. She's termed out of state office this year and is using the budget crisis to settle some old scores.

One example: Before agreeing to issue "revenue anticipation warrants" that the state is using to bridge some of the budget's deficit, Connell insisted that Davis and legislative budget writers expand the state's reserve fund. Another: Davis aides announced last week, apparently to ramp up pressure on the Legislature to act on the budget, that the state would withhold payments to counties to cover welfare checks. Within a day, Connell had undercut Davis by declaring that she would make the payments "just as they have been every other year the budget has not been enacted in a timely fashion."

It was pure revenge, and vengeance will always trump partisan solidarity.

What I think we are seeing is that as long as Kathleen Connell is in office, Davis is not going to get his power-bonds, power-bond-anticipation-notes, power-warrants or power-what-have-yous! This may have been partly what happened. The dem's may have other ways of getting enough money for the moment, if so they were crying wolf before.

[snopercod]

Good find. This is getting good!

Isn't it amazing that all the goings on in TN are over a $400 million deficit, vs a $24 billion shortfall in California?

[Saundra Duffy]

The budget battle will be a doozie!