Posted on 12/19/2005 7:09:32 PM PST by calif_reaganite
As governor from 1959 to 1967, Pat Brown presided over the most breathtaking period of public works construction in California’s history. During those years, California built the finest highway system in the world, one of the largest water projects in history, and the foremost university system in the country. At a time when the population grew twice as fast as today, the state kept pace with the demand for schools, ports, prisons, libraries, parks and power plants.
Today, Californians are locked in perpetual gridlock, schools are bursting at the seams and potential shortages of everything from electricity to water are just one hot summer away. The Pat Brown years are now looked upon with rightful nostalgia, and politicians from all parties are falling over one another to propose massive new spending programs to restore that era of public works.
As those politicians admire Brown’s commitment to public works, they would do well to study his discipline in public finance.
Not that Brown was a fiscal conservative – he left the state with a gaping deficit and a pile of debt. By the end of his administration, the state had a $711 million general fund deficit and total per capita spending had ballooned from $856 to $1,442 (all in 2004 inflation-adjusted dollars). Debt service costs had increased from 0.3 percent to 2.2 percent of the state’s general fund. But at least he bought a lot of cool stuff.
By modern standards, though, he was a paragon of fiscal restraint. California’s operating deficit today is four times larger than Brown’s – nearly $3 billion. Per capita spending is over $3,000 -- twice that of Brown’s final year. Today’s debt service consumes 5.9 percent of the general fund – more than the entire University of California budget and two and a half times the percentage in 1966.
As Governor Schwarzenegger grapples with the resulting fiscal paradox of crumbling infrastructure despite record spending and borrowing, he should remember three principles of public debt that Brown’s generation respected and that the current generation has abandoned.
First, bonds should only be used for capital projects with a useful life at least equal to the debt service. If our children are called upon 30 years from now to repay a bond, they should have the full benefit of the project built with that bond. While Brown borrowed for lasting works like university buildings and state hospitals, our generation has squandered long term bonds to pay for day-to-day operating expenses, deferred maintenance and equipment that is obsolete long before the debt is repaid.
Second, state bonds should be used only for projects that benefit the entire state. Projects that exclusively benefit local communities should be paid for exclusively by those communities. A state university, for example, accepts qualified students wherever they live in California – a local school does not. In the past, state bonds were used for university facilities, while local bonds paid for local schools. Today, state bond funds are dolled out in a grab-bag of local pork projects, literally robbing Piedmont to pay Pasadena.
Third, revenue bonds, not general obligation bonds, should be used for capital-intensive projects that provide direct services to distinct users. A general obligation bond is repaid directly by the state’s taxpayers. A revenue bond is repaid by users of a particular project, such as a bridge financed by tolls paid by bridge users. Today, general obligation bonds are used indiscriminately, including a pending $10 billion high speed rail bond that would force taxpayers who don’t use the train to pay for those who do.
Bonds are seductive. They promise immediate gratification but they conceal a heavy price. They are certainly the most expensive way to finance projects, costing two dollars to retire every dollar of debt. Moreover, the state’s borrowing capacity is finite, requiring careful attention to priorities, since debt once issued cannot be rescinded – only repaid. And every dollar borrowed by this generation reduces the ability of the next generation to meet its own needs.
Pat Brown understood this. His recent successors have not. And Gov. Schwarzenegger is now dealing with the result. He must restore the public works built by a generation of giants while discharging a mountain of pointless debt racked up by a generation of spendthrifts. Only by rigorously applying these principles can he hope to do so.
Run, Tom! Run!
The average voter behaves as if these bonds were just some magical, free money. I don't think a lot of voters understand bonds at all.
Basic rule of personal financial responsibility. Don't borrow to pay for a depreciating asset.
PING!
McClintock Ping List.
Please freepmail me if you want on or off this list
He'd get my vote without question.
"Proposition 71 authorizes tax-free state bonds that are self-financing during the first 5 years. "
Where is the $50 Million bond The Arnold proposed when he came back from China...
Now his aides are sending signals that the actual plan will be closer to $30 billion. It likely will be spread over several years. And some of the money might be repaid not with tax dollars from the general fund but with surcharges on the people who use the services provided.
Few read the post. Today they might want to review that thread for it contains other little pearls as to what Schwarzenegger and Democrat legislative leaders are cooking up.
McClintock is no dummy. He's read the tea leaves and wants to be out in front of the announcements to: 1) secure the continued cooperation of the CAGOP and 2) get reflexive credit for his "guidance".
I think he's gearing up to announce that at the beginning of the year in his State-of-the-State speech, shortly before he presents the next mega-budget.
Right on. The MSM doesn't seem to skip a beat in beating us to death as how expensive the next military airplane is going to cost, but they do seem to have a very tough time explaining that borrowed money has to be paid back, and it's very costly.
I think you meant Dan Weintraub, right?
http://www.freerepublic.com/focus/f-news/1543045/posts
Correct. Thanks.
The governor may also not be acknowledging how much his administration is already listing to the left. Only a handful of GOP legislators are prepared to back a mammoth $25 billion infrastructure bond he is negotiating with Democrats to put on the June ballot.I also wondered who the "handful" were.
Tom: You Da MAN
Arnie: You Da GIRLIE man
No doubt about it.
Tom McClintock is California's leading statesman.
His grasp of the realities of the state's political and policy past, present and future are unparalleled in this generation.
God bless him and God bless California.
Tom is an archetypal example of why term limits are a terrible idea.
And he vill do it too, vile valking bachwards on vater, smoking his stogie and literally irritating the living he!! out of everyone with his bodacious boasts followed by more habitual flinching until the CA population FINALLY figures out this dude only knows how to read lines and not much else!!!
I think John Fund's analysis is precisely correct!!! He's also right on his read of the pulse of the illegal immigration swindle by politicians of BOTH politickle Parties!!!
Spending and bending the law is going to catch up with Republicans more than Demonicrats, because the Republicans are supposed to know better!!! It's either another undeclared war or another big fiscal crisis that Republicans usually have to rescue the people from Demonicrats, but it's looking more and more like it could be inverted next time!!!
Agreed.
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