The Riggs Report: A budget ghost is retired
$14 billion bond approved by voters is now paid off
Think of it as a ghost of the massive budget crises that dominated California’s Capitol for years. Proposition 57 was approved by voters in March 2004 in order to keep the state from running out of cash to pay its bills. And now, 11 years later, that $14 billion bond is being paid off, and paid off early to boot.
That is significant. State Treasurer John Chiang’s announcement that the debt has been erased a year early means a savings to taxpayers of $60 million in interest payments. To his credit, Governor Jerry Brown had made it one of his priorities to speed up the retirement of the debt.
There is no way to downplay the overall costliness of Prop 57. In addition to the $14 billion principal, the state had to cough up more than $4 billion in interest payments over the life of the bond. The Wall Street bankers loved that. It’s why critics said Prop 57 was nothing more than using a new credit card to pay off old credit cards.
But then-Governor Arnold Schwarzenegger, in office at that point for less than 6 months, successfully sold the bond to voters as necessary medicine to keep the state from going insolvent. In fact, Moodys—a bond rating agency—warned at the time that, “the assumed issue of long-term deficit bonds is central to the state’s plan to remain solvent in the near-term.”
Schwarzenegger tied Prop 57 to passage of a companion measure, Proposition 58, that established a Rainy Day Fund and slapped new limits on deficit borrowing. Voters were initially poised to reject the Economic Recovery Bond, according to polling. But the governor, still enjoying a post-election honeymoon, turned that around with a vigorous campaign schedule. When the votes were counted in the primary election, Prop 57 passed with 63 percent support.
Viewed through the prism of today’s world, the financial turmoil that gave rise to Prop 57 seems like an entirely different and distant era. When I was KCRA’s beat reporter at the Capitol, the state budget story was dominant, and it was an ugly story.
Year after year of huge deficits and missed deadlines. Angry unpaid vendors and state workers. Legislators camped out in all-night sessions. In 2002, then-Governor Gray Davis signed the budget on September 5—a whopping 67 days late. In 2008, dogged by the recession, Schwarzenegger signed the budget 85 days late, on September 23.
In the last 4 years, by contrast, the budget has been passed and signed on time (thanks in part to a 2010 ballot measure that changed the voting requirement from two-thirds to a simple majority). There have been plenty of fights over spending cuts between Gov. Brown and his fellow Democrats in the Legislature, but the governor has largely gotten his way. And the drama pales in comparison to the strife of the past.
California’s budget will always be a fragile construction, overly-dependent on the whims of the stock market. But the constant sense of crisis is behind us. Erasing the Prop 57 bonds from the books also erases an unwelcome reminder of that period.