CA Goes on New Bond-Buying Binge
Treasurer Bill Lockyer plans to offer $1.8 billion in tax-free bonds and $200 million in taxable issues to raise cash for voter-approved infrastructure projects. The general obligation bonds typically are sold in maturities ranging from one year to 30 years.
The state borrowed $2.4 billion via bonds on Sept. 20, its first sale of 2011. That turned out to be near the recent low point for muni bond yields, which had been falling for much of this year in tandem with the decline in yields on other types of bonds, including U.S. Treasury issues.
Total: $4.2 billion in new bond binging. It costs about twice that amount to pay them back: $8.4 billion.
That’s almost the $10 billion in tax increases Gov. Jerry Brown and the Democratic Legislature tried to foist on us earlier this year.
I’ve always said: bonds are delayed tax increases. The latest bond-buying binge is more proof.
It’s also absurd that the state is taking out more debt. It’s debt load has more than doubled in recent years, from 3.4 percent of general-fund spending in fiscal year 2003-04, to 7.8 percent for 2011-12. Bond experts day that 5 percent should be the most any state should pay from its general funds for bond payments.
“KEY RATING DRIVERS — A persistent structural budget imbalance, revenue cyclicality and institutional inflexibility, particularly due to voter initiatives have led to repeated severe budget and cash flow crises. Modest but uneven revenue growth has returned, although achieving the state’s near-term growth forecast is an uncertainty….
” — Pension system funded ratios have declined although some reforms have been undertaken.”
The “voter initiatives” were all the bonds giddy voters were tricked into passing during the mid-2000s economic boom, but the state can’t afford in the bust.
And as Fitch notes, the state has yet to make serious reforms of its pension obligations that could run as high as $884 billion.
Instead of issuing these new bonds, what Treasurer Bill Lockyer should do is:
1. Suspend all new bond issues;
2. Ask the Legislature to put on the ballot an initiative repealing all previous bond measures;
3. Along with Gov. Brown and the Legislature, attend meetings of Debtors Anonymous.
Oct. 14, 2011
May 21, 2013