Tuesday, January 10, 2006

In Sacramento, nothing in life is certain except debt and taxes

“Nothing in life is certain except death and taxes.” – Benjamin Franklin

With all the empty hype from embryonic stem cell researchers and quack cloners the public may soon begin to doubt the inevitability of death. If Benjamin Franklin was alive today in Sacramento he might instead opine, “Nothing in life is certain except debt and taxes.”

I just got back from the Republican legislators’ monthly issue roundtable where former Republican Assemblyman and current Cabinet Secretary to Governor Schwarzenegger, Fred Aguiar, gave a detailed defense of the governor’s plan to sell $68 billion in bonds over 10 years.

Mr. Aguiar claims that the rate of new debt issuance over the next 10 years will be less than it was over the past five years. Coincidentally the same argument is used by Democrat gubernatorial candidate Phil Angelides to dismiss the governor’s plan as inadequate, saying, "We need to do more than we are doing…”

I’m rather surprised to hear Mr. Angelides complain the Governor isn’t proposing to borrow enough when just the other day he was complaining we had too much debt.

In any event, my concerns with the Governor’s plan are two-fold:

1) His plan isn’t likely to restrain Sacramento’s appetite for additional bonding on non-priority items. All it takes is for some vested special interest to qualify a bond initiative and then sell it to the voters, a la Prop. 71’s $3 billion of bonds for stem cell research, and voila, our debt load increases.
2) Without real regulatory and labor reforms to streamline the projects, we will be borrowing a dollar to get less than a quarter’s worth of needed construction.

On the other hand, the more I find out about the Governor’s initiatives to encourage private financing, design, build and operation of roads, the more I like what I hear.

As for the rest of the budget, I wish we’d save that $5.2 billion of unexpected revenue for debt retirement or pay-as-you-go road construction.

Today's L.A. Times features an article about California's budget blueprint that will be released today by the Governor. It quotes my concern that debt service pressures will lead to higher taxes down the road:

But some of the governor's Republican allies wonder how the state would pay it all back. Assemblyman Chuck DeVore (R-Irvine), a vocal opponent of new taxes, has expressed concern that the debt service cost would put so much pressure on future budgets that it could force a tax increase.

"We might be maxing out our credit card," he said. "There is a fundamental question of how we are going to pay for this."