Once in awhile in the fantasy-laden world of politics, a simple
and sensible idea arises and takes hold. No idea could be much
simpler and more sensible than paying as you go for needed repairs
and improvements – if the money is available.
That’s as true for a gigantic state like California as it ever
was for an individual or a family.
Once in awhile in the fantasy-laden world of politics, a simple and sensible idea arises and takes hold. No idea could be much simpler and more sensible than paying as you go for needed repairs and improvements – if the money is available.
That’s as true for a gigantic state like California as it ever was for an individual or a family.
The pay-as-you-go notion is beginning to draw some notice in Sacramento, where politicians routinely endorse plans to borrow $20 billion and up as if it were play money that will never have to be paid back. Figures like Gov. Arnold Schwarzenegger and the Democratic leaders of the legislature might want to heed the long-ago words of the legendary Everett Dirksen, the Illinois Republican who served as minority leader of the U.S. Senate during the 1960s:
“A few billion here, a few billion there'” Dirksen liked to observe, “and pretty soon you’ve got some real money.”
The $68 billion in new bonds Schwarzenegger now wants to issue for schools, jails, roads and other infrastructure needs is indeed real money. Paying those bonds back over 30 years would cost about $55 billion in interest alone at today’s rates.
That, as Dirksen might say, is real money. Someone will have to fork it over. Most likely we and our children.
Meanwhile, there’s that other method of pay-as-you-go, often employed by wise families and governments.
Over 30 years, paying back $68 billion in bonds, with interest, would cost the state an average of almost $4 billion per year. Noting the convergence of this fact and the sudden appearance last fall of about $4 billion in unexpected state revenues, Republican Bill Leonard, a member of the state Board of Equalization proposed using that money and similar funds that come in during future years for construction, with state government thus issuing no bonds at all. Pay as you go.
His idea was first aired in the media last December via this column, and now it has actually collected some significant backers in Sacramento: the Republican minority in the state Assembly.
Republicans may be rare birds in that body, but enough are present to deny the two-thirds vote needed to put the bonds onto the ballot as Schwarzenegger wants.
In an era when legislative Republicans usually do little but react to and protest against Democratic ideas, this time they are pushing an idea of their own.
Kevin McCarthy of Bakersfield, the Assembly’s GOP leader, proposes taking 1 percent of the state’s general fund each year and devoting it to public works projects. He suggests doing this in any year when the take in state taxes rises by $5 billion or more and education is fully funded to legally required levels.
In short, he’s suggesting the state not use newfound money to expand existing programs or to create new ones that have to re-funded every year. Rather, use it to build or repair something permanent.
That runs completely counter to the longstanding state government habit of using new money for program expansion rather than investment.
But it makes terrific sense. If the state issues $68 billion in bonds, it will be committing itself to paying about $4 billion a year for 30 years in principal and interest. Spend the same $4 billion a year without bonds over the next 17 years and California can invest as much as it would have with a bond issue, but leave itself with far less debt, far more freedom to respond to emergencies or new situations that inevitably will arise.
What’s more, the state could get going with the building much faster this way. Rather than wasting everyone’s time while Schwarzenegger and the legislators wrangle over how to structure a bond plan and how to finance it and who will buy the bonds, a pay-as-you-go plan could allow state agencies, cities, counties and school districts to submit proposals to a board that ought to be set up to allocate the funds.
Says Leonard, “The time is right now to start building what we need to build.”
He’s right. Enough previously approved bonds are sitting around unsold now to demonstrate how slow that process can be. Why even get into that when you don’t have to?
If Schwarzenegger meant what he said during his state of the state speech, when he almost chanted the mantra “I say, built it!” then this is the best way to go, building for the future now, rather than waiting and eventually spending much more.
