The Real Cost of Prisons Weblog

But, like most political decisions made under duress, there are legitimate questions as to whether the deal reflects good public policy - or whether it was even legal.

To recap: California has a huge and growing prison population. Those who are politically conservative were not about to let convicted felons out early. Those on the left - who would prefer more leniency for the incarcerated - were pushing for programs dealing with rehabilitation as well as a new sentencing commission.

But political compromise in California is difficult, and often the only way to reach that compromise is with lots of taxpayer dollars to appease both sides. It is amazing what a soothing effect buckets of taxpayer cash can have on the adversaries in a political dispute.

That is what happened here. The tough-on-crime Republicans got their extra prison beds - 53,000 - and the Democrats got their rehabilitation programs designed to reduce recidivism.

The centerpiece of the agreement was a $6.1 billion bond proposal. That is a huge amount of indebtedness, especially considering that voters just approved $42 billion in infrastructure bonds last November.

Which brings us to the No. 1 question posed by taxpayers: Why were these prison bonds not put to voters for approval?

The short answer - really no answer at all - is that, as "lease revenue" bonds, they are exempt from voter approval.

There is no debate that lease revenue bonds, and their questionable cousins, "certificates of participation," are instruments of indebtedness. However, because their repayment is - in theory - not guaranteed by the state's general fund, they are not considered "general obligation bonds" which, if over $300,000, require voter approval.

Last time we checked, $6.1 billion is a bigger number than $300,000.

In any event, there are instances at both the state and local level where lease revenue bonds make sense. Specifically, if the improvement being financed generates revenue, you can argue that voter approval should not be required because the source of the repayment does not put taxpayers at risk.

The clearest example of this is a public parking garage. Garages generate money, which can be used to repay the bondholders. Some publicly financed sports facilities, and their attendant retail and other business properties, might also be candidates for lease-revenue financing.

Which brings us to prisons. What revenue do prison facilities produce? Well, none. Lease revenue bonds in this context are based on a fiction. Rather than face voters who might reject long-term financing for prison construction, our political leaders have signed off on a system whereby the debt will be "repaid" by future revenue appropriated to the Department of Corrections. In other words, general fund money will simply be transferred from the right pocket (Corrections) to the left pocket (bond payments).

How did this come about? Without going into all the gory details, simply understand that a lot of special interests make a lot of money on the public debt "industry." Bond underwriters, bond lawyers and the bond buyer community love public debt, and they are not going to let a little thing like a constitutional provision mandating voter approval stand in their way.

Over the past several decades, the law has been carefully crafted by law firms specializing in public debt to create fictions like lease- revenue bonds and certificates of participation. Indeed, in their marketing literature they openly brag about being able to "circumvent voter approval."

But what is good for the public debt industry and politicians looking for a quick fix to a thorny problem is not necessarily good for taxpayers. In addition to ducking voter approval, lease-revenue bonds are more expensive for the very reason that they are not backed by the full faith and credit of the state. Indeed, the true cost of this "bond" proposal could be as high as $15 billion - well over twice the amount being used for the construction itself. This is truly adding insult to injury.

What is needed to rein in politicians from both parties is a constitutional amendment requiring a public vote for all long-term indebtedness. That was the original intent of the California Constitution in 1849. Thus, in addition to general obligation bonds, voters should be able to approve lease-revenue bonds, certificates of participation, long-term pension obligations and other post-retirement benefits promised by politicians and bureaucrats who will be long gone when our children are still paying off this debt.

It is time to stop the fiction and have our leaders face reality.

the Orange County Register..
http://www.ocregister.com/ocregister/opinion/abox/article_1700144.php