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August 15, 2007
CA: Editiorial: Lease revenue' prison bonds: Will court close a loophole that adds debt without accountability?
Orange County Register
Wednesday, August 15, 2007
Today's editorial: 'Lease revenue' prison bonds
Will court close a loophole that adds debt without accountability?
An Orange County Register Editorial
The state budget stands stalemated over $700 million. The difference is being hailed as the price of a balanced budget, but however the stalemate is resolved, the budget will remain unbalanced in one, crucial respect. Thanks to the borrow-and-spend financing of Gov. Schwarzenegger, the taxpayers will be stuck paying for spending of years past, coughing up more than 10 times that $700 million figure every single year for the foreseeable future. Worse yet, despite a constitutional guarantee that debt exceeding $300,000 go before the voters, new and significant debt is being approved without voters' consent.
The constitutional loophole is called a "lease-revenue bond." >From a taxpayer's perspective, it's similar to the "general obligation" bonds that voters perennially approve: Bonds are sold, and the debt is serviced by taxpayers over the coming decades.
The salient differences are that payments on general obligation bonds are direct (appearing as their own line-item in the budget) and ironclad (backed up by the "full faith and credit" of the state's taxpayers), while lease-revenue bond payments are dispersed among government entities that pay them off through "leases," and are not so guaranteed. Since the lack of guarantee makes them riskier for investors, they typically cost taxpayers about 10 percent to 15 percent more than general obligation bonds in interest payments over the bonds' lifetimes. But the differences that make lease-revenue bonds riskier and more costly have been used, paradoxically, to justify circumventing voter approval. Why would a more costly bond be easier to pass?
A lawsuit filed last week will challenge precisely this practice, taking on a $7.9 billion bond measure for new prison beds and rehab programs, rushed through the Legislature in May. At the time of its passing, we lamented not only the bill's exorbitant cost, but its underlying method: a Band-Aid fix eschewing real changes like sentencing reform or embracing private prisons. The dubious bill would have been a hard swallow for the taxpayers who will shell out $600 million a year via the state general fund for the next 25 years to support it, but thanks to the use of lease-revenue bonds, voters didn't have to be consulted. The injunction filed Aug. 8 by Taxpayers for Improving Public Safety would rectify that, condemning the bill's bond financing scheme as unconstitutional.
The legal precedent may or may not stand on the side of the moral principle, but the latter, at least, is clear. Payment by incurring any kind of bond debt always costs more than appropriating funds in the present - about 20 percent more, adjusted for inflation - and for longer - repayment is spread across decades. Issuing bonds may still be justified, when the benefits of swift action exceed the financial costs, but that judgment should be made by the voters, who bear the costs. If the interpretation of Article XIV, Section I of the state constitution stands with this guiding moral principle, the loophole will be closed, and the voters will be allowed to judge. If not, we can only continue to admonish our borrow-and-spend government for balancing the budget by putting us in debt to our children.
http://www.ocregister.com/opinion/bonds-taxpayers-voters-1808421-bond-budget
Posted by lois at August 15, 2007 06:02 PM