Pete Rates the Propositions
Sensible opinions on the California ballot propositions      since 1980      by Pete Stahl

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March 2004

Pete Rates the Propositions
March 2004

Pete recommends:
55   YES   School and College Construction Bonds ($12.3 Billion)
56   YES   55 Percent Vote to Pass State Budget
57   YES   Debt Consolidation Bonds ($15 Billion)
58   YES   Balanced Budget Requirement

Proposition 55: School and College Construction Bonds ($12.3 Billion) – YES

(Please see My semi-biennial lecture on bonds for my opinion on bonds in general.)

California has the third most crowded classrooms in the nation. Nearly one thousand school sites are classified as "critically overcrowded," meaning they have more than twice the number of students recommended by the state Department of Education. Overcrowding is commonly relieved by multitrack year-round schedules, with mandatory summer sessions for most children. Last year, nearly one-sixth of California’s elementary through high school students were on such schedules—almost one million students at 916 schools. (Source: Calif. Department of Education.) Clearly we need more classrooms.

The school buildings we do have are increasingly old, run down and outmoded. One in five schools has broken bathrooms. Older campuses lack basics, such as air conditioning, to say nothing of computer networking and other modern needs. A variety of studies confirm that students achieve less in school buildings which cannot be adequately and safely maintained.

Prop 55 will provide $10 billion for school building construction and modernization. It will cover the state's share, with the rest coming from local and federal sources. The last school bond was passed two years ago, and is nearly exhausted. We need this measure to keep up with today’s needs.

Prop 55 also directs $2.3 billion to community college, state college and University of California buildings. These higher-education systems enroll over 2 million students and rising. They deserve new and modernized buildings as well.

Proposition 56: 55 Percent Vote to Pass State Budget - YES

Note: I have flip-flopped on this rating. I opposed Prop 56 before Feb. 11. If you’re curious what my reasoning was then, please see my original rating.

The state Constitution requires the Legislature to pass a budget with a two-thirds supermajority by June 15 each year. This is, of course, a big joke; the deadline has been missed every year since 1986. Instead, we’ve seen increasingly distressing displays of partisan obstructionism, even during the roaring economy of the late 1990s when budgeting should have been easy.

As it now stands, Democrats comprise 60% of the Assembly and 62% of the Senate. This is shy of the two-thirds required to pass a budget, so the Democrats must court the votes of a few Republicans. As you can imagine, it’s a sticky business. Legislators today tend to be strongly partisan, largely because of their gerrymandered safe districts. So the needed Republicans make "outrageous" demands, which the Democrats refuse, and stalemate ensues.

Delayed state budgets throw a monkey wrench into the planning process for state agencies, local governments and school districts. Often they’re forced to operate under temporary local budgets burdened with massive uncertainty, followed by emergency re-budgeting exercises when the state budget finally passes. It’s a mess.

Prop 56 seeks to break up this annual logjam by reducing the supermajority required to pass budgets and increase taxes from two-thirds to 55%. The Democratic Party would be delighted with this, since they’d now control the required votes, and could pass a budget without a single Republican. If you’re a loyal Democrat, stop reading here and vote "yes" on this proposition.

If you’re still reading, you may be wondering whether it’s a good idea to give control of the budget to one party. Isn’t the two-thirds supermajority there to protect the interests of all Californians, not just Democrats?

The answer is that these days, the two-thirds supermajority is protecting no one’s interests. For seventeen straight years the two-thirds requirement has damaged our state through the obstinacy of a politically polarized minority (and the majority too) in the Legislature. Their inability to come to meaningful compromise has led to enormous shortfalls, irresponsible borrowing, and a structural budget deficit. Prop 56 will reduce the ability of hardliners to hold up the process in order to advance their own agendas and benefit their special interests. This isn’t the best solution; it doesn’t decrease the partisan polarization of the legislature. But I’ll take what I can get.

If Prop 56 were to provide a comprehensive solution to budget gridlock, it would address the non-competitiveness of legislative districts, which lead to extreme party-loyalist legislators. My obsolete rating opposing Prop 56 has a long tirade on this subject. But, as I like to say, you must never vote down a proposition based on what it doesn’t do. Opposing a beneficial measure in hopes that something more to your liking will come waltzing down the pike is a losing strategy—unless you’re willing to run the initiative campaign yourself, it just won’t happen. You must evaluate each measure based on its predicted effect as written. On balance, Prop 56 will help California by making budget bills easier to pass. It solves an urgent problem.

You will undoubtedly encounter arguments against Prop 56 stating that, while it may be okay for 55% of the Legislature to pass a spending plan, it is wrong to allow that same group to raise your taxes. Everyone, not just the majority, pays taxes, says the argument, so we should require a solid two-thirds vote to protect us from capricious and frequent tax hikes. The response, of course, is that spending and revenue plans go hand in hand. Enabling one-third of one house of the Legislature to defeat a tax increase effectively allows that group control over the budget itself, which is what got us into this mess to begin with. Furthermore, the two-thirds requirement for tax increases is not so sacrosanct as you might think. It was never approved by voters per se; it was instead a small part of 1978’s Proposition 13, which most voters thought was aimed at local property taxes. Also, bear in mind that nearly every other state requires a simple legislative majority to increase taxes, and you don’t see their tax rates spiraling out of control. Finally, any tax increase passed by the Legislature can still be vetoed by the governor, and our current governor has shown little taste for that kind of thing.

For the record, there are a number of pot sweeteners in Prop 56 to distract you from its central, supermajority-reducing provision. If legislators miss the June 15 deadline, they must stay in session until it passes, considering only the budget. During that time, legislators and the governor must forfeit their salaries and expenses (unlikely to cause hardship for our current governor, I aver). Prop 56 also requires the creation of a reserve fund to buffer the General Fund against year-to-year fluctuations. Billions of dollars would be socked away in good years to soften the impact of future budget crises in lean years. (Prop 58 does this too.) But none of these provisions are as important as the 55% budget vote.

Prop 56 ain’t perfect. It addresses the symptoms, not the underlying causes, of the budget gridlock we’ve endured for nearly a generation. But it will provide relief, in a responsible way. On balance it’s a beneficial measure. It deserves your support.

Proposition 57: Debt Consolidation Bonds ($15 Billion) – YES
Proposition 58: Balanced Budget Requirement - YES

Props 57 and 58 are Siamese twins. Both must pass for either to go into effect. So I have rated them together.

We are in trouble, friends. Deeeeeeeep trouble. Last year our state had to take out a $10.7 billion short-term loan from Vinny the Butcher to cover recent debts. The loan is due to be repaid this June, and take it from me, you don’t want to be late paying Vinny. So even though we know it’s bad for us, we have asked for a five-year loan from Lenny the Shark, in the form of shadowy, non-voter-approved bonds. The state has promised to pay these back through an elaborate shell game known as the "triple flip" (really) that eventually leads to the General Fund.

But Lenny is skeptical: the five-year bonds, approved by the Legislature last August, are being challenged in court and may not fly. If they don’t, the Shark’s gonna bail, and we’re gonna be in a world of hurt. On one side we’ll have the Butcher wanting his short-term money back, and on the other we’ll have 35 million people wanting the same public services they’ve grown to expect. Not a pretty picture.

On top of all this, last fall our new don, Arnie the Terminator, whacked the Vehicle License Fees, so we’ll have $4.2 billion less revenue this year. The Terminator did this even though he knew he’d have the Butcher breathing down his neck in June. Yeah, I know. What a knucklehead.

Arnie thinks he has a solution, though. He’s going after an even bigger loan from Lenny: fifteen big ones. And this time he wants to make the Shark an offer he can’t refuse, if you catch my drift. To help "persuade" the Shark, Arnie has enlisted his traditional enemies: Steve the Controller, Babs the Boxer, and Di the Fi. And he cut a deal with Big John the Senator not to interfere. It’ll be hard to stop that.

This loan Arnie wants? It’s called Prop 57. It will pay off Vinny the Butcher with $3 billion left over. Arnie figures he’ll use that extra money to balance his 2004-05 budget. Pretty neat.

To get all that support, though, Arnie had to make some concessions. He’s promising this will be his last big operations loan. He’s promising to set up a reserve account to pay off Lenny, which he’ll fund whenever he thinks he can afford it. And he’s promising to keep his books balanced from now on. These promises are called Prop 58.

Now a big loan like Prop 57 won’t come cheap. Lenny the Shark will demand $1.2 billion a year for at least nine years, probably more like 14. Lenny’s no Butcher, but he has his enforcers. Arnie says he can handle the Shark, but I’m not so sure. This Prop 57 loan, unlike those other loans (see Prop 55) won’t be for buildings or other tangible property to be used over the life of the loan; it’s just paying off past debts. That’s kinda risky. Also, nobody knows what the Terminator has in mind for 2005-06, when he won’t get another $3 billion from Lenny. Looks like there’ll be some hard choices then. Arnie says he won’t raise taxes, but cutting that kind of dough from the spending side will upset a lot of people. Important people, like Big John the Senator. Believe me, you don't want to get him mad.

But that’s way off in the future, what, ten months from now. Right now we gotta do something about Vinny the Butcher. If we vote for Props 57 and 58, at least we have a chance. You know, live to fight another day, right? If we defeat 57 or 58, I know we’re gonna regret it, and regret it fast. So do yourself a favor, and vote for these two Props. They may be ugly, but they’re sure as hell better than the alternative.

My semi-biennial lecture on bonds

When California wants to finance a large project, it asks the voters for permission to take out a loan. Prop 55 is just such a request (but not Prop 57—see above). If voters approve, the legislature may take out a loan for the project by selling general obligation bonds, which are paid back with interest over thirty years or so. The bond payments come out of the state's main budget, the General Fund. So when we vote on the bonds, we are really voting on whether the project in question ought to be added to the state's budget.

"Wait a minute!" I hear you cry. "What about those interest payments? Won't we end up paying more for interest than for the bonds themselves?" This used to be the case, but with today's low interest rates each dollar of bond money will cost only 25 cents in interest, accounting for inflation. (See page 16 of your supplemental ballot pamphlet for details.)

"Okay," you admit, "but loans are still more expensive than pay-as-you-go." This is true. But loans are the only way to buy a house, or a car, or anything else that you need immediately but can't pay for yet. It's worth paying the premium of interest to get the funding now. You may be thinking, "We’re in a budget crisis! We can’t afford these bonds this year!" My response is: Huh? A budget crisis is exactly when you should borrow. We pay off the bonds later, when the picture in Sacramento will presumably be rosier.

"Well and good," you continue, "but there are $12.3 billion in construction bonds on this ballot. Isn't that too much to borrow?" For you, yes, but the State of California can handle it. The bond debt ratio ebbs and flows as voters authorize bonds. In the mid-1990s bond payments peaked at 5% of the General Fund; today they’re just 3.3%. They’re due to peak again at 4.9% in two years, due to bonds from 2002’s Props 46, 47 and 50. Prop 55 will jack this up to 5.3%, still a manageable amount. (Prop 57 would boost it significantly higher, but that’s another story.)

Prop 55 will fund long-lived, tangible acquisitions, such as school and college classrooms. It's sensible to make extended payments for things that will be used far into the future. Remember, too, that California's population continues to grow by hundreds of thousands of people every year. Borrowing makes particular sense if you know your income will go up in the future. As the state grows and the economy recovers, the General Fund will certainly grow too.

There is one last reason to vote for a bond measure. In addition to being formal requests for permission to take out loans, bond measures are also looked upon as referenda on the merits of the proposed projects. If a bond measure fails, legislators are likely to believe that the public feels the project is not worthy of receiving state funding. By voting no, you may have meant, "Yes on the project but no on the bonds," but your message to Sacramento will read, "No on the project." So if you vote down a bond measure just because you don't like bonds, you may well have killed forever the project the bonds were to have funded.

Copyright © 1980-2024   Peter L. Stahl
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