California’s dishonest bonds

In California we have a variety of bond types, but for purposes of this note, we can talk about just two types — local and state-wide.  Local bonds are presented honestly.  A voter who approves a local bond is also explicitly approving a special tax to raise money to repay the bond.  The voter knows who is going to pay for the bond, roughly how much they are going to pay and over what period of time.     

State bonds, on the other hand, are simply ways for the politicians to get around the requirement that the state balance its budget.  Here’s how the scam works: the politicians figure out what’s most important to the voters (schools, road, prisons, whatever) and twice a year place multi-billion dollar bonds on the ballot, supposedly to raise money to pay for these things.  But, unlike local bonds, state bonds are not tied to any revenue source.   They are repaid (with huge amounts of interest, of course) out of general revenues. 

For example, the most recent November ballot included some $50 billion in bonds, all sold as a package with the advertising slogan “buy now, pay over time, with no new taxes.”  It’s a slick and appealing campaign and every one of the bonds passed.  Heck, even Bookworm voted for one of them.  But does anyone really believe that in future years there will be $100 billion of unneeded general fund dollars lying around just waiting to be used to pay off these bonds and their interest?  Of course not! 

At some point down the line when the bill comes due for all these bonds the state will have another “fiscal crisis” and the money will have to be raised, either by cutting other programs, raising taxes or (most likely) passing another round of even bigger bonds.

I don’t know where this all ends, any more than I know where the massive federal debt spiral or the massive trade deficit increases end, but I can’t imagine it ending well.   Understand, I am not against bonds.  I’ve been one of the leaders in the successful efforts to pass two school bonds in my community over the years.  But I am in favor of telling the voters the truth.  If the state is going to go into debt, it should say so and the voters should approve a special tax to repay that debt, just as they do at the local level.   Not only is this more honest, it will avoid the raiding of the general fund and the periodic fiscal crises that are the inevitable outcome of the current dishonest system.     

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  • Ymarsakar

    They did pay back all those WWII bonds that the government sank. How is this any different given that in the WWII times, Democrat New Deal dominated?

  • JJ

    How taxes were collected in WWII changed – that’s how.

    And, by the way, witholding and quarterly payments for those who are self-employed or have “unearned” income was a temporary war-time measure. Note that this temporary wartime measure has somehow not yet been repealed, though WWII has been over for 61 years.

  • jg

    DQ, I am glad you raise these issues.

    Whenever one acquaintance in Australia wants to get the American goat, he inquires about our national debt and who honestly ever expects it to be paid.
    Another national question rarely debated.

    I suspect a lot of this arises from too much central government trying to dictate too many things on every level.
    The government is too much with all of us.

    My recent history reading shows that our ancestors began the break with England over that same issue. Who controls taxation– who pays for what- is fundamental, for thus begins the power to control people’s lives.

    So, are our public debts helping, or hurting Americans?

  • JJ

    I don’t know how Australia’s doing, jg, but I do know that as a percentage of GDP, the US national debt is among the smallest in the world.

    You want a good laugh, go pull out and read your copy of the Declaration of Independence, or as, it could have been subtitled, reasons to go to war. There are twenty-seven specific complaints against the British Crown set forth in the declaration. They still sound reasonable to modern ears. In large part this is because so many of them can be leveled against the present federal government of the United States.

    A lot was going on other than who controlled taxation!

  • jg

    JJ, I’m influenced by several writers who emphasize the economics of our relationship with England. Theirs is not the only argument.

    They do maintain that the English mishandling of the taxation issue laid the groundwork for the larger disagreements, some of which you see enumerated in the Declaration.

    Debt, by the way, did affect the life of Thomas Jefferson.

    I’ve never grasped economics, so I defer you in the matter of GDP. Americans never seem to worry about the massive amounts of money spent on our infrastructure, from highways to public buildings to welfare/medical care. Oh, we argue about the specifics, but never debate the necessity of the expenses. I think we should.

    I’d like us to really examine where America is going in terms of public spending. Not ideologies, not political cant, or MSM spin, but an American discussion of the nature of our future. I’d like to see young people as a voice in that debate.

    Let me open with education. I think it is a boondoggle. From elementary to (especially) university. I would like to see the American people control their educational system.
    As an aside, a South African acquaintance sends his daughter to a university (major in architecture) in Johannesburg for $4500 a year. University educations in the US can’t be worth their astronomical cost.
    I suspect the federal highway system is a boondoggle. At least in my home state of Kentucky, politics and corruption mark the highway system.
    Honesty will cost us, granted.
    But if not now, then later, where the cost may be more than we can bear.

  • jg

    I should change one part of (5) to say: “I’ve never really grasped MODERN DAY economics, so I defer to you in the matter of GDP.”

  • kevin

    “University educations in the US can’t be worth their astronomical cost.”


    That’s an understatement! Thomas Sowell, an economist at Stanford offers the following thought experiment. Imagine you offer a product and the government decides to give grants and loans to people to buy the product. Would you, as a seller of this product, offer to sell it for less than the amount you know the government will subsidize?

    Now let’s look at two 16-year-olds purchasing cars. The first one is paying for it with his own money that he earned and saved while the second one is paying for it with money from his parents.

    1) Which one is concerned about how much the car is going to cost?
    2) Which one is most likely to take better care of the car?

    The bottom line is that universities will always set the tuition at a level to get every dollar the government is giving away because they know the students have at least that much to spend. The students really don’t care because it’s not their hard-earned dollars paying that tuition (even if it’s only an illusion since they are often amassing a large student loan debt.) And the underlying pernicious belief driving this government program is the fallacy that everyone needs a college education.

    The days are long gone where a degree guaranties a good high-paying job; there are many underemployed college graduates out there. Not only do the great jobs require a college degree but where one ranked in their cohort will typically be the deciding factor on who gets the high-paying jobs in their chosen field. Those who graduate but only by showing up and doing minimal work are left holding the bag–a large outstanding student loan with a job that doesn’t provide the income necessary to pay it off.

    Employers are not stupid. They understand that educational standards have been lowered so that many people who should have flunked out of college end up graduating. Colleges and universities are a business; they know people have government money to spend on tuition so flunking them out would only eliminate a significant source of income. This would also hurt their future prospects since a school that actually eliminates marginal students would receive less applications from those who just want to glide through school and get one of those high-paying jobs that every college grad is supposed to get.

    These days, the facilities necessary to attract the serious students to colleges and universities are quite often paid for on the backs of those who really shouldn’t have been there in the first place.