In the next 20 years, California is on track to double its population to 60 million. Revenues and operating expenses will double also, leaving a projected $1.2 billion surplus in 2027-28. The only catch to this encouraging estimate is that the state will also issue $224 billion in new bond debt to finance improvements of our obsolete infrastructure.
That means the current $6 billion annual cost for repaying bond debt would explode to nearly $16 billion in 20 years, accumulating a deficit of more than $14 billion. Under state law, annual bond debt must be paid second after the initiative-mandated public education minimum. Not until then can a single tax dollar be spent on health care, law enforcement, public assistance or environmental protections.
More than $135 billion in general debt is already authorized and Gov. Arnold Schwarzenegger is adamant that California cannot meet the basic needs of a doubled state population or continue being a global economic powerhouse without spending more than $200 billion on long-overdue infrastructure upgrades.
The general outline that California routinely spends more money than it takes in and covers the budgetary holes with accounting trickery is not exactly breaking news. But state Treasurer Bill Lockyer’s “Looking Beyond the Horizon” report crunches the numbers in new and unusually revealing ways.
Aside from projecting a 20-year trend, this year’s edition of the annual California Debt Affordability Report also analyzes spending growth separately for operating expenditures and debt service. This shows a much clearer picture of how the coming deficit is being produced. The report also accurately portrays Sacramento’s annual budget debate as a struggle over whatever dollars are still available after education and debt service have been paid.
However, Lockyer is quick to note that a $14.6 billion shortfall is actually less than 4 percent of projected annual income, which makes it a slow-growing crisis eminently fixable by obvious remedies of cutting spending or raising revenue. And the treasurer is not shy about offering suggestions.
His most provocative idea is to save $7 billion annually by removing taxpayer financing from the Univertiy of California, so the institution must pay its way by fundraising and fees. Lockyer also believes the state could save hundreds of millions by weeding out duplicative programs and retrofitting government buildings to lessen energy costs.
For revenue increases, he notes that billions more could be raised by widening sales tax collections to include services and Internet purchases. But Lockyer also suggests that future bond measures should be tied to specified revenue sources such as user fees.
The treasurer found an effective new way to show that bond measures are no free lunch. And now if California lawmakers can stop running in panic from the hard budget choices ahead, we might even escape the predictable 2027-28 deficit.