In a rather disheartening statement about the status of California’s debt, the state was forced to pay a shockingly high 4% (tax-free) for about $1.9 Billion in bonds sold this week:
Borrowing $1.9 billion on Tuesday via bonds that mature in June 2013, the state was forced to pay a 4% annualized tax-free yield to lure investors. As recently as Friday the brokerages underwriting the deal, led by Goldman Sachs, had estimated that the bonds could be sold at a yield of 3%.
The boost in the yield demanded by investors reflects the “saturation” of the market with California debt over the last seven weeks, said George Strickland, a bond fund manager at Thornburg Investment Management in Santa Fe, N.M. Since Sept. 23 the state has sold more than $21 billion in short- and long-term debt for budget-related reasons and to fund infrastructure projects. (LA Times 11/11/09)
Unfortunately, with the state looking at about $14 Billion of budget deficits over this fiscal year and the next, there’s no indication that we will be able to take it easy on the borrowing. And this bond itself is to repay $2 Billion that the state took from local governments to cover the gaps they opened up in the budget “solutions.”
Furthermore, with the signing of the water package, the state is looking at taking another $11 Billion of general fund bond indebtedness. Treasurer Lockyer points out that with these bonds, our debt service as a percentage of budget looks like a rather ugly figure, possibly rising as high as 10%. If we continue to heap on debt, basic services will continue to suffer.
But the decision on water still must pass a vote, and the decisions that face the voters of California are some very difficult ones. The question of whether the winners in this deal, primarily the wealthy farmowners of the Western Central Valley, are able to keep the anti-debt forces at bay is still an open question. Or as Peter Schrag puts it in the California Progress Report:
Water is a fixed – and probably declining – resource. The only way it can be stretched is by conservation, recycling of waste water and by more efficient use. This deal takes the first baby steps in that direction, but only by promising more goodies to agriculture and by taking most of the money to pay for it not from the beneficiaries but from schools, universities, the old and the sick, and from the taxpayers, present and future. Next November, when they get to vote on the bonds, they’ll have the last word on that.
We have shown a propensity for passing spending bills with no funding provisions. For being swayed by lies and fear-mongering tactics. For not looking too closely at what the long-term consequences of our votes will be.
And I say “we” because I have also been guilty of this. I voted for years before I was politically aware enough to realize the damage I was doing. And the Democratic Party and media unfortunately did little to combat my ignorance.
Now we are relying on the fiscal wisdom of the California voter to prevent a financial catastrophe similar to the one many of us face with the personal debt we unwisely incurred.
We are relying on the same media to enlighten voters. And the Democrats sponsored this legislation in the first place. So we can’t hope for much from them in combating the looming disaster of The Bond that Broke Our Bankrupt Budget.
It is truly a frightening thought.