Despite early state revenue projections for 2011 of $129 billion, after economic realities set in that number was reduced to $87 billion. It appears the final revenue number may be even $3.7 billion less. You can’t run a company, much less a state, on that kind of disparity. To avoid additional catastrophic budget cuts, the General Fund’s revenue must be increased as quickly as possible.
Raising taxes is the traditional way to increase revenue, and the plain truth is that this has become the default position for too many inexperienced and unimaginative politicians. It’s a step in the wrong direction for a state with one of the highest tax rates in the country and a struggling economy. The other more sensible way to increase revenue is to aggressively create new revenue streams by attracting businesses and expanding the work force, both of which will result from a massive-scale infrastructure improvement effort.
Issuing bonds will add debt service to the state’s budget, but the resulting funds injected into the state’s economy will create tens of thousands new jobs, businesses and additional residual commerce. These activities will, in turn, help offset the new debt costs by the new additional tax revenue they generate.
The main problem facing the state’s previous massive infrastructure boom a half century ago was that fixing the state would cost serious money that California didn’t have. At that time, many politicians and their constituents, having learned some hard lessons during the Great Depression and being uncertain of a post-war economy saddled with massive war-produced debt, preached a “pay as you go” approach. They argued that the state shouldn’t undertake sizable improvements until it was able to pay for them from existing funds, and there were no excess funds available. Others argued that bond borrowing was preferable because if they waited, inflation would make the projects considerably more expensive as construction and related costs continued rising out of reach. What’s more, future residents who would benefit from the completed projects would be contributing to the cost. When the shouting finally stopped, waiting until the state had funds on hand was deemed unaffordable so they bit the bullet and proceeded to invest in the state’s future relying heavily on borrowed money.
Just as California’s successful history of massive infrastructure projects such as the State Water Project and roads and highways system has been financed using borrowed money, we advocate the use of bond issues to stimulate the economy and provide much needed improvements to the state’s aging infrastructure as well as provide hundreds of thousands of jobs. Studies show that a $1 billion dollar investment in infrastructure creates employment for 15,000 to 25,000 individuals. The time to borrow has never been better, as interest rates on bonds are at the lowest point in decades.
Like then, the state is in dire need of bold, decisive action. Our proposal is for $100 billion to be prudently spent over the next five years. California has $37 billion in improvement bonds that have been authorized by voters but not yet been issued. Worse, there are reports that an additional $9 billion in voter-authorized bonds have been issued, yet are held up unused at the state agency level even though we are paying debt service on them. Add $54 billion to these previously authorized bonds, and California would have $100 billion to catapult the state into the 21st century by fixing and upgrading roads, bridges, schools, water, power, data lines, education, and job creation and training, all of which are necessary investments in the future of California.
For more information, check out the following reports:
2011 State Treasurer’s Bond Summary Report (48pp. PDF)