November Bond Offerings Reach Record Levels
By HOWARD FINE
Hold on to your pocketbook.
Voters in much of L.A. County will decide in November on a record $22 billion in bonds to be sold by state and local governments for infrastructure projects including new schools, water treatment plants and seismic upgrading of cultural institutions that eventually would cost $42 billion to pay off over the next 20 to 30 years.
“The figures are staggering,” said Sherry Bebitch Jeffe, senior scholar at the school of policy, planning and development at the University of Southern California. “If voters start adding all this up, you’re going to see their mouths drop and their eyes roll. The question is, will they actually take the trouble to do that?”
Taken together, these bonds are designed to address the tens of billions of dollars of backlogged projects needed to keep up with the California’s growing population.
With the state facing a record 2002-03 budget deficit of at least $24 billion and interest rates at their lowest levels in 30 years, state and local public officials are increasingly turning to bonds as a means of financing infrastructure projects.
“This is the way it’s going to be in every election for the foreseeable future,” said L.A. County Supervisor Zev Yaroslavsky. “Voters are going to have to make some difficult choices.”
Typically, bond measures allow elected officials to fund much-needed projects without raising taxes. But critics argue that increasing the debt load at a time when the state faces years of budget deficits is bad fiscal policy. They also raise a traditional argument against bonds: when the interest payments are factored in, they are the most expensive way to fund projects.
“We continue to be skeptical of the size and number of these bonds,” said John Coupal, president of the Howard Jarvis Taxpayers Association. “I don’t think people yet have an appreciation of what’s being asked of them.”
Proposition 47, a $13 billion education facilities bond, alone will cost nearly $26 billion to pay off over the next 30 years. “That’s nearly $1 billion each year added to a state budget that’s already seriously out of balance,” Coupal said.
A Field Poll of 765 likely voters released earlier this month showed 54 percent approval, although support for the measure, which would earmark $6.4 billion for new school campuses and $3.2 billion for existing campus upgrades, had slipped from 58 percent in July.
Meanwhile, Proposition 50, a $3.44 billion water quality/facilities bond that sets aside $950 million for coastal protection and $825 million for restoration of the San Francisco Bay-Sacramento River Delta area, saw support slip from 52 percent in July to just 38 percent this month.
“It appears that voters are already doing their own picking and choosing,” Jeffe said. “Some of that may be due to the economy and the perception that with the state in a budget crisis, this may not be the best time to take out more debt.”
The Field Poll did not ask about Proposition 46, a $2.1 billion housing bond that includes $900 million for low-interest loans for low-income renters and $500 million in low-interest loans and downpayment assistance for first-time low- and moderate-income homebuyers.
Besides these measures, there’s another $22 billion in the works for statewide ballots in 2004.
On the March 2004 ballot is a $12 billion school facilities bond measure the second part of the $26 billion education bond package agreed to earlier this year by Gov. Gray Davis and the state Legislature. A $10 billion bond for the construction of a high-speed rail line from Los Angeles to San Francisco is on Davis’ desk awaiting his signature or veto. If he signs, that bond would go on the Nov. 2004 ballot.
“That’s another $40 billion or so in 2004 that taxpayers would have to pay back, on top of all the bonds on this year’s ballot,” Coupal said. “Given our budget crisis, that certainly won’t do much to improve our credit rating.”
But Claire Cohen, vice chairman of Fitch Investor’s Service, a bond-rating agency, said the state’s annual debt load is about 3 percent of total personal income, slightly below the national average.
“The state will be able to handle the debt,” Cohen said. “We don’t really get concerned until you get above the 6 percent threshold, and even if all these bonds are approved, it would only bring the debt load to about 4 percent.”
With the exception of a $9 billion education bond approved by California voters in 1996, the state did not pass many large bond measures in the 1990s, according to Zane Mann, publisher of Palm Springs-based California Municipal Bond Advisor. “Even though these numbers are huge, it’s really no big deal, because the state has room to absorb more bond debt,” Mann said.
That’s the argument state Treasurer Phil Angelides has made in recent public appearances. Part of Angelides’ job is to sell the bonds to Wall Street investors, and he points out that with interest rates at record lows, this is the best window in years to sell such bonds.
However, both Cohen and Mann warned that the current window of low interest rates might close before the state gets around to selling many of these bonds.
“It may be as long as five or six years before some of the school or water projects are ready for financing. By that time, interest rates may have shot back up again,” Cohen said.
She cited figures from state Controller Kathleen Connell’s office showing that the state currently has $8 billion in bonds from measures approved by voters in previous years that have yet to be sold.
Locally, the biggest bond on the November ballot is Measure K, a $3.34 billion LAUSD school facilities bond to finance the building of dozens of new schools in the overcrowded district.
Proponents say the measure is essential to finish the building of new schools and the expansion of existing campuses that were not financed by Proposition BB, which was passed in 1997. Otherwise, they say, classroom overcrowding will continue to worsen.
But Coupal said a lack of accountability in the oversight of Prop. BB led to problems in tracking how $200 million was spent. Also, funds were allocated to the controversial Belmont Learning Center project. “As far as I can tell, there are no guarantees that the accountability will be any better with this measure,” he said.
At $250 million, Measure A, for seismic upgrading and expansion of local cultural institutions, is the smallest bond measure on the ballot for most Angelenos. It would set aside $98 million each for renovations of the Los Angeles County Museum of Art and the Natural History Museum.
Measure A supporter Yaroslavsky said it offers the best deal of any of the bond measures on the ballot. “None of these dollars can be spent on a project until there is a matching amount in private sector donations, which means it’s really a two-for-one deal,” he said.
Nonetheless, when set against an education bond and a parcel tax for trauma care centers, Measure A may have to compete against the sentiment that museums are a luxury in tight fiscal times, not a necessity.