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Ban the bonds

October 07, 2005

EVEN DISASTERS CAN HAVE silver linings, and if hurricanes Katrina and Rita have prompted California's elected officials to start talking about the shabby state of our infrastructure -- including hospitals, freeways, cargo facilities and levees -- so much the better. But the frightening thing is, they're looking seriously at another massive bond measure to pay for improving them.

Gov. Arnold Schwarzenegger has talked of a bond issue to shore up levees in the Sacramento-San Joaquin Delta. So has Senate President Pro Tem Don Perata (D-Oakland). The Times' Robert Salladay and Evan Halper reported this week that administration officials and legislative leaders now are talking of a more sweeping infrastructure bond for the 2006 ballot, perhaps as big as $15 billion.

That's premature. First, 2006 is too early for the state to develop a comprehensive outline of what needs to be done and in what order. Second, the state is just too deep in debt to add more billions in red ink, particularly after the $15-billion bond issue voters approved last year to pay off some of the budget debt brought about by boom-and-bust state revenue levels.

Traditionally, California has borrowed money by issuing long-term bonds at relatively low interest to finance construction of school and university facilities, the State Water Project and other brick-and-mortar projects. This spreads the cost out over the life of the projects. Borrowing to pay off debt built up in the course of operating state government was a terrible policy decision. But the red-ink crisis facing Schwarzenegger two years ago left little choice.

The state is paying for it now with a debt level that borders on dangerous and the lowest credit rating of any state, although it has improved over the last year. Wall Street suggests that the state limit debt payments to about 6% of its annual budget. California is near that level now, and the percentage will grow by a full point over the next four years, Treasurer Phil Angelides says.

Rather than seeking a bond measure, the governor should appoint a task force to develop a coherent plan on shoring up state infrastructure, with priorities and financing options. There have been proposals, for instance, to assess property owners with fees for levee maintenance. This makes sense, especially for those levees that are the responsibility of local districts.

Bond issues are always enticing for politicians. They provide big chunks of money for popular projects with seemingly little risk compared with, say, proposing a tax increase. But bond issues don't mean free money. By 2007-08, the state will be spending nearly $3.5 billion just to retire deficit bonds, more than it costs to run the University of California, Angelides said. That $3.5 billion could pay for a lot of bricks and mortar.

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