A number of readers have written me suggesting that the Schwarzenegger deficit bond amounts to a tax increase. Aside from whether the bond is a good idea or a bad idea, it is simply not accurate to call it a tax increase. The bond represents a spending commitment locked in over the term of repayment. If the debt service is $1 billion a year for 30 years, that's $1 billion each year that won't be available to spend on current programs and services. Taxpayers wouldn't be paying more. They just wouldn't be getting as much in return for what they are paying. Some of the confusion may stem from the fact that local school bonds do come with tax increases attached. When you vote for a local school bond, you are voting to raise your property taxes by the amount needed to retire the bond over time. The same does not apply to state general obligation bonds. They are spending commitments, not tax increases.
Posted by dweintraub at 11:26 AM
The Chronicle has a story this morning about the fiscal crisis spreading across Bay Area local governments, with most of them blaming the state for their woes. Clearly cities and counties have reason to worry about the fate of the car tax, and the question of whether the Legislature will comply with Schwarzenegger's request to make the locals good for the $4 billion they stand to lose annually from the rollback the governor signed last week. Beyond that, though, the state has really done relatively little to crimp county budgets in recent years, and even less to the cities. I suspect a thorough examination of their plight would reveal that cities in fiscal trouble are there because of a decline in local sales tax revenue coupled with fast-rising personnel costs due to employee raises, pension hikes and health benefit inflation over the past few years. Not all cities are in dire straits. It would be interesting to compare those that are to those that are not and find out why they differ.
Posted by dweintraub at 8:57 AM
The governor and his allies are hoping to repeal the illegal immigrant driver’s license bill this week, and Schwarzenegger might also begin to lay out his budget plan in more detail. I still think he is going to get a bond measure of at least $15 billion and perhaps more. But it's starting to sound as if the idea of a new, fully developed constitutional limit on spending is not going to fly in this round. Look instead for some kind of reserve requirement or balanced budget law that Schwarzenegger could sell as a “never again” device to make his bond measure more palatable to the people. It wouldn’t shrink government over time, as some of his Republican allies would like to do, but would prevent the Legislature and the governor from committing windfall tax revenues to ongoing programs as they did in 1999-2000. It’s also possible that the deal could include some kind of short-term spending target covering the next year or two as the first step toward bringing the budget back into balance.
Posted by dweintraub at 8:06 AM