Prop. 1 and 2 will cost taxpayers billions and benefit at least four of California’s 90 billionaires
NEWS RELEASE – Planetary Solutionaries -
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3 November 2014
California Governor Jerry Brown is up for re-election, and, when he wins, will make history as the state’s first fourth-term governor.
Ironically, Brown is not out campaigning for his job. Instead, he is the major proponent of two “legislative sponsored” ballot initiatives, Proposition 1 a water bond” and Proposition 2, a “rainy day” fund, which reportedly have the overwhelming support of Democrats and Republicans.
Brown‘s T.V. ads claim voter approval of Prop. 1 and 2 will enable Californians to save water and money, and secure the Golden State’s economic and financial future, increase water supply reliability, and help it prepare for climate change.
Prop. 1 “Authorizes $7.5 billion in general obligation (G.O.) bonds for state water supply infrastructure projects, including surface and groundwater storage, ecosystem and watershed protection, wetlands restoration, and drinking water protection. Voter approval of Proposition 1 would increase state bond (indebtedness) cost averaging $360 million annually over 40 years,” according to the Secretary of State Office.
Taxpayer groups claim that Brown is plunging California deeper into debt. Some critics charge that Brown is promoting his father’s and his legacy to complete the State Water Project (SWP). Others contend issuance of the G.O. bonds is an ingenious financial scheme to use the state’s tax-base, credit rating and natural resources to promote and sustain the fortunes of California billionaires that benefit from SWP, at the expense of taxpayers.
Brown is viewed as being fiscally conservative; however, his support for the water bond would not save money it will cost taxpayers ‘$15 billion in new debt. This debt obligation will be repaid from the state’s heretofore deficit-ridden General Fund.
California is already inundated with a total of $147.8 billion in G.O. bonds that have already been authorized, according to the State Treasurer’s Office; repayment on that debt is around $300 billion.
Currently, there is $78.5 billion in outstanding general obligation (G.O.) bond debt. Every dollar the State borrows in G.O. bonds, it cost two dollars, according to the State Treasurer, Bill Lockyer. Repayment costs on the outstanding G.O. bonds are in excess of $150 billion. In order to put the magnitude of this debt in perspective, the current general fund expenditures to keep the state running is $107 billion. The annual debt service to repay outstanding G.O. bonds is around $8 billion.
Prop. 1 and 2 are inextricably tied together. The “rainy day fund” requires annual transfer of state general fund revenues to budget stabilization account. It also requires half the revenues be used to repay state debts. Limits use of remaining funds to emergencies or budget deficits.
Critics of both propositions view them as a backstop that authorizes a legal way to issue more bonds and drain money from the General Fund that could be used to fund other essential services. Critics claim that the rainy day fund is just another way of soaking the taxpayers to pay to provide water projects that benefit at least four of California’s 90 billionaires , who have a combined acreage in excess of 720,000 acres that are in need of water and infrastructure. Water realized from the bond act will be used to plant more permanent crops and foster additional urban development in Central and Southern California.
Approval of both propositions would enable Brown and his supporters to open the flood gates and promote more G.O. bonds to cover the debt for the estimated $63 billion “Delta fix – twin tunnels” (Bay-Delta Conservation Plan) and the High Speed Rail “Bullet Train”; initially estimated to cost $40 billion, it is currently at $68 billion. Recently, the California Supreme Court refused to hear the case involving the issuance of bonds for the high speed rail, clearing the way for the state to sell up to $9 billion in G.O. bonds.
Proposition 1 was initially conjured up under former Republican Governor Arnold Schwarzenegger’s Administration, as was the Bullet Train and the Delta tunnels, all of which are being championed by Brown. Schwarzenegger, also viewed as a fiscal conservative, was a strong advocate of G.O. bond indebtedness that Californians will be repaying into the next century.
Prior to the state’s current budget, draconian budget cut, effecting safety-net services, education, jobs, parks and other public services were slashed from the General Fund to offset G.O. bond debt. The state’s credit and bond rating went down the drain, and major investment firms lost interest in the bonds.
Brown kept Schwarzenegger’s Director of Finance, Ana J. Matosantos. During the last two budgets of the Schwarzenegger’s reign, and the first budget Brown approved, they had made draconian budget cuts from the General Fund in excess of $100 billion during a three-year period.
Things went from bad to worse when the State had entered into a deal in a 2010 failed attempt to sell 11 properties in a sale-leaseback transaction to extract revenue from the state’s real estate assets to provide revenue for the state’s budgetary shortfalls. This deal was challenged in the courts, and received a scathing review from critics. A report on the details of the sale was published by the state’s Legislative Analyst’s Office (LAO). G.O. bonds are backed by the full faith and credit of the State, which has the authority to sell public assets to cover the state’s debt.
While it is not the intent to discount Brown’s assertions, critics claim it is a matter of interpretation. For example, since the mid 1990’s, more than $19 billion in G.O. bonds have been authorized for water supply reliability, safe and clean water programs, water for fish, drought relief, and habitat improvement. Voters were assuaged to approve those bonds because they had politicians’ assurances that it would resolve the very water shortages the state is currently experiencing, since the mid-1990s.
Government records attest to the fact that California has expended vast sums of money on water development projects in the past century. The Golden State has the most developed water storage and delivery system in the United States.
In fact, it was Brown’s father, Edmund G. “Pat” Brown, Sr., who successfully launched the California State Water Project (SWP), by getting voters to approve a $1.75 billion G.O. bond, back in November 1960, to build the Project that sold to the public on the promise it “would pay for itself.”
The concept was prefaced on the assertion that SWP water and power contractors would be obligated to repay all of the reimbursable cost for the SWP. The record does not support that assertion.
Conversely, the data indicate that project has not, nor will it ever pay for itself. More than a half-of-century later, there is still $392.9 million in outstanding debt on the SWP $1.75 billion bonds. “Completion of the SWP is now estimated to be more than $50 billion, which does not include all of the costs.
SWP contract require that contractors pay certain annual cost even if they do not receive water; the revelation of the SWP’s economic plight surface at the end of the 1987-1992 droughts. In 1994, Senate hearings revealed that the SWP was not paying for itself and bond syndicates were troubled about the financial integrity of the Project. Those findings and concerns were affirmed by testimony from SWP agricultural contractors asserting that they were on the verge of default. The crisis prompted the state to resort to issuing commercial paper to make good on the SWP’s financial obligations.
Insiders contend that Proposition 1 is just another in a longstanding series of publicly subsidized bailout for SWP contractors. Governor Brown, Sr. conceded that the SWP was knowingly underfinanced and contractually over committed (“sold” more water than it could deliver), since its inception.