Prop. 1 and 2 will cost taxpayers billions and benefit at least four
of California’s 90 billionaires
For more information contact Patrick Porgans pp@planetarysolutionaries.org
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.
