Published using Google Docs
Taming the Debt Monster in CA.docx
Updated automatically every 5 minutes


Taming the Debt Monster in California

Giving voters the right to set limits would control the spiraling burden on taxpayers.

January 23, 1997|DAVID BARULICH and BENJAMIN ZYCHER | David Barulich, a Los Angeles- based policy consultant, was the author of the debt limit referendum. E-mail: Benjamin Zycher is vice president for research at the Milken Institute for Job and Capital Formation in Santa Monica. E-mail:

The recent good news on the California economy and projected increases in tax revenue have obscured an ominous long-term fiscal problem: The state's outstanding debt and debt service costs are high and growing. Total outstanding debt for which taxpayers are responsible (all figures are in 1995 dollars) grew more than 31% from $15.4 billion in 1991-92 to $20.2 billion in 1995-96. Over the same period, tax revenues grew only about 1%. In addition, the voters approved another $1.4 billion in bonds last November. The current outstanding debt burden is about $630 for every Californian, an increase of 25% over only five years, and annual debt service cost is about $76, an increase of 58% over the same period.

Moreover, an insidious device known as "lease-purchase" debt has grown--without voter approval--from $3.1 billion outstanding in 1991-92 to $5.8 billion in 1995-96. In addition to the total state debt, cities, counties, school districts, redevelopment agencies and other units of local government have added more borrowing to the debt burdens carried by taxpayers.

This borrowing binge is not new. Since 1979-80, the state burden of outstanding debt borne by California taxpayers has increased by almost 500%. Debt service costs have increased from 1.3% of general fund tax revenue in 1979-80 to 5.2% in 1995-96. So it is no surprise that only Louisiana and New York have credit ratings lower than that of California.

Future pressures for additional borrowing will be intense. The coming tidal wave of new public school students and the burgeoning prison population portend a huge new series of bond measures to finance construction of schools and prisons. The legislative analyst's office estimates those capital outlays at more than $15 billion over the next five years; additional capital outlays for parks and other nontransportation infrastructure over the same period will total almost $10 billion.

Just as the voters have the power to approve individual bond proposals, it is appropriate that the electorate control overall indebtedness, so as to balance its desires for public services with the requirement to pay for them. Recognizing this, Assemblyman Bruce Thompson (R-Fallbrook) has introduced "the debt limit referendum," the first step toward a constitutional amendment that would grant California voters the fundamental right to set limits on total state and local government debt. This is how it would work:

An initial debt limit would be imposed on the state and local government units. New bonds could be issued by any of these entities as long as the outstanding debt was less than the debt limit. If the state or locality wanted to increase its debt limit, it would have to pass a bill, ordinance or resolution doing so. However, the increase would not take effect unless a majority of the voters of the state or locality approved it.

The debt limit referendum imposes no rigid formulas. It requires only that a convincing case be made to the voters before total indebtedness is allowed to rise above an existing ceiling. This approach combines restraint and flexibility in that it allows the voters--those who must pay the bills--to determine directly the total debt burden that they are willing to bear.

Voters would no longer be forced to oppose worthy bond measures because that was their only available means of expressing disapproval of the total debt burden. Instead, voters could authorize sound projects and simultaneously oppose excessive levels of total indebtedness by opposing increases in the debt limits, just as a family might decide to borrow for a new car and new refrigerator as long as the family's total debt did not exceed a certain amount.

This proposal is hardly radical: It imposes basic financial constraints that every family and business must obey, but that California governments now do not. Thus will the referendum help strengthen government of, by and for the people. And it will control a spiraling debt burden that we and our children must bear.