“Historic” Water Bond Would Contribute to Historic Debt

Passage of an $11 billion water bond by the Legislature comes just a few weeks after the state treasurer warned that lawmakers cannot keep issuing debt willy-nilly and need a master plan to set priorities for its issuance.

Apparently, lawmakers didn’t read the treasurer’s report on debt levels.

The water bond, which began at $9.4 billion in the Senate and was inflated to $11 billion in the Assembly, is part of what Gov. Arnold Schwarzenegger touts as an “historic, comprehensive” plan to improve the state’s water delivery system.

Legislators wouldn’t have needed to wade too deeply into State Treasurer Bill Lockyer’s 2009 Debt Affordability Report. His admonition is contained in the fifth paragraph of the report’s first page:

“The current debate about how to finance improvement to California’s water infrastructure system provides timely and pressing case study,” Lockyer writes.

“Some have suggested paying the entire cost with state general obligation bonds, which must be repaid from the General Fund.

“But this report makes clear that further increasing the General Fund’s debt burden, especially in the next three difficult budgets, would require cutting even deeper into crucial services already reeling from billions of dollars in reductions.

“The case for user-funding for most water system improvements is compelling, both as a matter of equity and fiscal prudence.”

Lockyer hasn’t taken a position on the water bond but his views about the need to set priorities on issuing bonds hasn’t changed nor has his position on who should pay for water system improvements, said Tom Dresslar, Lockyer’s press secretary.

“It makes more sense, as a matter of budget management and fairness, for users to finance most water works improvements, instead of placing the entire burden on taxpayers and the General Fund,” Dresslar said.

The water bond stipulates that no more than 50 percent of the $11 billion can be sold during the next five years — assuming the bond measure is approved by voters next November — which reduces the increase in debt service in the short term.

However, Lockyer’s debt affordability report shows the amount of debt service the cash-starved General Fund pays will already double from $6 billion this year to more than $12 billion in seven years.

That $12 billion in debt service in the 2016-2017 state fiscal year represents nearly 10.5 percent of the General Fund, up from 6.7 percent this year.

Most of that higher level of debt service stems from already issued bonds so “balancing the budget will have to be accomplished with little help from the debt service side of the ledger,” Lockyer’s report says.

“At a minimum, the passage of this water bond highlights the critical need for a master plan that sets priorities for infrastructure development and lays out a plan to pay for it,” Dresslar said, echoing the debt report’s conclusions.

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