Our Black Hole. CA Debt Service

Financial black hole

Financial black hole photo. Courtesy TIME

For the past two years we have read hundreds of newspapers reports addressing the fact that we cannot agree on a State budget. What readers should acknowledge is that we are guilty for part of the problem and must now become part of the solution.

We are quick to show compassion every election cycle when asked to vote approval of statewide Bond Measures while failing to acknowledge that eventually this 30 year bonded indebtedness comes home at a high cost. It’s not free money folks.

In his December 14th report for an Assembly Budget hearing State Treasurer Bill Lockyer provided a 16 page report that contains some very troubling numbers.

And while numbers tend to numb, and are not sexy, I will take a stab at our debt service that is robbing funding for a wide spectrum of buckets whose funds are being cut to balance our recently approved state budget.

“Since FY1999-00, annual debt service has increased 143% while General Fund revenues have increased only 22%.” In calendar 2009 California sold $36.6 billion of short and long term debt.

As of Dec. 1, 2009 CA had $83.5 billion of outstanding long term debt of which 93.7% is fixed rate. In 2013 the debt service on our existing long term debt will exceed approximately $7.5 billion. Our currently active debt service peaks at $8.47 billion in year 2013.

However, “despite the extraordinary amount of debt issued in 2009, the State still has $47.48 Billion of voter authorized but unissued GO (Government obligation) bonds, and $10.2 billion of Public Works Board lease revenue bonds authorized by the legislature and unissued.”

“When the debt service on Economic Recovery Bonds (ERB) is added to General Fund supported debt service, debt service is projected to peak in FY 2020 at $11.29 billion.” 

Pay attention. How will you be voting in the next election cycle when additional bond measures are on your plate potentially driving this number even higher?

What were voters thinking as they continue to vote approval on many of these costly programs when, according to our state legislators, we cannot fund our basic services as evidenced by our being 100 days late on a state budget that is bogus to begin with.

Note: The authorized but unissued bonds as of 2006 include the balance of Prop 84, 1B, 1C, 1D and 1E representing $28.6 billion of that prior group.

Folks. The “total debt service to revenue ratio is projected to peak at 10.98% in 2012-13.”  As you pay your monthly bills do you find yourself paying over ten percent in interest charges?  You’re not? Yes, you are.

Don’t you pay state income and other taxes?
Picture a pumpkin pie this Thanksgiving with a (10 percent) slice missing that goes into a black hole. That my friends is our debt service.

Happy Thanksgiving to all from the entire team of authors at the Orange Juice blog!


About Larry Gilbert