☆ Opinion: Why bonds are worse than taxes
This November’s Proposition 5 would lower the approval threshold for local infrastructure and housing bonds from 66.6% to 55%. The result, says Midcoast Community Council Vice Chair Gregg Dieguez, will be more local government bonds; and that is harmful to us all. An Opp Now exclusive op-ed by Dieguez, here expressing his own opinions.
Realize that Bonds are taxes, but they add ~75% to the cost of assets financed (at 4% interest plus issuance fees). Because bonds waste so much money that is not deployed for valid social uses, they should require a higher voter approval threshold. And Bonds lead to wasteful spending by governments that fail to plan ahead, and tax, for valid priorities.
Regional Measure 4 (RM4) illustrates the misuse of bonds so prevalent in California. Now withdrawn from the ballot, RM4 would have wasted 66.89% of the taxes raised on bond interest, overhead, and issuance fees. Yet 11 Santa Clara mayors wrote a letter to the County demanding fair shares of the $2 billion RM4 allocation intended for the County, and not one raised the point that the County could have raised the same money at one-third the cost of RM4, had the County instead passed its own parcel tax. Bonds make it too easy for governments to waste our money on interest and fees when schools and public works badly need funding.
Well-run governments pay for infrastructure projects from reserves and current tax revenues rather than issuing costly bonds. In Massachusetts, school facilities are typically funded that way. California needs a tax structure that forces our government to plan ahead, instead of creating a series of crises.
California is addicted to debt. According to Census data, California governments owe more than $500 billion in long-term debt, accounting for about one-sixth of the nation’s total. This year alone there are 247 separate K-14 districts with bond ballot measures—and one statewide—totaling $55.6 Billion. That could waste $41.7 Billion we need for schools and infrastructure priorities, depending upon interest rates.
Bonds lead to another Intergenerational Injustice, like the Climate Crisis and Unfunded Pension Liabilities, because they sentence future taxpayers to overpaying for priorities we should have been saving our taxes for all along, as we exhausted those assets.
There can be valid uses for bonds, when the assets so created provide extra revenue worth more than the cost of the bonds. The Mass Turnpike is one example of intelligent infrastructure which makes more money than it costs. But the ease of Bond funding can lead to misguided initiatives like Prop 1A, funding a high speed rail project which will never pay for itself, and cost us hundreds of billions of dollars if allowed to continue.
Often, ballot measures wording is not truthful, and is often biased. For example, RM4, a $20 Billion bond series costing $48.3B in taxes was titled: "The Bay Area Affordability Plan."
Finally, almost all bonds lack meaningful oversight, which also leads to abuses in use of the money. Under current practice, citizen oversight boards are appointed by the entity raising the money, can be dismissed by them, and don't get to see the financials until 6 months after the end of the fiscal year. That's like closing the barn door after the fox has eaten all the chickens, to mix metaphors. What must be established are independently appointed overseers with their own funding and statutory powers, including advance participation in disbursement decisions. Prop 5 actually weakens the already small oversight standards contained in prior legislation.
Truly "taxes are the price we pay for civilization." But let's not make it easier to waste an extra 75% more money than a tax increase. Let's keep the voter threshold at 67%, the same as tax increases. We need to stop putting Bonds on the ballot—and insist that meaningful tax reforms and bond oversight guardrails are put into Law first, before borrowing.
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