Treasurer John Chiang and a top aide to Gov. Jerry Brown commemorated the final payoff Wednesday on billions of dollars in budget-balancing bonds, while chiding the “fiscal shortsightedness” of then-Gov. Arnold Schwarzenegger and lawmakers who backed the measure.
Proposition 57 on the March 2004 ballot authorized $15 billion in unprecedented borrowing to help the state balance its books without more spending cuts or tax increases. A companion measure, Proposition 58, was billed as a way to prevent future overspending but turned out largely to be toothless.
The state ultimately sold about $14.2 billion in bonds to investors and will have paid about $4.8 billion in interest and administrative costs. Chiang and Michael Cohen, the director of Brown’s Department of Finance, said Wednesday’s $929 million payment closes the books on past borrowing-reliant state budgets, and will free up about $1.6 billion annually for other purposes.
“Instead of making the difficult decisions in 2003, 2004, unfortunately they decided to take an attitude of `let’s borrow today and pay later,’” Chiang said, without mentioning by name who “they” were.
“Wall Street should not be the budget reserve for the state of California. It’s costly, it makes no sense,” added Chiang.
The 2004 bond measure followed months of steadily worsening state finances after the dot-com bust. Within weeks of Schwarzenegger taking office after the gubernatorial recall election, the new governor and the Democratic-controlled Legislature agreed on what would become propositions 57 and 58.
Politicians from across the political spectrum nevertheless embraced the proposed borrowing, including Brown, the then-mayor of Oakland. Many local government leaders endorsed the bond as a way to avoid cuts to cities and counties.
“Deficit spending is what you do in the middle of a recession,” Brown told the Oakland Tribune a few weeks before the election. “When you’re in a soft economy, the borrowing of money to stimulate jobs, and that kind of activity, makes a lot of sense.”
Proposition 57 passed with 63.4 percent of the vote, failing in only five counties: Humboldt, Modoc, San Francisco, Shasta and Tehama.
“Obviously we were in crisis but I think we needed to present the full plate of alternatives to the electorate, so they understood…that if we’re going to borrow on our credit card, go out and borrow up to $15 billion in shaky markets…what is it going to cost in the long term?” Chiang said.