By WAYNE LUSVARDI
Most knowledgeable people realize that California’s debt emperor has no clothes. Even if the mainstream newspaper media continue to clothe the emperor in the robes of an all-wise Buddhist monk who has taken a vow of poverty.
The good news is that California is “drying out” from its addiction to Federal Stimulus monies, which end this month. However, the state’s addiction to bonds, one-time capital gains taxes and underfunded retiree health benefits continues despite Gov. Jerry Brown’s insistence that he would not sign a state budget balanced with gimmicks (one-time revenues and non-taxes).
Did you know that the California government is operating on $11 billion of authorized but unspent general obligation bonds? Jerry Brown didn’t tell you that when he announced his May Revise Budget with $6.6 billion of supposedly unexpected new tax revenues, mainly from a one-time burst of capital gains taxes from April income tax filings by investors selling stocks and real estate.
State Assemblywoman Diane Harkey (R-Dana Point) has blown the whistle that California has “pre-funded” $11 billion in bonded debt issued but not spent, for which we are paying hundreds of millions annually. In other words, if it were not for plugging $11 billion of the state budget with pre-funded bonds, there would still be a $20.6 billion budget deficit instead of the $9.6 deficit being advertised after the Governor’s May Revise Budget. Brown is still trying to mend a patchwork budget.
The term “pre-funded” is a euphemism for “arbitraging” or taking out a low interest loan to pay for state operations. Arbitraging tax-exempt bonds — by investing bond proceeds in higher yielding taxable investments resulting in a profit — is illegal, except with a small percentage of bond funds under very strict rules.