Debt service to crowd out education spending – and everything else
Over the years, Superintendent of Public Instruction Jack O’Connell has developed a sixth sense for steering clear of political potholes. So it was puzzling to hear him call for $9.9 billion worth of bonds for school construction one day after state Treasurer Bill Lockyer warned that California is already bonded up to its eyeballs — at its peril.
“There is an obvious need to improve school facilities throughout California, and we cannot afford to wait to meet this need,” O’Connell said in a press release after testifying at a Senate hearing on school facilities.
But wait we probably will.
According to Lockyer’s lastest report on debt, by 2013, a record $10 billion in interest and principal on state debt will eat up a whopping 11 percent of estimated $91 billion in state revenue. Most of the money will pay off general obligation bonds, but more than $2 billion will cover short-term borrowing that bailed the state out of this year’s financial crisis. Then there’s the $11 billion in water bonds that the governor and legislators will ask voters to pass in November. The state would start paying them off, too.
Debt will continue to squeeze out money for education, state parks, child care and all sorts of good things for years to come. Debt service totaled only $2.5 billion a decade ago and jumped to $6 billion this year, a 143 percent increase while revenue this year was 22 percent above 2000.
Debt service will hit the peak of $10. 5 billion in 2020, at which point it would eat 7.37 percent of revenue. That assumes no more big bond issues before then. On top of that will be soaring public pension obligations.
The state’s paying so much in part because it’s credit rating is just above junk bonds. The difference in higher interest rates results in big money forked over from taxpayers to investors: $380 million over 30 years for every $1 billion issued (compared with AAA rated municipal bonds). Applied to the $47.5 billion in approved but unissued bonds, that’s $18 billion more in interest, according to Lockyer.
Since 2000, the Legislature proposed — and voters approved — $23 billion in school construction bonds: $13 billion under Proposition 47 in 2002 and an additional $10.4 billion in 2006 under Proposition 1D. Local voters have passed tens of billions more.
O’Connell can make a good case for investing in career academies, which need the latest equipment and separate space. But that would comprise $200 million of the $9.9 billion O’Connell is proposing.
O’Connell said that a school facilities bond would “further our long-term goal of creating a competitive workforce.” It would also be further saddling the next generation of workers with the debts of their parents. If they only understood this, students perhaps would be spending time marching around the Statehouse instead of trashing the chancellor’s home at Cal over fee increases.