A gimmick used to paper over one of California’s largest budget deficits is now finally paid off – but not without costing the state billions of extra dollars.
In 2004, California voters approved $15 billion of deficit borrowing under Proposition 57 championed by then-Governor Arnold Schwarzenegger and members of both political parties as “economic recovery bonds.”
The bonds put a band-aid on a $35 billion dollar deficit – avoiding a tax-or-cut stalemate at the state Capitol. But they left California taxpayers with a huge bill in the years that followed: nearly $20 billion in principal, interest and fees.
Now, that bill is paid off.
“To explain (to California taxpayers) that over one percent of their money is going to pay for services that were rendered in 2002 or 2003 creates a really hard conversation about, are you getting your money’s worth out of government,” Michael Cohen, Gov. Jerry Brown’s Director of Finance, said at a news conference Thursday in Sacramento after signing a letter certifying that the bonds are fully paid off.
“I think this lets us get to a place in the state where you can have a better conversation about – are you happy with the level of services, and are you happy with the level of taxation you’re paying,” Cohen added.
This year’s state budget uses nearly $1 billion set aside for debt repayment under the “rainy day fund” voters approved a year ago to pay off the bonds ahead of schedule. That will free up $1.6 billion dollars a year for other budget priorities.