California’s Borrowing Propositions Go Down to Wire

Published December 1, 2006

Despite strong support from California Gov. Arnold Schwarzenegger (R), most Democratic Party lawmakers in the state, and business groups and labor unions, November ballot proposals to raise California’s borrowing by more than $40 billion are facing stiff opposition.

Recent polls indicated the outcome of the November 7 vote on most of the proposals was too close to call at press time.

Five bond measures totaling $42.65 billion would enable the state to boost spending on “infrastructure”–including transportation, housing, school construction, and water resources.

Because of interest that would be charged on the borrowed money, the total cost of the bond proposals is actually about $80 billion.

Unusual Coalition

Supporting the proposals is an unusual coalition of individuals and organizations that usually oppose one another.

The pro-Democrat California Teachers Association and the pro-Republican state Chamber of Commerce are supporting all five pieces of Schwarzenegger’s infrastructure-bond package. The teachers union has already spent more than $5 million to promote the package.

Intense Criticism

Critics argue the bond measures lack accountability, do not ensure taxpayer dollars will be directed toward the most-needed projects, are an unfair and unsustainable means of financing the stated objectives, and ignore the failures of previously passed bonds.

“Have they fixed the policies that got us into this mess in the first place?” asked George Passantino, senior fellow at the Los Angeles-based Reason Foundation and a director on Schwarzenegger’s California Performance Review. “Have they asked the private sector to build roads and other infrastructure? Borrowing money should be the last resort and the state hasn’t come close to exhausting its other options.”

Passantino points out the state government leaves these expenditures out of the annual budget in order to put off having to pay for them.

“Sacramento continually leaves basic fundamental expenses like roads, schools, and vital water infrastructure out of the annual budget,” Passantino said. “Instead of making tough decisions about how to pay for these programs with money we actually have, state leaders want to max out the credit cards and let others worry about the bills and consequences later. Even worse, these borrowing schemes will open up a whole new era in pork barrel spending.”

The Reason Foundation has issued a series of reports taking an in-depth look at several of the ballot propositions, identifying numerous problems with each of the bond proposals and showing how the same goals could be accomplished without borrowing. All of the reports are available online at Below is a brief overview of the findings.

Proposition 1B

Despite its massive $19.9 billion price tag ($38.9 billion including the interest), Proposition 1B, a transportation bond, delivers minuscule road capacity additions that barely scratch the surface of what is needed across the state. Supporters contend the proposition would fund safety improvements and repairs to state highways; upgrade freeways to reduce congestion; repair local streets and roads; upgrade highways along major transportation corridors; improve seismic safety of local bridges; expand public transit and car pool lanes; and improve anti-terrorism security at shipping ports.

With six California cites ranking among the 18 most-congested areas in the country, the Reason Foundation estimates the state needs 13,100 new lane-miles at a cost of nearly $122 billion to deal with expected population growth and relieve severe traffic congestion across the state.

Reason researchers say the state could successfully recruit private companies, who are already pouring more than $25 billion into road projects in other states, to pay for and construct California’s much-needed roads. The companies would recoup their investments by charging tolls to trucks and cars that use the roads.

To do this successfully, Reason says the state’s existing public-private partnership law needs to be updated.

Proposition 1C

Just four years ago, California voters approved $2.1 billion in bonds to fund affordable housing programs. Yet with low interest rates driving a massive housing boom, the median home price in California rose from $324,000 in mid-2002 to $475,000 in July 2006.

Proposition 1C would borrow another $2.85 billion in bond money (that will actually cost taxpayers $6.1 billion) to fund shelters for battered women and their children; housing for low-income senior citizens; homeownership assistance for the disabled, military veterans, and working families; and repairs and accessibility improvements to apartments for families and disabled citizens.

The Reason study contends more government involvement in the housing market won’t lower prices or fix the state’s supply and demand problem. Each year California’s housing shortage increases by 50,000 units.

The Reason study notes affordable housing is created when existing homeowners upgrade to newer units, placing older units on the market for young and first-time homeowners. Thus, the state should look for ways to increase the total stock of new and used housing.

Removing regulatory barriers and streamlining the permitting and environmental review processes would be a start. The report also says prevailing wage laws should be repealed–they increase housing prices by 9 to 37 percent.

Proposition 1D

In the past decade, California voters have approved nearly $100 billion in school construction bonds at the state and local levels. Now lawmakers are asking to borrow another $10.4 billion (costing taxpayers $20.3 billion with interest) for school construction and repairs.

In the past two years, California has increased education funding by $7 billion, but lawmakers didn’t earmark any of that money for these “critical” infrastructure projects.

The Reason study says the state’s reliance on bonds exacerbates inherent problems in the school construction process and cost overruns are common. The scandal-plagued Belmont Learning Center in Los Angeles, tagged as the most expensive school in America, will have cost taxpayers more than $300 million once–or if–it is finished.

“Cost overruns and long construction delays are the norm,” said Lisa Snell, director of education at the Reason Foundation. “We all want schools to be safe and clean, and to house the right number of students. But a troubling lack of accountability allows these bond projects to go two or three times over budget without any repercussions.”

Snell said Arizona is now paying for new school construction out of the general fund and California should do the same. The Reason report also recommends utilizing developer-built schools in new neighborhoods and suburbs.

Propositions 1E, 84

California voters have approved more than $11 billion in water resources bonds over the past 10 years. Much like those previous bonds, Propositions 1E and 84 ($9.5 billion in new bonds that will cost $18.5 billion to repay) offer a grab bag of funding for parks, recreational activities, and the like, but little in the way of real infrastructure.

As a result, even some local water districts oppose Prop. 84.

In addition, most of the funds made available by the bonds to repair levees in the state would protect agricultural land, not homes.

Only a fraction of properties vulnerable to flooding are currently required to have flood insurance–leaving taxpayers on the hook for any damages, even foreseeable ones. Additionally, many local governments in flood-prone areas are completely depending upon state tax money for compensation of flood damages. The Reason study concludes immediate liability reform is needed.

Adrian Moore ([email protected]) is vice president of research for the Reason Foundation, based in Los Angeles.

For more information …

For more information on reports related to California and the November bond measures, visit