CLT
UPDATE
Wednesday, January 11, 2006
No matter how you look at it, blame
MTF
Soaring healthcare costs are poised to consume large
portions of many communities' budgets in the coming months, forcing
cash-strapped cities and towns north of Boston to consider cutting back
on other services, such as road maintenance, or asking employees to bear
a larger part of the burden....
Over the past five years, health costs have doubled in some communities
-- growing four times faster than the communities' entire operating
budgets, according to data provided by the Massachusetts Municipal
Association....
Increasing healthcare costs have become a perennial budget buster for
municipalities, and the worst, leaders say, is yet to come.
A wave of baby boomers poised for retirement, coupled with a new
accounting rule that will require communities to report the impact of
future retiree health costs, is creating shudders in local
governments....
Currently, most communities do not report, or even calculate, these
costs until an employee retires and actually starts drawing retirement
benefits. Few communities have set aside money to cover future health
costs, according to the Governmental Accounting Standards Board, the
nonprofit organization that issued the new accounting rules. The board
sets accounting standards for local and state governments....
"The increase is forcing every other line item to hold steady or go
down, which is a terrible crunch," [Georgetown Town Administrator
Stephen] Delaney said. "It comes out of road maintenance, schools. We
are trying to be proactive this year and make sure we are doing the best
we can." ...
Several local leaders said they are frustrated by state laws that make
it difficult for communities to lower their health costs. Currently,
state law requires that each proposed change to a local union contract
be approved by all unions in a community.
For instance, if a community's firefighters were to agree to pay an
increased health premium, local officials would need to bargain similar
increases with the community's police, custodians, and other union
workers before the increase could take effect....
Public employees nationwide generally receive more-generous health
benefits than their counterparts in the private sector, according to a
recent survey by the nonprofit Kaiser Family Foundation.
On average, municipal and state employees pay just 9 percent of the
premium for a single-person plan, while private-sector workers pick up
16 percent of their premiums, the survey showed....
Barbara Anderson, executive director of the Marblehead-based
Citizens for Limited Taxation, said it may be time for
municipalities to stop paying for health coverage altogether.
"Raising taxes on property owners, or taxpayers in general who are also
facing out-of-control healthcare costs, is not a solution," Anderson
said.
Anderson is pushing a plan that would require all employees, both public
and private, to purchase their own health insurance policies and deduct
the costs from their state income tax bills.
"Health insurance, Medicare and Medicaid, is going to get worse as the
population ages," Anderson said. "The problem is going to get worse
before it gets better."
The Boston Globe - North Edition
Sunday, January 8, 2006
Healthcare costs threaten local budgets
Many officials say they must cut back on other services
With state tax collections rising, the state Legislature is
proposing more than $1 billion in new spending to pay for health coverage for
the uninsured, salary increases for court clerks, county sheriffs and judges, to
create jobs, and to fund favorite projects for House and Senate members.
Near the end of last year, legislators approved $80 million for heating
assistance, $11 million for grants to prevent gangs and comprehensive bills to
spend surplus budget dollars and jump-start the economy....
The bills to spend the surplus are drawing the most criticism because they
include scores of pet projects in the districts of legislators and substantial
pay hikes for court clerks, assistant clerks, judges, registers of probate and
county sheriffs.
Barbara C. Anderson, executive director of Citizens for Limited
Taxation, said legislators put a priority on the pay raises.
Anderson said legislators should have cut the state income tax rate from 5.3
percent to 5 percent to comply with a ballot question approved by voters in
2000. "They've got too much money and they want to spend it before they run out
of reasons not to do the income tax rollback," Anderson said....
Because of increasing collections of sales, business and income taxes, the
state's tax collections for this fiscal year through December were $172 million,
or 9.2 percent, more than expected. For the fiscal year that ended June 30, the
state collected $436 million more than expected.
With strong revenue growth, legislators can spend hundreds of millions without
raising taxes....
Michael J. Widmer, president of the Massachusetts Taxpayers Foundation, said the
increase in tax revenues is slowing, and legislators need to rein in some of the
planned spending.
Widmer said the current $24 billion state budget is barely in balance and only
through the use of $600 million in reserves....
"There are too many of them," Widmer said of local projects in the bills. "The
Legislature is overreaching."
The Springfield Republican
Monday, January 9, 2006
New spending to hit $1 billion
Despite well-documented fiscal worries over the past few
years, California has a good financial standing and won't have problems selling
bonds to pay for better roads, schools and other improvements, financial experts
said.
Moody's Investors Service and Standard & Poor's, the two largest independent
credit-rating services, consider the state a good lending risk. Also, there
should be no shortage of banks that like California's future economic prospects
and will want to invest in these bonds....
"Any number of banks will be willing to underwrite this issue," said David
Hitchcock, director of S&P's government group....
An advocacy organization for limited taxes said Schwarzenegger's proposal to
enact a debt ceiling is a good way to reassure taxpayers and investors concerned
about his massive bond pitches.
"Wall Street usually likes it in that it affects your bond rating," said
Barbara Anderson, executive director of Citizens for Limited Taxation,
whose home state of Massachusetts has a statutory debt ceiling. "Standard &
Poor's and everybody likes to see that there's a limit."
Banks may like the spending proposals but be less interested in the debt
ceiling, Anderson said. Banks tend to like to lend money to governments and
don't like limits on governments' indebtedness, Anderson said.
The Press-Enterprise - Riverside, CA
Monday, January 9, 2006
California's well worth bond risk
Most undocumented immigrants who graduate from Massachusetts
high schools are as American as apple pie and Tom Brady....
Yet, because their parents entered the country illegally, they are undocumented
immigrants - illegal, some prefer to say - so they must pay more in tuition
costs than in-state residents if they want to attend a state college or
university....
The Massachusetts Taxpayers Foundation estimated in a report
released last week that the enrollment of undocumented immigrants would increase
from nearly 100 students in the fall of 2006 to about 600 in 2009 if the bill
becomes law. Rather than a loss, the report says that the state will reap
millions of dollars in new revenue if undocumented immigrants are allowed to pay
in-state tuition....
In Massachusetts, the land of higher education, all high school graduates should
be treated equally.
A Springfield Republican editorial
Sunday, January 8, 2006
Illegal immigrants ... or future Americans?
The Massachusetts Taxpayers Foundation is the latest interest
group to weigh in on this debate, which should reach the floor of the House
today. The MTF claims that by offering the lower in-state tuition rate to
illegal immigrants, the state will collect millions in new revenue.
With all due respect to Mass. Taxpayers, that’s some fuzzy math. Funding for
public higher education in Massachusetts has been slashed more deeply than any
other state over the past few years, and college presidents are pleading for a
bailout. Is now really the time to begin absorbing additional costs, even if
they are small?
The MTF report ignores the possibility that Massachusetts might well be forced
to extend the discount to all students regardless of where they live — or
rescind it for everyone — if this law passes. Can the state afford that?
The report projects that enrollment of illegal immigrants would grow from 100 in
2006 to 600 in 2009 if the law passes. Do the numbers just keep going up?
No one wants to deny a student the chance for a college education. But taxpayers
are under no obligation to finance that education for families who circumvent
the law.
A Boston Herald editorial
Wednesday, January 11, 2006
Price is too high for tuition bill
Public colleges could make $2.5 million by 2009 if they
enrolled these students at in-state tuition rates, according to new research
from the business-backed Massachusetts Taxpayers Foundation....
Critics say these students would displace citizens. But public college officials
say they have the capacity to grow without incurring significant additional
costs.
Massachusetts needs more young college graduates. According to Census figures,
the state lost 5 percent of its 25- to 34-year-olds, some 44,000 people, from
2000 to 2004....
The Boston Redevelopment Authority estimates that each dollar spent on tuition
would result in a $4.20 return in income taxes over a 40-year career.
Legislators should pass it as an easy, low-cost way to enrich the Commonwealth.
A Boston Globe editorial
Wednesday, January 11, 2006
College break
Massachusetts’ economic expansion slowed to a "virtual
standstill" late last year — with no improvement in sight, according to a
pessimistic University of Massachusetts report released yesterday.
The state’s economy has slowed so much, one UMass economist said, that it’s
reminiscent of stagnant economic times after World War II when Massachusetts
lost many manufacturing jobs.
"It’s alarming," said Alan Clayton-Matthews, an economist who helped compile the
"Benchmarks Bulletin" for the UMass Donahue Institute.
"This slowdown in the Massachusetts economy is not really the downside of a
business cycle, but rather reflects an economy that is stagnating under the
pressures of a high cost of living, outsourcing (of jobs), offshoring (of jobs),
and competition from Asia for the state’s information technology products,"
wrote Clayton-Matthews.
The Boston Herald
Tuesday, January 10, 2006
Mass. slowdown:
Economy’s growth rate ‘alarming’
Chip Ford's CLT Commentary
Michael Widmer and his so-called
Massachusetts
Taxpayers Foundation continue to be quoted as somehow still relevant.
Most news reports now term MTF "business-backed" since we've
successfully eroded its former appellations of "highly-respected" and
"non-partisan." Today, The Boston Herald took MTF down yet another
notch, terming it "the latest interest group." We're knocking down MTF
and it's once-unquestioned credibility gradually but surely. Soon
we won't be alone in recognizing it for what it's been for too long.
Despite its purported concern for the business
climate of Massachusetts and the state's long-term fiscal condition, for
years MTF has eroded both. Now it has contorted itself further by
attempting to drive up the cost of government even higher, imposing an
even greater bite on law-abiding taxpayers.
Why? Why would a so-called "business-backed"
group billing itself as a "taxpayers foundation" boldly insinuate itself
into such a blatantly anti-taxpayer issue like taxpayer subsidies for
illegal aliens?
How can someone allegedly as astute as Michael Widmer
perennially whimper without effect for over a decade about state
profligacy with one face, while consistently oppose tax cuts for average
taxpayers with his other face? How can a man with the alleged
objective brilliance he evokes not see the connection; fail to
appreciate that so long as our money is on the pols' table they will
spend it and come back for more, as they always have? How many
fiscal crises does it take for someone with even average intelligence to
learn this lesson, to appreciate this simple reoccurring dynamic?
Could it be, as Barbara noted when called by a
California newspaper, The Press-Enterprise, that there is some benefit
to MTF's members when the government runs itself deeper into debt -- by
following Widmer's advice when it serves some politicians' purposes.
We know that average taxpayers are consistently the target of MTF and
Widmer, whether it's support of tax hikes on us or opposition to our tax
cuts. So how does an alleged "taxpayers foundation" stay in
business, who benefits from Widmer's and MTF's poor advice?
First, of course, the recipients of the state's
largesse, extracted by force from its taxpayers.
Second, the bankers who loan Massachusetts the money
to bail itself out of fiscal disaster -- for millions of our dollars in
interest of course. What better way to profit bankers than to help
create fiscal disaster, which the state then needs bankers' money to dig
out from beneath?
Even though it calls itself the Massachusetts
Taxpayers Foundation, notice that its members are not exactly
average taxpayers like us, for example:
MTF Executive Committee
Karen Kruck, Treasurer
Senior Vice President
State Street Corporation
Stanley J. Lukowski
Chairman and CEO
Eastern Bank
James E. Mahoney
Director of Public Policy
Bank of America
MTF Board of Trustees
Donald J. Barry, Jr.
Senior Vice President and Counsel
Citizens Bank of Massachusetts
Christopher W. Bramley
State President, CEO
Banknorth Massachusetts
William S. Hogan, Jr.
President and CEO
Easthampton Savings Bank
Karen Kruck
Senior Vice President
State Street Corporation
Stanley J. Lukowski
Chairman and Chief Executive Officer
Eastern Bank
James E. Mahoney
Director of Public Policy
Bank of America
M. Robert Rose
Executive Vice President
Sovereign Bank
MTF Program Committee
Joseph Ailinger
Vice President- Manager, Media Relations
Mellon New England
James E. Mahoney
Director of Public Policy
Bank of America
Boston
James McCarthy
Executive Vice President and COO
DanversBank
Edward H. Seksay
General Counsel
Rockland Trust Company
Nobody can be as wrong as Michael Widmer and the
so-called Massachusetts Taxpayers Foundation, so often over so long,
without intent or a strategy (see
a little of MTF's track record over the years). None can be as
unintentionally ineffective with reducing the profligate government
spending it whines about year after year, and remain relevant. Time
after time MTF is just providing cover for that spending when it counts,
and it's becoming apparent to more, slowly but surely. Since its
latest news release disguised as a "report" supporting taxpayer
subsidies for illegal aliens, it must be getting difficult for a growing
number to not recognize MTF's true agenda and tactics.
|
 |
|
Chip Ford |
The Boston Globe - North Edition
Sunday, January 8, 2006
Healthcare costs threaten local budgets
Many officials say they must cut back on other services
By Kay Lazar, Globe Correspondent
Soaring healthcare costs are poised to consume large portions of many
communities' budgets in the coming months, forcing cash-strapped cities
and towns north of Boston to consider cutting back on other services,
such as road maintenance, or asking employees to bear a larger part of
the burden.
Some local leaders say they are expecting the cost of healthcare
premiums for their employees to jump between 10 percent and 20 percent
this year, expanding an already strained part of the budget.
Over the past five years, health costs have doubled in some communities
-- growing four times faster than the communities' entire operating
budgets, according to data provided by the Massachusetts Municipal
Association.
In Salem, healthcare costs shot up 101.5 percent between fiscal years
2001 and 2006 while the city's total operating budget increased just
13.4 percent. In Melrose, the gap was even more dramatic. Healthcare
costs soared 113.6 percent while the city's total budget grew just 9.2
percent
Increasing healthcare costs have become a perennial budget buster for
municipalities, and the worst, leaders say, is yet to come.
A wave of baby boomers poised for retirement, coupled with a new
accounting rule that will require communities to report the impact of
future retiree health costs, is creating shudders in local governments.
Retiree healthcare "is a major iceberg now coming into view, and you
know it's going to be big, just seeing the tip of it," said Tom Leckrone,
human resources director for Salem.
Three-quarters of Salem's full-time employees -- 873 of 1,166 -- are at
least 50 years old, meaning many will be eligible to retire, with health
benefits, in the next five years, Leckrone said.
Beginning in 2007, a new accounting rule imposed on all state and local
governments will force cities and towns to spell out each year an
estimate of how much they will need to spend on future healthcare costs
for already retired employees as well as current employees from their
retirement until their death.
It also will require communities to report whether they have set any
money aside for these future costs.
Currently, most communities do not report, or even calculate, these
costs until an employee retires and actually starts drawing retirement
benefits. Few communities have set aside money to cover future health
costs, according to the Governmental Accounting Standards Board, the
nonprofit organization that issued the new accounting rules. The board
sets accounting standards for local and state governments.
The rules do not require governments to set aside money to pay future
retirement healthcare costs.
But communities that don't do that risk jeopardizing their credit
ratings, which can affect their ability to borrow money, said Karl
Johnson, a project manager with the Standards Board.
"Municipalities will need to find money in their annual budgets to pay
down that bill, and with most communities right now really struggling to
make ends meet, given their current costs, this can only add to the
pressure," said E. Cameron Huff, senior researcher at the Massachusetts
Taxpayers Foundation.
Revere City Auditor Laurie Giardella said the city has not started to
put aside money for future retirees' health coverage. Retirement costs
"could bankrupt everything, especially with the baby boomers coming
along," she said.
Retirement costs aside, Georgetown shouldered a 20 percent increase this
fiscal year in health costs for current employees, and the town has
already been told by its provider that it is likely to face another 20
percent hike for the new fiscal year, starting July 1, said Town
Administrator Stephen Delaney.
"The increase is forcing every other line item to hold steady or go
down, which is a terrible crunch," Delaney said. "It comes out of road
maintenance, schools. We are trying to be proactive this year and make
sure we are doing the best we can."
Delaney said Georgetown probably will shop around for a new health
insurance provider to see if it can get lower rates.
Several local leaders said they are frustrated by state laws that make
it difficult for communities to lower their health costs. Currently,
state law requires that each proposed change to a local union contract
be approved by all unions in a community.
For instance, if a community's firefighters were to agree to pay an
increased health premium, local officials would need to bargain similar
increases with the community's police, custodians, and other union
workers before the increase could take effect.
Still, Salem officials are likely to push for major changes to labor
union contracts for health coverage in the coming months so the city can
lower its overall health costs, Leckrone said.
The city probably will recommend increased copayments; employees
currently pay $5 to visit a doctor and $25 if they use an emergency
room.
Leckrone said he would also like to see copayments established for
in-patient hospital stays and visits to specialists.
And, he said, he will recommend that employees pay a larger percentage
of their health insurance premiums. Employees now pay 20 percent of the
premiums and the city picks up the rest. Leckrone said he will recommend
a 30-70 split.
"The main thing is to get these in line with what the city can bear,"
Leckrone said. "We are looking to do it in a way that's not an undue
burden to any of the population."
Public employees nationwide generally receive more-generous health
benefits than their counterparts in the private sector, according to a
recent survey by the nonprofit Kaiser Family Foundation.
On average, municipal and state employees pay just 9 percent of the
premium for a single-person plan, while private-sector workers pick up
16 percent of their premiums, the survey showed.
In the early 1990s, when a similar accounting rule change required
private sector companies to reflect retiree healthcare costs on annual
balance sheets, many corporations responded by cutting back on retiree
benefits rather than setting aside money to pay those obligations.
Specialists say the soaring costs of healthcare, combined with tight
budgets, may prompt communities to consider similar measures. But some
say that would be unfair.
"Municipalities are comparing us to the private sector, but they are not
paying us like the private sector," said Melrose Fire Captain Ed Collina.
"If you want to compare apples to apples, you have to do that," he said.
"We are not paid an awful lot of money for the jobs we do."
In 2004, Melrose's unions agreed to pay 18 percent of their health
coverage, up from 15 percent. Premiums for retirees were unchanged.
Barbara Anderson, executive director of the Marblehead-based
Citizens for Limited Taxation, said it may be time for
municipalities to stop paying for health coverage altogether.
"Raising taxes on property owners, or taxpayers in general who are also
facing out-of-control healthcare costs, is not a solution," Anderson
said.
Anderson is pushing a plan that would require all employees, both public
and private, to purchase their own health insurance policies and deduct
the costs from their state income tax bills.
"Health insurance, Medicare and Medicaid, is going to get worse as the
population ages," Anderson said. "The problem is going to get worse
before it gets better."
Doubling up in five years
Percent change in healthcare costs from 2001 to 2006: 102
Amesbury: 113.8
Georgetown: 113.6
Melrose: 118.2
Revere: 101.5
Salem: 117.2
Wenham: Does not include school budget
SOURCE: Massachusetts Municipal Association; municipal human
resources and accounting departments
Return to top
The Springfield Republican
Monday, January 9, 2006
New spending to hit $1 billion
By Dan Ring
With state tax collections rising, the state Legislature is proposing
more than $1 billion in new spending to pay for health coverage for the
uninsured, salary increases for court clerks, county sheriffs and
judges, to create jobs, and to fund favorite projects for House and
Senate members.
Near the end of last year, legislators approved $80 million for heating
assistance, $11 million for grants to prevent gangs and comprehensive
bills to spend surplus budget dollars and jump-start the economy.
Legislators are also on the verge of approving a health care bill that
could cost nearly $1 billion by the time it's in place in several years.
The bills to spend the surplus are drawing the most criticism because
they include scores of pet projects in the districts of legislators and
substantial pay hikes for court clerks, assistant clerks, judges,
registers of probate and county sheriffs.
Barbara C. Anderson, executive director of Citizens for
Limited Taxation, said legislators put a priority on the pay raises.
Anderson said legislators should have cut the state income tax rate from
5.3 percent to 5 percent to comply with a ballot question approved by
voters in 2000. "They've got too much money and they want to spend it
before they run out of reasons not to do the income tax rollback,"
Anderson said.
Kathleen C. Norbut, chairwoman of the selectmen in Monson, said she was
disappointed the Legislature didn't vote for a mid-year increase in
state Lottery aid to cities and towns. Norbut questioned some of the
projects approved by legislators.
"There doesn't seem to be a rational fiscal approach to the
expenditures," Norbut said.
Top legislators defended their spending. Sen. Michael R. Knapik,
R-Westfield, said the spending reflects "a lot of pent-up demand" on the
part of legislators and community leaders following the fiscal crisis
that gripped state government in the early part of this decade.
"To the extent there is strategic spending, I think it does make sense,"
said Knapik.
For example, the Senate economic revitalization bill includes $2.5
million for improving the Routes 10 and 202 corridor in Westfield to
help support a planned Target Corp. distribution center.
"You have an employer who is willing to bring in 800 jobs to a region,"
he said. "As we work toward restoring jobs, we have an obligation to do
what we can for the infrastructure."
Sen. Stanley C. Rosenberg, D-Amherst, said legislators are also being
careful to spend some of the surplus on "one-time" spending that doesn't
get built into the base of the state's annual budget.
Rosenberg said most of the local projects also are fiscally responsible.
Rosenberg, for example, amended a Senate surplus-spending bill to
include $125,000 for Leyden to repair roads and culverts, $70,000 for
Whately to repair roads and $125,000 for Bernardston for similar
improvements.
"These are small financially conservative communities," Rosenberg said.
"They don't have big reserves ... they can turn to."
Because of increasing collections of sales, business and income taxes,
the state's tax collections for this fiscal year through December were
$172 million, or 9.2 percent, more than expected. For the fiscal year
that ended June 30, the state collected $436 million more than expected.
With strong revenue growth, legislators can spend hundreds of millions
without raising taxes.
Michael J. Widmer, president of the Massachusetts Taxpayers Foundation,
said the increase in tax revenues is slowing, and legislators need to
rein in some of the planned spending.
Widmer said the current $24 billion state budget is barely in balance
and only through the use of $600 million in reserves.
Tax revenues will increase by 5 percent this year and next, down from
about 7 percent growth, Widmer said. Weak gains in employment will be a
significant drag, he said.
"There are too many of them," Widmer said of local projects in the
bills. "The Legislature is overreaching."
The House approved $318 million surplus spending bill that includes $100
million for renovations and maintenance at the five campuses of the
University of Massachusetts and for state and community colleges, $25
million to reduce a waiting list of 10,000 long-term unemployed for
Medicaid coverage, $3.5 million for state parks and beaches, and $55
million for Chapter 90 grants for cities and towns to improve roads and
bridges.
The Senate approved a $240.7 million surplus spending plan that includes
$20 million to prevent substance abuse, $4.3 million for district
attorneys across the state, $55 million for Chapter 90 grants, and $10.7
million for housing authorities and nonprofit organizations for
subsidies for reduced rentals for the elderly, handicapped and veterans.
Both surplus bills also are packed with one-time spending for pet
projects of legislators. The House bill, for example, includes $900,000
for another phase of improvements to East Street in Ludlow, $100,000 for
upgrading the Bing Theater in Springfield, $100,000 apiece for the
Partners for Community Corp. and the Puerto Rican Cultural Center, both
in Springfield, and $400,000 to help finance a food market at the site
of the former Basketball Hall of Fame in Springfield.
Rep. Cheryl A. Rivera, D-Springfield, said the bill is a vehicle for
legislators in Western Massachusetts to designate money for important
projects that otherwise wouldn't be financed. Rivera said the region is
often overlooked by state agencies that award grants from lump sums in
the state's annual budget.
"We're from Western Massachusetts," Rivera said. "We're going to fight
for every dollar to help the quality of life."
The House approved $353 million for economic stimulus and the Senate,
$473 million.
Those bills are aimed at improving the economy through job training, tax
incentives, money for research money, adult education and tourism. Both
bills, for instance, include $250 million in grants and loans over the
next decade to improve cultural institutions such as museums and
theaters.
The Senate bill also features $180 million for projects on the five
campuses of the University of Massachusetts and state and community
colleges including $20 million toward a planned $90 million science
building on the Amherst campus.
House-Senate conference committees are crafting compromise bills on
health care, surplus spending and improving the economy. They will send
the compromise packages to Gov. W. Mitt Romney, probably sometime early
this year.
Return to top
The Press-Enterprise
Riverside, California
Monday, January 9, 2006
California's well worth bond risk
By Jack Katzanek and Michelle DeArmond
Despite well-documented fiscal worries over the past few years,
California has a good financial standing and won't have problems selling
bonds to pay for better roads, schools and other improvements, financial
experts said.
Moody's Investors Service and Standard & Poor's, the two largest
independent credit-rating services, consider the state a good lending
risk. Also, there should be no shortage of banks that like California's
future economic prospects and will want to invest in these bonds.
"I think it's very positive," Rod Olea, director of fixed income for
City National Asset Management, said of Gov. Schwarzenegger's proposal
to raise $68 billion through the sale of bonds. The asset-management
company is the investment arm of Beverly Hills-based City National Bank.
"We've been very bullish on the state, long-term, since 2004."
Bonds are one of the ways governments and private industry raise large
sums of money for major capital improvements. In last week's State of
the State message, the governor urged lawmakers to issue new bonds and
invest in a state that can expect more than 10 million new residents in
the next 20 years.
California's bond ratings are a couple of notches below the best grade,
according to Moody's and S&P. It is one of the lowest-ranked states, but
all states are usually considered better lending risks than cities,
counties and special districts.
Bonds with higher ratings are considered attractive because they are the
safest investments. However, bonds rated a little lower also bring in
investors because they offer higher yields.
Moody's lists California's rating at A2, sixth highest of 21
classifications. S&P has the state at A, two notches below the best of
its nine grades.
"Any number of banks will be willing to underwrite this issue," said
David Hitchcock, director of S&P's government group.
Hitchcock said California's existing debt could be a problem. The state
owed $746 per person in 2000 but almost doubled that to $1,452 per
person in 2005.
But the huge population growth that spurred Schwarzenegger's plea to
upgrade the state's infrastructure also will make it easier for the
state to handle its future debt because there will be millions more
people paying sales and income taxes, Hitchcock said.
"With 3- to 6 percent growth, the capacity to pay will be easier,"
Hitchcock said. "The state will still have a high debt level, and the
number will seem large because the state is so big, but it's not so big
relative to what it can pay."
City National's Olea said the state helped itself by issuing only $11.5
billion of $15 billion of Economic Recovery Bonds in 2004, which will be
retired in 2009.
"They didn't use it all and retired some of it early," Olea said.
He said the debt ceiling will keep the state from owing too much money.
Schwarzenegger's proposal calls for debt payments to be constitutionally
capped at no more than 6 percent of the state's general fund revenue.
An advocacy organization for limited taxes said Schwarzenegger's
proposal to enact a debt ceiling is a good way to reassure taxpayers and
investors concerned about his massive bond pitches.
"Wall Street usually likes it in that it affects your bond rating," said
Barbara Anderson, executive director of Citizens for Limited
Taxation, whose home state of Massachusetts has a statutory debt
ceiling. "Standard & Poor's and everybody likes to see that there's a
limit."
Banks may like the spending proposals but be less interested in the debt
ceiling, Anderson said. Banks tend to like to lend money to governments
and don't like limits on governments' indebtedness, Anderson said.
Bonds make good fiscal sense when a state is looking at long-term
public-works projects, such as those proposed by Schwarzenegger,
Anderson said. Raising taxes now would unfairly burden current
taxpayers, while bonds spread out the burden.
D. Linn Wiley, president and chief executive officer of Ontario-based
CVB Financial Corp., parent company of Citizens Business Bank, said the
bank only invests in AAA-rated government bond issues, S&P's highest
rating. Wiley said he's leery of California's existing debt.
"But we certainly need to strengthen our infrastructure," Wiley said.
"All I have to do to remember that is look out my window at the 10
freeway."
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