Cal­i­for­nia makes its fi­nal pay­ment on costly 2004 US$14 bil­lion bond debt


Cal­i­for­nia closed an ugly chap­ter in its fi­nan­cial history on Wed­nes­day by mak­ing its fi­nal pay­ment on US$14.2 bil­lion in costly bor­row­ing that plugged a bud­get deficit 11 years ago but even­tu­ally cost taxpayers about US$5 bil­lion in in­ter­est and fees.

State Trea­surer John Chi­ang and Di­rec­tor of Fi­nance Michael Co­hen an­nounced the fi­nal pay­ment of nearly US$929 mil­lion to­ward the Eco­nomic Re­cov­ery Bonds, debt that was ap­proved by vot­ers in 2004 af­ter then-Gov. Arnold Sch­warzeneg­ger led a bi­par­ti­san cam­paign pro­mot­ing them.

“They failed to make the dif­fi­cult de­ci­sions pos­si­ble ... it was just the po­lit­i­cal will at that junc­ture,” Chi­ang said of the de­ci­sion by po­lit­i­cal lead­ers to pro­mote the bor­row­ing.

“Wall Street should not be the bud­get re­serve of the state of Cal­i­for­nia. It’s costly, it makes no sense,” he said.

Pro­mot­ing the bor­row­ing in Propo­si­tion 57 was one of Sch­warzeneg­ger’s first acts in of- fice, and he pitched the mea­sure as a way to avoid public ser­vice cuts and tax in­creases.

Crit­ics, in­clud­ing then- state Trea­surer Phil An­gelides, warned that it was a mis­take to shoul­der long-term debt to solve short-term prob­lems and could put the state in a more per­ilous fi­nan­cial po­si­tion.

Sch­warzeneg­ger en­listed help from all quar­ters to sell the plan, in­clud­ing Hol­ly­wood celebri­ties and law­mak­ers from both par­ties who he wooed with cigars, din­ners and pri­vate plane rides. He even per­suaded the gover­nor he ousted from of­fice, Gray Davis, to cam­paign with him.

Vot­ers over­whelm­ingly ap­proved Propo­si­tion 57, but the bor­row­ing only wors­ened Cal­i­for­nia’s fi­nan­cial out­look.

The state has been spend­ing about US$1.6 bil­lion a year to pay off the debt, Co­hen told re­porters. That money can now be used to pay for other state pro­grams.

“We’re do­ing ev­ery­thing we can to avoid re­peat­ing the same mis­takes we made in the past,” he said.

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