“The Default of Walters and Skelton”

Joe Mathews
Connecting California Columnist and Editor, Zócalo Public Square, Fellow at the Center for Social Cohesion at Arizona State University and co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It (UC Press, 2010)

George Skelton and Dan Walters are terrific journalists who already have forgotten more than I’ll ever know about California politics and government. Which is why I was shocked to see the two columnists make the same false and highly irresponsible claim in recent weeks.

Their error? Suggesting that there’s a real risk of the state defaulting on its debts.
Walters went off the deep end first. Writing on Nov. 20 about the state’s persistent budget deficits, Walters predicted a bitter budget battle next year that would end in default: “This will be one of the bloodiest skirmishes the Capitol has ever seen – with the only option being that the most populous state in the nation defaults on its debts.”

Skelton has raised the specter of default twice — on Nov. 23 (“Be grateful if California can avoid defaulting on its state bonds for the first time ever”) and again last week, with a line in a column about Gov. Schwarzenegger’s failures: “For Schwarzenegger to survive his final year, of course, the state must survive. That means no more IOUs, let alone defaulting on bonds.”

Stop right there, fellas.

Here are the facts. There is almost zero chance that the state could default, barring of nuclear war or some other near apocalypse.

Why? When California runs short on money, debt service is a top priority. Under the constitution, the only state spending with greater priority is education. And, even if the state legislature can’t agree on a budget, debt service is paid because it is subject to continuous appropriation. California, through war and depression, has never defaulted on its bonds.

Then there are the hard numbers: despite the state’s terrible economic and budget problems, California is nowhere near default. State general fund revenue is about $85 billion, school funding is about $34 billion of that, and debt service is $7 billion. So revenues would have to decline by $40 billion before anyone could even think of default.

Unless Skelton and Walters have obtained advance information about an apocalyptic event that will cut state revenues in half (and if they do, they ought to report it), raising the issue of default is not only wrong factually – it’s the fiscal equivalent of yelling fire in a crowded theater.

As Finance Director Mike Genest, Treasurer Bill Lockyer and Controller John Chiang wrote in a letter to the Sacramento Bee, the suggestion of default “endangers the financial interests of taxpayers. They pay the tab if unfounded fears of default further erode California’s credit standing.”

Memo to George and Dan: you owe Californians a correction – and an apology.

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