A key argument on the initiative to require a vote of the people on revenue bonds that exceeds $2 billion centers around the question if taxpayers could be on the hook for defaulted bonds.
Concern for taxpayer liability was the argument that swayed the GOP Initiative Committee to support the measure at the Republican state convention. Taxpayer responsibility for revenue bonds will be an important issue all voters will consider when the so-called No Blank Checks proposition faces them in November.
Voters have been called on to approve General Obligation bonds since around the time of the state’s founding. General Obligation bonds are paid off through the General Fund. Revenue bonds are paid from a revenue stream dedicated to the project that is being built. Voters have not been asked to put their stamp of approval on revenue bonds before.
Big-time farmer Dean Cortopassi funded the initiative. Much attention has been placed on Cortopassi’s opposition to Governor Jerry Brown’s plan to build twin Delta tunnels to move water from northern to southern California. The initiative could threaten a major revenue source for building the tunnels with water users picking up the cost through added fees to cover the bonds to build the project. Cortopassi insists his concern is confronting California’s rising debt.
Despite the powerful Democratic governor opposing the idea behind the initiative and the Republican Party taking an official position in support, this measure does not come down along traditional partisan lines.
A major divide is geographic rather than political; Northern California v. Southern California. But there is also a split on both sides of the political fence over this proposal.
Democratic legislators, particularly from the north, oppose the tunnels, as do environmentalists. Some may consider supporting the initiative. The governor and labor unions that want to build large projects like the Delta tunnels and high-speed rail oppose the initiative.
Major advocates for the business community lead by the California Chamber of Commerce are concerned that the No Blank Checks initiative would shut down major infrastructure projects. At the GOP Initiative Committee hearing, opponents of the measure raised concerns about a statewide vote required to approve projects more local or regional in nature. That would necessitate a statewide political campaign every time such a project exceeding $2 billion (or more under an inflation factor built into the initiative in future years) is proposed. Additionally, they expressed fear that Joint Power Authority plans could be disrupted and that many lawsuits would result if the measure is passed.
Usual business allies from taxpayer groups want the voters to decide on large revenue bonds claiming that major fiscal actions should require voter participation. They argue the measure would prevent the bond community from creating devices that end run the current voter participation requirements.
But, it was the argument about taxpayer liability than carried the day for the committee and ultimately could be the key question in the coming campaign.
Theoretically, if revenue bond funded major public projects fail, it is the bondholders, not the taxpayers, that should be left holding the bag. Yet, these are public projects. Howard Jarvis Taxpayers Association president, Jon Coupal, told the committee in actuality no municipality would take a hit to its credit ratings and would seek taxpayer funds to make the project whole. When committee chairman, Charles Munger, Jr. agreed that government agencies would not allow the bonds to default thus potentially making the taxpayers the backstop for any financial failure of the revenue bonds, there were nods from fellow committee members.
Taxpayer liability will be the key battleground when voters start paying attention to this measure a few months from now.