Struggling to justify their claims that Proposition 53 plugs a “loophole,” proponents have launched a nationwide search for victims. This would be laughable if the consequences of fundamentally eroding local control, creating new litigation threats, and stalling needed infrastructure projects weren’t so serious.
(Prop 53 would demand a statewide vote to approve large revenue bond issues.)
Their latest gambit tries to scare voters with talk of bailouts and downgrades. Sadly for proponents, they couldn’t find any examples that remotely relate to their own measure.
This is like claiming a boxing match is fixed because the swimmer failed a drug test.
Proponents trot out four examples of cities or a state that bailed out unaffordable debts for certain projects, or who saw a credit rating downgraded.
The first problem is that three of the four examples are cities. Proponents claim loudly that the measure doesn’t apply to cities (which of course it does through joint powers arrangements). The fourth example is in fact a state – the state of Rhode Island.
Even more ludicrous is that none of the examples of “financial risk” relate to revenue bonds, which is the sole subject of Proposition 53.
Each of the three municipal examples includes some form of a “taxpayer guarantee.” Oops! A taxpayer guarantee turns a financing tool from a revenue bond into something closer to a general obligation bond. If there’s one thing that distinguishes revenue bonds from other debt instruments, it’s that taxpayers are specifically off the hook.
The Rhode Island deal contained a “moral obligation” pledge. Few states in the US use moral obligation bonds, and California is not among them.
You can talk all you want about Curt Schilling’s bankrupt video game company or a soccer stadium whose financing went upside down. But these examples no better explain California public finance than the rules of cricket explain a bicycle race.
Here’s an idea: if you want to know the real problem that Prop 53 is trying to fix, just follow the money.