Bond Measures

My friend and former LA Times colleague Matt Welch, writing on his blog at Reason, the libertarian magazine he edits, makes a very good point about media commentary, particularly from our former paper, that voters are responsible for the state's fiscal fix because they vote for so many ballot measures that boost spending.

I think the line of commentary is right. But it's also new, and it's more than a little disingenuous for the LA Times to be making this argument. Welch looked back and discovered that the LA Times endorsed 20 of the last 22 bond measures on the statewide ballot. Patient, heal thyself. 

Welch also reveals that one of the two non-endorsements happened only becasue of his own work inside the editorial board.

This week in New Orleans, an obscure self-regulating board called the Municipal Securities Rulemaking Board (it's made up mostly of bond industry pros, but was created by Congress and is overseen by the SEC) is meeting to discuss how to deal with a persistent problem in state and local bond measures. Bond underwriters across the country (and particularly in California) often contribute to the political committees that support the campaigns for bond measures. When the measure passes, the bond underwriters who make contributions often end up handling the bond work.

There's growing concern about this sort of "pay to play"  among big underwriters such as Citi, JP Morgan and Morgan Stanley. Already, underwriters are barred from giving to public officials who oversee bond issues. The proposal being discussed that week would extend the ban to donations to ballot measure committees. More details via The Bond Buyer.  This seems wise. It's crucial that the ban have no loopholes. It should cover any firm or lender of any kind who might be involved in the bond business.

DENVER - If you thought the credit crisis, the recession, municipal budget deficits, state budget deficits, federal budget deficits and the $10 trillion federal debt might cure Americans of their love of borrowing, you thought wrong.

New exhibits come in the results of last night's 153 ballot propositions around the country. Fifteen bond measures were on ballots, and 14 passed. Only T. Boone Pickens' Prop 10, a $5 billion general obligation bond, failed. The biggest bond to pass -- it constituted $9 billion of the more than $13 billion approved nationwide -- was Prop 1A in California, a high-speed rail bond. Voters narrowly approved it, even though there is no coherent plan to spend the money.

Californians are being asked to approve more than $15 billion in additional bonds on the November ballot. But the state hasn't sold many of the bonds approved in the 2006 election. According to the Sacramento Bee, less than $4 billion of the $42 billion approved in 2006 (as part of Gov. Schwarzenegger's infrastructure package) has gone out the door. This is a political problem for the bond measures on the ballot. From children's hospitals to the Los Angeles Unified School District, varoius entities are asking for more bond money long before they've spend the money from previously approved bond measures. I suspect that Californians are about to vote down a number of bond measures around the state.

Particularly vulnerabile is L.A. Unified's Measure Q. It's the most financially irresponsible bond measure in recent memory. And in California, that's saying something. It's a $7 billion bond -- more than twice as much as any school district spending plan can justify -- and is being sought by a district that has flat enrollment and that has just had a huge, multibillion dollar building plan. What's more, as the LA Times recently reported, the district is skirting laws preventing taxpayer money from being spent on political campaigns in spending big money to promote its own bond measure.

The Sacramento Bee did an interesting analysis of the total expected cost, over time, if all 12 measures on the state ballot next month were to pass. The story is here. Much of the expense is in the four bond measures: Prop 1A (high speed rail), Prop 3 (children's hospitals), Prop 10 (energy) and Prop 12 (veterans' housing). A good rule of thumb for bonds: double the amount that's being borrowed, and you have the real cost.

Bob Stern of CGS is quoted as saying he believes that, at this economic moment, voters are likely to vote no on almost everything. I tend to agree.