Thursday, December 6, 2012

State Treasurer Doesn’t Know How Much California Owes in Bond Debt

The LA Times also published a companion article where they provided a spreadsheet that tracked Capital Appreciation Bonds (spreadsheet) just for school districts in California. This spreadsheet showed that $5.6 billion in capital appreciation bonds have been issued to fund education to-date, and that the payments, most of which will not come due for another 20 years, will total $24.0 billion. But the borrowing disclosed on this spreadsheet is just for education, and it is just those borrowings that took the form of capital appreciation bonds. It is only a small portion of the debt. -

...So how deep is the hole? How much do California’s state and local governments owe? How much of that borrowing is via conventional bond financing, and how much of it is via capital appreciation bonds?

If you think the California State Treasurer’s office would know the answer to this question, you would be wrong. UnionWatch inquiries to that office yielded helpful suggestions to refer to the California Debt and Investment Advisory Commission’s webpage that discloses California Public Debt Issuance – Yearly Totals 1985-2012. From this table you can see both state and local borrowing per year. The biggest borrowing year was 2009, with $95 billion in debt issuance. The average since 2000 is well over $50 billion per year. But how much of this debt was reissuance of old debt? How much of it is new debt? What is the cumulative outstanding debt of state and local governments in California? How much of that outstanding debt takes the form of Capital Appreciation Bonds?

We asked. Nobody knows. They’re working on it. The spokesperson suggested we consult someone with a subscription to Bloomberg online, wherein we suggested they get one for their office. Why isn’t this information a click away, clear for every journalist and policymaker in California to immediately apprehend? The reader may imagine what would happen to any treasurer in any large corporation if their department was unable to instantly produce this data. Such is the state of California’s public finance. This isn’t an unfunded liability for future obligations, such as pensions, where countless variables – including average lifespan, spiking impacts, and rates of return on investments – make precise estimates impossible. This is money borrowed, spent, and owed. It is a number that can be known to the penny. And in California, right now, we don’t know.