The California Legislature is back in session, about which we have mixed feelings.
California’s low unemployment and economic growth are encouraging. However, California has suffered through its worst few years for natural disasters, with the centerpieces being hyper-destructive wildfires.
The Legislature reconvened last Monday, and right away started considering a large loan to help the state defray anticipated wildfire costs for the 2020-21 fiscal period.
The scheme involves floating a $4.2-billion “climate bond,” borrowing money before the state really needs it to prepare for whatever types of natural disasters may happen in the 2020-21 time frame. Sort of like a family putting extra savings in the bank to prepare for the worst over the next 12 months.
California is world-renown for its natural and man-made disasters.
The climate bond borrowing proposal is among bills left over from last year’s legislative session, which means the Democrat-controlled Legislature’s proposals have until the end of this month to have a shot at becoming law.
This all comes in the midst of a contentious election cycle that puts a bunch of lawmakers on primary-election ballots in March instead of June. This accelerated election schedule makes approval of politically risky proposals a long shot to move forward, if there is even a vote to move the legislation.
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The climate bond has some other potential snags. The $4.2-billion price tag could balloon, with lawmakers possibly adding more elements to the plan for such things as buying equipment necessary to keep the electric power on in vulnerable places when utility companies shut off electricity to prevent wildfires during severe wildfire conditions. Just consider the mess Pacific Gas & Electric Co. decision-makers made for themselves, the company and stockholders by shutting off the power during wildfires last year.
There is another likely roadblock for approval of a climate bond — California voters, who must approve any deal the Legislature cooks up. If skeptical voters say no, the climate bond vanishes.
Voters are on high alert because the state has borrowed a ton of money in recent years. Of the $150 billion in borrowing authorized by voters in recent years, more than $34 billion has yet to be spent. That is definitely a red flag for skeptics.
Then there is the matter of the state’s economy producing a hefty budget surplus, perhaps $7 billion or more, for the 2020-21 fiscal period. Rather than borrowing money and paying the interest to lenders, why not tap into that surplus piggy bank to help pay for the state’s disasters?
Borrowing money on the premise that bad things are going to happen makes some kind of sense in a state with so much disaster potential, but it probably seems to voters that the state government actually has a lot of cash on hand. Why not just use some of that available capital?
Most voters are fully aware that California's economy continues to expand, and each year that growth provides more and more budget surpluses.
These facts are not lost on state lawmakers. They recognize the potential pitfalls in once again asking voters to add to the state's debt. California currently has the highest debt in the nation, at nearly $153 billion — and another $1 trillion or so in unfunded pension liabilities. But California also has the highest gross state product, at $3 trillion-plus.
Seems to us we should be able to handle disaster costs without borrowing money.