May 30, 2003

Commentary

Is Borrowing a Good Idea?

By Jon Coupal

The current budget debate has now swung into full gear.  In one corner, we have the Democrats who seem determined to maintain their high-spending ways and, in the other corner, we have the Republicans who are every bit as serious about their no-tax pledge — even though they control neither house of the Legislature.

So what happens when the unstoppable force runs headlong into the immovable object? Simple. You postpone the collision. And that is precisely what a substantial portion of the budget fix looks like. Rather than cut spending, the Republicans are prepared to borrow into the future by the issuance of bonds to close the gap now.

But wait a minute. Why have the Republicans bought off on the notion that we can borrow tens of billions of dollars to postpone the budget solution? Don’t Republicans hold themselves out as the party of fiscal responsibility? After all, they typically oppose statewide bonds on the grounds that we are mortgaging our children’s future. And they almost always fight proposals that would lower vote thresholds for local debt on the grounds that it would result in massive debt increases and hurt homeowners.

Despite the apparent inconsistency with Republicans’ natural aversion to debt, the compromise falls squarely in the category of “lesser of two evils.” As bad as the debt carry forward might be as a matter of policy, to the Republicans, tax increases are far worse. Like Dante’s Inferno, borrowing to fill the gap is only a middle ring of hell while tax increases are dead center.

Unlike prior years with lesser leadership, the Republicans now know they don’t have the votes to balance the budget with cuts alone. (Although, they rightfully point out that had the growth in state government been limited to population increases and inflation in recent years we would now have a surplus). But by offering the compromise of debt carry forward, Republicans are in a better position to demand some real structural reform including a spending cap. Moreover, there is current Republican thinking that debt is a form of spending limit in and of itself. This theory concedes that tons of tax dollars go to bondholders — with the state having nothing to show for dollars spent — but that this is preferable to expanding the size of state bureaucracies and programs which, once established, are next to impossible to eliminate.

Republicans need to be concerned with two potential pitfalls. First, the debt carry forward is of dubious legality. Is it wise to become wedded to a strategy that might get bounced by the courts? On the other hand, if a judge nixed the deal, the Republicans could still revert to their default position of no tax increases.

Second, the debt strategy might falsely be presumed to keep the Democrats from continuing an exponential growth in spending. Indeed, having tasted tomorrow’s tax dollars today, the Democrats might just go out and get another credit card for a bigger meal.

Taxpayers don’t like debt or bigger government. But experience shows that getting rid of debt is easier than reducing entrenched

bureaucracies. True, floating bonds to close the budget gap is a bitter pill. But until we get better doctors, it may be the only remedy in the medicine cabinet.

Jon Coupal is an attorney and president of the Howard Jarvis Taxpayers Association — California’s largest taxpayer organization with offices in Los Angeles and Sacramento. He can be reached through the association’s website, www.hjta.org.

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