Can Taxpayers Afford a Big Spending Sacramento “Economic Recovery Plan”?

Speaker Pelosi and her allies in Congress received significant pollical pushback for using the COVID-19 crisis to enact their budget wish list in the $2 billion “phase 3” stimulus.

Recently, Rowena Itchon wrote on Right by the Bay about tens of millions being spent on priorities for Democrats like propping up the Kennedy Center in the phase 3 coronavirus relief bill, but had little to do with helping people get through the coronavirus-fueled recession.

Now California and other states are formulating their own massive spending plans under the guise of boosting the economy.   Just like Speaker Pelosi, it appears that Sacramento Democrats will be taking advantage of the COVID-19 crisis to fund their policy wish list, too.

State Sen. Scott Wiener recently tweeted that the “Legislature and Governor should put a huge economic recovery bond on November ballot – in the tens of billions – to inject investment into the economy, put people to work, & build critical climate resiliency, housing, transportation, energy, education, water & health infrastructure.”

If past proposals are any indication, such a proposal could include billions to prop up high-speed rail, more “investment” in building “green” cars, and subsidizing more “affordable” housing and high density housing projects (which doesn’t sound like a good idea in an era of social distancing).

In fact, some lawmakers gave a preview earlier this year in their “California Green New Deal” plan, which PRI’s Kerry Jackson wrote was a “how-do-you-change-the-entire-economy-thing.”

Coupled with Gov. Newsom’s appointment of Tom Steyer as co-chair of his economic recovery task force, who Jackson wrote is the “perfect choice to manage the costly green energy fantasy schemes the task force is sure to concoct,” and surely any bond proposal will be more about achieving a political agenda than helping Californians who lost their jobs or small business owners struggling to stay afloat.

Worse, a multi-billion bond would saddle Californians with even more expensive new debt payments.  Even before the coronavirus-fueled recession, the state already faced a significant debt problem.

As PRI’s Wayne Winegarden has documented, California’s unfunded public employee pension debt is nearly $1 trillion, while the nonpartisan Legislative Analyst’s office (LAO) pegs the state’s unfunded public employee health care retiree obligations at roughly $85.6 billion.  Recent stock market crashes have increased the unfunded liabilities.

Before COVID-19, the LAO estimated in a November 2019 report that “the amount the state pays for debt service from the General Fund will grow from $5.7 billion in the current year to $6.4 billion in 2023-24.”  While the state was on track to spend less than 4 percent of state General Fund revenue for debt service, a new multi-billion bond measure would change that.  Increased state and local debt payments will likely “crowd out” funding for education, public safety, and other priorities as debt payments rise.

Sounding the alarm bells over this massive COVID-19 spend and growing debt, Winegarden recently told PRI’s Next Round podcast that “a very important question” these days is “how much can we really afford?”

As a result of the massive new government spending, he says that, “we are putting on ourselves an untenable situation where we cannot afford the level of government that is developing.”  Whatever big spending plans emerge in the coming weeks from Sacramento will certainly make this problem worse.

Tim Anaya is the Pacific Research Institute’s senior director of communications.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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