The Future Can Wait
We are all for innovation, but finding new and creative ways to kick the can down the road is not what we had in mind.
California’s Legislative Analyst’s Office recently delivered some grim news: “Similar to our forecast of one year ago, we project annual budget problems of about $20 billion each year through 2015-16.” Ouch.
In response, outgoing Gov. Arnold Schwarzenegger has announced the “sale-leaseback” of 24 state office buildings for $1.2 billion. From the Los Angeles Times story:
A recent report from the nonpartisan Legislative Analyst's Office said the costs involved in the transaction over the long run will be roughly equivalent to borrowing at 10% interest for 35 years — far more than the state pays on its bonds.
“This is another in a long line of budget gimmicks that simply pushes our fiscal challenges down the road,” Jim Lombard, chief administrative officer for Controller John Chiang, said at the hearing of the state Public Works Board.
In a statement, state Treasurer Bill Lockyer called it “poor fiscal policy and bad for taxpayers.”
In April, the Legislative Analyst’s Office (LAO) issued a report on the proposed sale-leaseback that summed it up nicely: “In our view, taking on long-term obligations — like the lease payments on these buildings — in exchange for one-time revenue to pay for current services is bad budgeting practice as it simply shifts costs to future years.”
On Nov. 5, the LAO sent a letter to the legislature estimating the long term impact: “[I]n present value terms, the sale-leaseback costs are approximately $1.4 billion more than the status quo under our analysis.”
In the short term, of course, the state will have some extra cash on hand—but is it really worth it?
We are all for innovation, but finding new and creative ways to kick the can down the road is not what we had in mind. File under “how not to close a budget gap.”