2011-08-02 "Budget Deficits, Bond Debt, Billionaires, the Brown Family and Big Profits, Part One" by Patrick Porgans and Lloyd G. Carter
[http://www.indybay.org/newsitems/2011/08/02/18686760.php]
Patrick Porgans and Lloyd G. Carter have both been writing about California water issues for 40 years. Porgans’ email address is pp [at] planetarysolutionaries.org. Carter’s email is lcarter0i [at] comcast.net.
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Editor’s note: This is a two-part series.
Part One focuses on how the wealthy and landed have used the public bond process in California to further their own interests, while promoting and profiting from the state’s “budget crisis.”
Part Two, which will run August 8, focuses on the family legacy of Gov. Edmund G. “Pat” Brown, who first mastered the art of selling water bonds half a century ago, to finance the construction of the State Water Project, which was sold as a project that would pay for itself, and unify the state. It never has, and it is at the crux of the Bay-Delta conflict and the state’s water crisis.
In Part Two, Porgans and Carter discuss how the water bond phenomena was pioneered by Gov. Edmund G. “Pat” Brown, Sr. and now plays a key role in the lives of his son, current Gov. Jerry Brown, Jerry’s sister, Kathleen Brown and the investment firm Goldman Sachs.
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California’s 90 billionaires (according to Forbes Magazine) and 662,735 millionaires got rich in a lot of different ways. But, there are those billionaires that thirst for more.
California’s land rich billionaires – whose wealth, ultimately, depends on water - have had a significant role in using the “system” (tax-base revenue, credit rating, and natural resources) to promote and support issuances of tens of billions of dollars of General Obligation (GO) bonds to fund vested interest public works projects, particularly water and water-related grant programs which considerably enhance the value of their land. And the grant money, often used to build local water district infrastructure and help fund developers, is free. At the same time, they are having the public pay to increase their water supply, and are selling this water back to the public at astronomically high prices.
A government grant-funded study, conducted at the Donald Bren School of Environmental Science and Management, University of California, Santa Barbara, indicates that from 1987 through 2008, an estimated $3.9 billion in water water-transfer sales/profits were made. The profiteers included some of the state’s richest billionaires. As the saying goes, in California water runs uphill and toward money.
These GO bonds fund a myriad of state programs and finance massive public works projects that directly aid the landed gentry. These include billionaires like Orange County real estate king Donald Bren, who reportedly owns 110,000 acres, and has a “Master Plan” to develop significant portions of land (http://www.goodplanning.org/Master-Plan/default.aspx).
Bren is a close friend of former Gov. Pete Wilson, who was an employee of Bren’s before and after serving as governor.
There is also Beverly Hills resident Stewart Resnick (now the biggest “farmer” in California with 200,000 acres in Kern and Kings counties) and there are the heirs of cotton king J.G. Boswell. The Boswell family owns 200,000 acres of farmland in the Tulare Basin and want to build a city of 30,000 on land they own in the Tulare County foothills. They profit directly when California’s voters fund multi-billion bond projects to export Northern California water south to industrial farm fields in the western San Joaquin Valley or to the never-ending desert subdivisions in the Southland. Furthermore, the majority of them are also involved in profiting from water sales and marketing.
Tejon Ranch, now owned by Cattellus (another billionaire outfit which morphed from the railroads), owns 270,000 acres straddling the “Grapevine” Interstate 5 route over the Tehachapis. It is the largest block of private land in California. The combined acreage for just these four companies (Bren, Resnick, Boswell, Catellus) exceeds 780,000 acres.
And all four of these Big Money players already are engaged in filling their unquenchable thirst for a more “reliable” source of water from the north. And, of course, next year, voters will be asked to fund yet another $11 billion water bond measure (which will take $22 billion to pay off) to move yet more water south.
You can count on Team Billionaire - which includes the billionaires, major landholders, chambers of commerce, local water districts (most of which are members of the Association of California Water Agencies), banks, investment firms, and all manner of Southern California real estate and development interests - to spend huge amounts of money to convince voters to approve water-related GO bond measures.
According to the state’s Department of Finance’s (DOF) website, there are currently a total of $150 billion in GO bonds which have been approved by the voters in the past few decades, of which a total of $79.6 billion has been issued and is being repaid from the General Fund.
To put the $79.6 billion debt in perspective, in Governor Jerry Brown’s recently approved 2011-2012 state budget totaled $129 billion, Approximately $86 billion came from General Fund revenues, the remaining amount come from special funds and other bonds. The principle and interest payments on the outstanding G.O. bond debt is in excess of $136 billion; includes fixed and variable rate estimates on bonds.
Of the $79.6 billion of GO bond debt (principle), an estimated $19.4 billion was authorized primarily for water programs, including buying water for fish; mitigation, wildlife conservation easements, studies, drought relief, local irrigation, flood protection, and municipal water district infrastructure projects. Add at least another $13 billion in interest to pay off the $19.4 billion in water bonds and you have a total water-related public debt of at least $32.4 billion; comparatively speaking, it represents about 40 percent of the cost to run the state General Fund programs.
It is estimated that it takes close to $1 billion annually from the state’s deficit-ridden General Fund to service just the GO water- and water-related bonds that have been issued. This amount represents about 15 percent of the annual repayment obligation of all existing GO bond debt; the figure is expected to go higher.
State Treasurer Bill Lockyer says payment of the interest and principal on all GO bonds is a crushing $10 billion a year –amounting to nearly a tenth of the state’s General Fund – and is expected to keep rising each year. This addiction to bonds is a principal reason for the draconian state budget cuts in education, police and fire services, and programs for the elderly and disabled that occurred in recent years. Indeed, to meet those bond obligations, California has cut $115.7 billion from the state budget in the last three fiscal years.
During the governorship of Arnold Schwarzenegger, the state’s bond debt doubled as the “no more taxes” crowd simply turned to bonds to get the public to foot the bill for water projects, programs and other infrastructure financing to sustain and expand their publicly subsidized business ventures, most for agribusiness and new Southern California subdivisions on the desert.
What the billionaires know, of course, is that GO bonds are still being used to pay off the $1.75 billion State Water Project (SWP) which former Governor Edmund G. “Pat” Brown sold to the public back in 1960 as a project that would “pay for itself.” It has never come close to paying for itself and it could take an additional $63 billion, according to the California Department of Water Resources, to make real the water which Brown, Sr. promised a half century ago.
In fact, SWP contractors, many of who supported the original GO bond debt, have vehemently refused to take responsibility for bearing the burden of the $32.4 billion in water-related bond debt; as SWP beneficiaries, by law, they are required to pay certain costs. Instead, they have passed it on to the unsuspecting public with the help of their campaign-supported elected officials.
In addition, water bonds promoted under the fear tactic of “safe, clean, reliable” water have been issued for water projects that directly benefit SWP urban and agribusiness contractors. Such bonds are much easier to sell to unwitting voters than raising taxes first to pay for things society needs, which is always a tough sell for politicians. A bond, it turns out, is a tax but a hidden one. The water-guzzling land billionaires are hoping they can float one more bond by the voters next year.