Back in April I wrote about a plan at some public California colleges to charge students a premium over and above their tuition and fees to get into the specific courses they need to graduate. Now word comes courtesy of the New York Times of an equally crazy California financing scheme, this time for K-12 education. While it is perfectly normal for school districts to issue bonds - in other words, borrow money - to build new schools, what's happening in California is anything but normal. Some districts are borrowing on terms that allow them to avoid paying back any portion of the loan for at least 20 years, but they're paying huge interest rates for that delay. For example, the Poway Unified District in San Diego County borrowed $105 million in 2011. They won't have to start paying back that debt until 2033, but by the time they're finished paying it off, they will have paid $877 million in interest on that loan! This makes some of the variable rate mortgages taken out by individuals during the housing boom look like great deals!
Why would supposedly rational elected officials enter into such an incredibly unfavorable loan? Because this has become the only type of financing option available as tax revenue has dried up. California is leading the way in these sorts of "creative" - meaning crazy - financing ideas because elected officials there are hamstrung by unworkable tax laws.
Massachusetts is not (yet) operating under quite those kinds of legal constraints, but some of our financing schemes are not much better than what California is doing. Our transportation financing structure, in particular, is in shambles. Each year, we borrow money to pay the regular salaries of the workers who repair the roads, a plan no one thinks is good fiscal policy. But our ongoing revenue crisis makes this the only option available.
California offers an object lesson on the path to avoid. A different path would be for Massachusetts to address its revenue deficit by raising more revenue, and doing so in a way that protects low- and middle-income families from big increases. We can then invest in our schools - both K-12 and public colleges - and our transportation infrastructure in a way that will help us to build a strong economy and great communities.
