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California

State leaders make final payment on budget debt

John Chiang and Michael Cohen

John Chiang, the state treasurer, and Michael Cohen, Gov. Jerry Brown’s finance director, chat at an event marking the final payment on debts incurred during California’s budget crises.

(Chris Megerian / Los Angeles Times)

More than a decade ago, as California faced budget deficits, politicians pushed for $15 billion in Wall Street borrowing to help the state cover its bills.

Voters approved the measure, creating a pile of debt that hasn’t been paid off until now.

On Wednesday, Gov. Jerry Brown’s finance director, Michael Cohen, signed paperwork closing the book on a controversial chapter of California’s financial history.

“Today has been a long time coming,” he said.

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State leaders had used the measure, Proposition 57, to borrow a little more than $14 billion, and interest and fees racked up an additional $5 billion.

“Wall Street should not be the budget reserve for the state of California,” said John Chiang, the state treasurer. He said politicians should have made “tough decisions,” like cutting spending or raising taxes, instead of borrowing money.

The improving economy has increased California’s tax revenue, putting the state on more solid financial footing with an estimated $3.5 billion in its rainy day fund by next year.

However, that money could quickly evaporate in an economic downturn, placing the state back in a position of deciding whether to slash spending or increase taxes.

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“Recessions can happen very quickly,” Chiang warned. “They can happen very dramatically.”

Follow @chrismegerian for more updates from Sacramento.

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