When California politicians ignore policy risks, failure and scandal often result
California’s governors and legislators have a very bad habit of enacting major programs and projects without fully exploring their downside risks.
The most spectacular example occurred in 1996, when a Republican governor, Pete Wilson, and a Democrat-controlled Legislature decided to overhaul California’s electric power industry.
The legislation was hammered out in lengthy and secret negotiations that participants dubbed the “Steve Peace death march” for the state senator who ramrodded the effort. It was enacted with only cursory public input.
As a 2003 autopsy of the ensuing disaster chronicled, “The act was hailed as a historic reform that would reward consumers with lower prices, reinvigorate California’s then-flagging economy, and provide a model for other states. Six years later, the reforms lay in ruins, overwhelmed by electricity shortages and skyrocketing prices for wholesale power. The utilities were pushed to the brink of insolvency and are only slowly regaining their financial footing. The state became the buyer of last resort, draining the general fund and committing itself to spending $42 billion more on long-term power deals that stretch over the next ten years.”
Other examples of the bad habit abound, such as beginning construction of a bullet train linking the two halves of the state with only rudimentary assumptions of its costs, ridership and other important factors — a project that limps along nearly two decades later.
Two others are the immensely costly expansion of pension benefits for public employees a couple of decades ago, which has hammered local government budgets, and big increases in unemployment insurance benefits without increasing revenues, which resulted in a $20 billion debt to the federal government that is still growing.
That brings us to Senate Bill 769, which appears superficially to be a positive effort to expand infrastructure financing but could be another example of unanticipated consequences. The measure, introduced by Sen. Anna Caballero, a Merced Democrat, would create the Golden State Infrastructure Corporation, a state-owned nonprofit company that could borrow money or issue bonds and provide financing for public or private infrastructure projects.
State Treasurer Fiona Ma is the bill’s sponsor and would appoint the corporation’s top executive, who would answer to a five-member board of elected officials and governors’ appointees.
“By partnering public and private capital, SB 769 enables critical investments in climate resilience, water systems, energy infrastructure, housing and transportation, creating jobs and future-proofing California for generations to come,” Caballero’s office contends.
“California can’t afford to wait for Washington, or for outdated financing systems to catch up with 21st-century needs,” she said in a statement. “SB 769 is about building a resilient, modern California by creating a smarter, more flexible way to fund infrastructure that protects our communities, creates good jobs and prepares us for the challenges ahead.”
There are aspects to the proposal that should be triggering alarm bells.
There is no limit on how much debt the corporation could incur. The state would also not be liable if its financial structure collapsed. The decisions on financing private projects could be made secretly because the corporation would be exempt from some open meeting and open records laws.
The danger here is that with a potentially unlimited amount of money to be handed out with no public input, the political figures on the corporate board could be swayed to play favorites for reasons disconnected from infrastructure improvement.
We’ve seen scandals of that sort elsewhere in state government, such as in the Coastal Commission’s land use decisions and the California Public Employment Retirement System’s investments.
Without better safeguards and more sunshine, this is another scandal waiting to happen.
Dan Walters is a CalMatters columnist.