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Enron Mail |
Here's an editorial that gets to the heart of the matter.
Tuesday, July 10, 2001 Ghost of Bob Citron roaming halls of capitol Gray Davis is following footsteps of former O.C. treasurer into fiscal chaos JOHN M.W. MOORLACH Mr. Moorlach is the Orange County treasurer-tax collector. A recent L.A. Times poll found that Californians still remain unconvinced that our state suffers from a shortage of energy. Perhaps the state's subsidizing of the actual costs for electricity these past five months has caused us to believe that everything is fine. It is not. The state has been spending an average of $57 million, a medium-sized city's annual budget, per day for electricity. Now California is headed toward the same financial catastrophe that was imposed on its shareholder-owned utilities, finding one of them in Chapter 11 bankruptcy and another on the precipice. At this pace, it will not be long before the state will be staring a Chapter 9 bankruptcy filing in the face. That's why I'm gnawed by this "d,j. vu" sensation. The similarities and parallels between California of 2001 and Orange County of 1994 are frightening. Here's a refresher. In 1994 the county, through former Treasurer Robert Citron, was borrowing at variable rates and investing at fixed rates. The "experts" and the "politicos" were comfortable with the investment scheme. No wonder the electorate was convinced that there were no investing improprieties. Even while their former treasurer was very secretive about how he was investing and what his "exit strategy" would be. Guess what? The unexpected happened. Short-term borrowing rates doubled. The cost of borrowing suddenly exceeded the revenues being generated. It caused the investment pool to implode and Orange County taxpayers realized a $1.64 billion loss. In spite of pleas to avoid or minimize this train wreck the county's leadership, he ignored it. The rest is history. In a half-pregnant deregulation scheme, the state capped the retail price that the utilities can charge. It also eliminated the availability to acquire electricity through the use of long-term contracts. Guess what? The unexpected happened. The wholesale price for electricity spiked dramatically above the inflexible retail price cap. It depleted the available funds for the utilities, and then some, and they are imploding. In spite of pleas from the utilities imploring Gov. Gray Davis to avoid or minimize this train wreck, he ignored them. The rest is also history. It gets worse. Davis doesn't allow for the immediate raising of retail rates and decides to have the state secretly purchase electricity. Guess what? The expected happened. He depleted our budget surplus! Our reserves! Nearly $9 billion - and counting! He's a Citron, only quintupled! And in the light of day, the secret purchases were not attractively priced and only compound this financial nightmare. Gov. Davis has done what no Libertarian or Republican could ever dream of doing in such a short time. He has returned the budget surplus created by taxpayers to the residents of California by subsidizing their electricity bills. Bravo! It may not be the most equitable way of refunding taxes, but has anyone ever thought up a more efficient method? But, that's not all. He wants it back! Davis now wants to borrow some $13 billion to replace the spent reserves and purchase even more electricity at rates in excess of the retail prices! When does this train wreck in slow motion stop? And how do we pay off these bonds? Davis did not want to raise rates last summer or this past winter. But now he will to pay off this historically largest municipal bond offering with a significant utility rate increase. The ratepayers will be reminded for 10 years after Davis is gone about his expensive brilliance. And this elected official wants to purchase the power grids and bureaucratically manage the utilities? I say "no." If we don't show some leadership in Sacramento soon, potential bond buyers will also say "no," unless they receive an attractive interest rate. Just ask Edison International about attractive interest rates. It just subscribed $800 million in bonds paying 14 percent. Tragically, Gov. Davis walked into his position with an existing budget surplus and now has no tangible legacy to show for it. No reserves. No improved highways. No new schools. No infrastructure improvements. Only interest payments. Wasn't that Citron's legacy? If amortized over 10 years at 6 percent, the citizens of California will pay an additional $4.4 billion in interest costs. Over 15 years it's $6.7 billion. And therein lies the true legacy of Davis, squandering the entire budget surplus that he inherited on interest resulting from his indecisiveness and lack of leadership! It is so tragic that the perpetrator of this colossal mess is still in denial and continues to play the "blame game." Orange County played the "blame game," too. But it had obvious perpetrators and succeeded in a court of law in securing a significant amount in retribution payments. I'm not so sure California will have a similar result.
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