Advanced financial minds call it securitization. Casual observers call it borrowing. We call it snake oil.Last year, we used that term in an editorial to describe the proposal by some legislators to use revenue from future years — perhaps from tobacco settlement payments to the state or lottery revenues — to help resolve the state’s budget problems.
Well, the snake oil salesman has rolled his wagon back into Olympia again this year and a few Democrats apparently have fallen under his spell. Washington State Wire reports that borrowing from tomorrow is back on the table, although no specific plans have been formally presented. That’s understandable. Who wants to be the first to buy a bottle from the silver-tongued salesman?
Another way to view this issue: It’s a grotesque reversal of the commendable rainy day principle. Only in recent years have lawmakers embraced the rainy day concept (promulgated largely by state Sen. Joe Zarelli, R-Ridgefield) of setting aside excess revenue for stormy days of the distant future. Quite to the opposite, securitization essentially means taking money from sunny days in years to come.
The most glaring problem with this idea? Fickle weather. No one can predict if tomorrow — let alone years down the road — will be sunny.
Granted, there is a time to borrow in state government, just as in family budgets. That’s how the state finances many construction projects. But as The Seattle Times editorialized on Monday, “This would be borrowing just to get through the year. There is a long-standing tradition not to do this. It is a good one. Politicians are elected for two- and four-year terms. Their ability to please voters and contributors needs to be limited by how much money the state has.”
There’s an infamous textbook case of how securitization can backfire. Back in 2002, the Legislature approved borrowing $450 million from the state’s future payments of the 1998 national settlement with tobacco companies. State Treasure Jim McIntire explained that the interest and principal on that debt will cost the state $100 million over the current biennium. So much for dreams of sunny days.
An interesting connection exists between that 1998 tobacco settlement and today’s state budget crisis. Chris Gregoire was Washington’s attorney general back then. Now she’s the governor, and last week she said: “My message to the House and the Senate is: Please do not give me a bill that has securitization in it.”
And Senate Majority Leader Lisa Brown, who, as Washington State Wire points out, shepherded the securitization plan 10 years ago, is not so excited now about borrowing against future revenues: “I think that’s where the House may be, but I’m not sure that’s where the Senate is headed. We’re trying to look at sustainability questions.”
Answers to those questions won’t be found in the thick mist of the future. Borrowing for basic, bricks-and-mortar projects is permissible, but trying to steal sun from distant days is to masquerade as some kind of weather promise-maker. Respect the weather forecasters; they’ve got expertise. But beware of weather promise-makers.
