LOS ANGELES — California leaders celebrated another step in the state's path to fiscal soundness with a ceremony marking the final payment on $15 billion in bonds issued in 2004 to close a deficit.
"More than a decade ago, desperation coupled with fiscal shortsightedness caused Sacramento lawmakers to pass a budget relying heavily on borrowing from the next generation of Californians," Treasurer John Chiang said in a statement ahead of the press event Wednesday in Sacramento.
Chiang and state Finance Director Michael Cohen said the Aug. 5 payment of $929.7 million is the final installment that repays $15 billion in Economic Recovery Bonds issued in 2004 to close a deficit.
The Economic Recovery Act passed in 2004 authorized the state to sell $15 billion in long-term bonds to pay off accumulated deficits.
The state refunded an outstanding $5.6 billion in three series in 2009.
The Economic Recovery Act bonds were then-Gov. Arnold Schwarzenegger's solution to the state's fiscal crisis. Schwarzenegger replaced former Gov. Gray Davis in a recall election in October 2003.
Issuance of the ERBs resulted in debt payments of $19 billion that could have gone for public services, Chiang said.
Overall, bond payments made since 2004 total $14.2 billion in principal and $4.8 billion in interest, with additional administrative costs of $153 million.
"With today's final payment, the 2004 Budget is finally balanced and closed," Chiang said. "Importantly, may we never forget the folly of living outside of our means by turning to costly, long-term debt to finance short-lived benefits."
The final steps in retiring the bonds occurred when Chiang executed escrow certificates for the full defeasance of the bonds, and notified the Director of Finance that an escrow fund had been established to provide for all remaining bond payments.
Cohen also certified that "no other bonds were or will be issued" pursuant to Proposition 57, the Economic Recovery Act of 2004 that authorized the debt.
The 2014 Budget Act provided $1.6 billion from the Budget Stabilization Account to pay the bonds off one year ahead of the previously scheduled payoff date. Finance officials estimate that the state will save approximately $60 million in debt service costs associated with a longer payoff period.
"This final payment closes the books on the failed budgets of more than a decade ago," Cohen said. "By continuing to pay down debts and save for a rainy day, California can avoid repeating the past."
The 2014 ballot measure forbids future bond sales to finance budgetary debt. Proposition 2, a measure passed by voters in the same election, requires deposits into the Rainy Day Fund whenever capital gains revenues rise to more than 8% of General Fund tax revenues and that 1.5% of annual General Fund revenues are set aside each year.