California closed an ugly chapter in its financial history on Wednesday by making its final payment on $14.2 billion in costly borrowing that plugged a budget deficit 11 years ago but eventually cost taxpayers about $5 billion in interest and fees.
State Treasurer John Chiang and Director of Finance Michael Cohen announced the final payment of nearly $929 million toward the Economic Recovery Bonds, debt that was approved by voters in 2004 after then-Gov. Arnold Schwarzenegger led a bipartisan campaign promoting them.
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"They failed to make the difficult decisions possible. ... It was just the political will at that juncture," Chiang said of the decision by political leaders to promote the borrowing.
"Wall Street should not be the budget reserve of the state of California. It's costly, it makes no sense," he said.
Promoting the borrowing in Proposition 57 was one of Schwarzenegger's first acts in office, and he pitched the measure as a way to avoid public service cuts and tax increases.
Critics, including then-state Treasurer Phil Angelides, warned that it was a mistake to shoulder long-term debt to solve short-term problems and could put the state in a more perilous financial position.
Schwarzenegger enlisted help from all quarters to sell the plan, including Hollywood celebrities and lawmakers from both parties who he wooed with cigars, dinners and private plane rides. He even persuaded the governor he ousted from office, Gray Davis, to campaign with him.
Voters overwhelmingly approved Proposition 57, but the borrowing only worsened California's financial outlook.
The state has been spending about $1.6 billion a year to pay off the debt, Cohen told reporters. That money can now be used to pay for other state programs.
"We're doing everything we can to avoid repeating the same mistakes we made in the past," he said.