Cap Gains for Cap Projects

Had an interesting conversation the other day with another rider while heading up to the top of Page Mill — of course the whole point was to pass the time while riding the last mile and a half.  The basic premise of the conversation went something like this:

California has a problem with a budget that varies quite radically, the core of the problem is that in a good economy the tax revenue from capital gains is large, so the state then sets up a whole bunch of projects that need that revenue to exist.  Then, as typical, a few years later in a weaker economy you end up with massive shortfalls, thus cutting teaching or school funding (ok, you cut a lot, but some groups yell louder).

So the proposal as we approached the top of the hill, was to insure that schools and other basic programs could be paid for out of the general tax revenue.  While capital project — typically financed via bonds — would be funded via the capital gains revenue.  Thus you could start more projects in good years and not start projects in down years, you could also insure that you budgeted some amount of $$ for future bond payments based on your current projections.