January 1995

Legislative Analyst's Office

BONDS

Bonds Now Fund Most Capital Outlay

Bonds have replaced other funds as the main funding source for capital outlay. The figure below compares direct spending from the General Funds and various special funds with spending from bond proceeds. It shows the state's increased reliance on bond funding for capital outlay. In 1975-76, bonds accounted for less than one-third of capital outlay expenditures. In 1994-95, bonds will account for almost 90 percent of expenditures.

Use of Lease-Payment Bonds Has Increased

The state uses two types of bonds to finance capital outlay--general obligation bonds and lease-payment bonds (also referred to as lease-revenue bonds or Public Works Board bonds). The chart compares expenditures of general obligation and lease-payment bonds over the last seven years.

For 1988-89 through 1990-91, lease payment bonds represented about 30 percent of total bond expenditures for state capital outlay programs.
For 1991-92 through 1994-95, lease-payment bonds represented about 60 percent of bond expenditures for state capital outlay.
The low level of spending from general obligation bonds for 1994-95 reflects the depletion of previously approved bonds and the lack of new general obligation bonds in 1994.

Lease-Payment Bonds Are Costlier to Issue

There are many differences between the way general obligation bonds and lease-payment bonds are approved and issued. As the table below shows, lease- payment bonds do not require voter approval and cost more than general obligation bonds.

DEBT SERVICE

Debt Service Has Increased Significantly

This figure shows the recent and projected debt service (principal and interest costs) for general obligation and lease-payment bonds. The projections are based on assumed sales of all currently authorized bonds but no additional bond authorizations.

Total debt service costs are about $2.2 billion in 1994-95--an increase of $1.3 billion, or 135 percent, since 1990-91.
For 1994-95, debt service on general obligation bonds constitutes 85 percent of total debt service.
Debt service on lease-payment bonds will be about $500 million in 1997-98 without additional authorizations.

Bond Costs Use More of General Fund

The figure below shows estimated costs to pay principal and interest on currently authorized state bonds as a percentage of projected state General Fund revenues (the state's debt-service ratio).

The debt service ratio has increased from 2.5 percent in 1990-91 to 5.3 percent in 1994-95.
With no additional bond authorizations, the debt-service ratio peaks at 5.6 percent in 1996-97 and declines slowly thereafter.
California's debt service ratio is relatively high compared to other states. (In 1993-94, 12 other states had a higher debt-service ratio.)

Debt Service Share of General Fund Spending Has Increased

The figures below show that in the last ten years, debt service has increased from 1.5 percent to 5.2 percent of General Fund expenditures.

70 Percent of Debt Service Is for Education and Criminal Justice

The figure shows the distribution of general obligation and lease payment bond debt service payments for 1994-95 by program area.

Criminal justice includes bonds for state prisons, youth authority facilities, and county jails.
Resources includes bonds for state and local parks, state land conservancies and clean water, safe drinking water, and water conservation programs.
"Other" includes bonds for housing, state office buildings, senior citizen centers, and earthquake safety.

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