A Primer on
|In 1998, the Legislature will face important decisions regarding bond financing and addressing the state's infrastructure needs. California's economic growth and quality of life are in part dependent on the adequacy of the state's public infrastructure. The Governor has proposed a significant amount of new bond authorizations in several program areas. In order to assist the Legislature, this report provides answers to questions often asked about bond financing by the state. In addition, we describe the Governor's bond package, its impact on future state budgets, and key factors the Legislature should consider in evaluating any bond proposals.|
What Types of Bonds Does the State Issue?The state issues general obligation (GO) bonds, revenue bonds, and lease-payment (lease-revenue) bonds, which are described below. When people talk about what bonds to place on the ballot, they are usually referring to GO bonds (non-self-liquidating).
|Type of Bond||Recent Uses of Bond Proceeds||Voter Approval Needed?||Amount Outstandinga
|State Pays Debt Service|
|General obligation (non-self-liquidating)||School and college
retrofit, parks, and
facilities, and state
|State Does Not Pay Debt Service|
|Revenue bonds||State Water Project,
|aAs of December 31, 1997 unless otherwise noted.|
|bAs of September 30, 1997.|
What Bonds Have Recently Been Approved?The figure below shows the GO bonds approved since 1986 by program area. From 1986 through June 1990, voters approved over 90 percent of all proposed GO bonds, but from November 1990 through 1994, only 30 percent were approved. Voters approved all $6.4 billion in bonds proposed in the 1996 elections.
In addition, since 1986 the Legislature has authorized $6.4 billion in lease-payment bonds for the following purposes: Corrections$2.6 billion; higher education$2.4 billion; state offices and laboratories$2.5 billion.
|(Bond Amounts in Millions)||
|State/Local Parks, Natural Resources||100||776||437||2,000|
|Earthquake Relief and Seismic Retrofit||300||2,000||2,000|
The state last had a "triple A" rating (the highest possible) back in late 1991. During the recession, the state's rating was downgraded several times, reaching a low of A. The state's improved fiscal condition resulted in an upturn in the ratings.
How Much Does a
The cost of bonds depends on the interest rates at which they are sold
and the length of time until they are paid off. The figure below compares
the direct cost of a $100 million project financed on a pay-as-you-go basis
and with the total principal and interest payments for the same project
using GO and lease-payment bonds.
What New Bonds Is the Governor Proposing?The figure below shows the $13.2 billion in bond authorizations$11.7 billion in GO bonds and $1.5 billion in lease-payment bondsthat the Governor is proposing. Of this total, about $6 billion would go on the ballot this year (either in June or November), and $6 billion (all for K-12 schools) would go on ballots in subsequent years.
|General Obligation Bonds||(In Millions)|
|Watershed, Wildlife, and Parks Improvement||800|
|Local Juvenile Facilities||350|
|Department of Corrections--New State Prisons||$1,024|
|Department of Health Services--Richmond Laboratory, Phase II||116|
|Department of Mental Health--Atascadero State Hospital Addition||33|
|Department of the Youth Authority--Security Housing Units||33|
|Office of Emergency Services--Headquarters Facility||26|
|Other projects (unspecified)||300|
How Will the Governor's Bond
As shown in the figure, as currently authorized bonds are sold, we estimate
that the debt ratio will peak at 4.7 percent in 1999-00 and decline thereafter.
With the Governor's proposed bonds, the debt ratio would peak at 5 percent
in 2000-01. The actual debt ratio would depend on the timing, volume, and
actual interest rates on bond sales, and on actual General Fund revenues.
|Acknowledgments This report was prepared by Chuck Nicol, under the supervision of Gerald Beavers. The Legislative Analyst's Office (LAO) is a nonpartisan office which provides fiscal and policy information and advice to the Legislature.||LAO Publications
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