Regional News

Amid Crisis, California Yanks Bond Projects

SAN FRANCISCO - California Gov. Arnold Schwarzenegger's administration announced yesterday that it is pulling the plug on remaining bond-financed public works projects that haven't already been terminated because of the state's budget woes.

The announcement came after lawmakers were unable to solve the ongoing crisis over the President's Day weekend. Though lawmakers met daily, the Senate remained one vote short of the two-thirds supermajority needed to approve a plan negotiated by the governor and legislative party leaders to close the $40 billion budget gap.

The fate of the budget was unclear yesterday afternoon. Senate President Pro tempore Darrell Steinberg, D-Sacramento, called the chamber into session yesterday and said it would be locked down - with members prohibited from leaving - until a budget passes.

The deal was widely assumed to have enough votes to clear the Assembly, assuming it passes the Senate.

Because of the budget crisis, California hasn't issued general obligation bonds since June.

With the government also running low on cash, the state in December stopped advancing funds for more than 5,000 bond-financed infrastructure projects.

California's Pooled Money Investment Account usually fronts funds for the projects, and is reimbursed later from bond proceeds. The December freeze excluded 276 projects that would be particularly costly to stop and re-start.

"This is principally true in construction projects," said H.D. Palmer, spokesman for Schwarzenegger's Department of Finance. "You can't just stop an overpass and walk away from it."

But without a budget resolution, that time has come, he said yesterday.

"We are now at the point where absent an agreement [on the budget] we cannot in good fiscal faith allow these projects go forward," Palmer said.

Supporters of a budget deal were unable to find a third Senate Republican vote needed to secure the supermajority for the package, which would enact a budget through fiscal 2010 and close the budget gap with a mix of tax hikes, spending cuts, and borrowing.

Tax increases would run from two to five years and include a 1% sales tax increase and a 5% surcharge on income tax liabilities, according to a document issued by the Senate Budget Committee.

The plan also calls for $5 billion in bonds secured by lottery revenues - though voters would have to approve - and $5.9 billion in revenue anticipation warrants this summer.

The Raws would be scaled back or eliminated if the state receives enough federal stimulus money.

To appeal to Republicans, the budget compromise also includes spending limit reforms, loosened state labor laws, and enhanced public-private partnership authority.

The ongoing cash crunch is being felt by the California's counties. State Controller John Chiang on Friday withheld a scheduled $89 million payment to counties to reimburse them for state-mandated social programs.

In response, Sacramento and San Diego counties filed suit Friday against Chiang in Superior Court in Sacramento, asking for a court order to pay the funds. In all, 28 counties will join the suit, according to the California State Association of Counties.

Chiang responded with a statement that, while sympathetic, said he didn't have the money.

"My office is essentially left with only $6 to pay every $10 worth of bills," he said.

"As soon as the state's coffers are refilled, my office will work around the clock to ensure those funds that have been withheld get out the door quickly," Chiang added.

The Bay Area Toll Authority, operator of seven Northern California toll bridges, has offered to buy $200 million of state general obligation bonds to keep the financing pipeline open for several projects in the region.

The Pooled Money Investment Board will consider BATA's offer at its regular meeting today, said Tom Dresslar, spokesman for state Treasurer Bill Lockyer.

"This debt sale would be a 'private placement' with BATA as the only buyer," according to a BATA staff report. It noted that the debt would likely carry a mandatory put at three years, with rates "not less than the current market rate for similar short-term tax-exempt notes."

California carries an A rating from Standard & Poor's, and A-plus level ratings from Moody's Investors Service and Fitch Ratings.

As of Friday, California GO bonds traded as high as 137 basis points over the Municipal Market Data AA GO curve. The highest spreads were on the short end.

A year earlier, the highest spread was 60 basis points, with the highest spreads on the long end.



Upcoming Events

Already a subscriber? Log in here
Please note you must now log in with your email address and password.