SAN FRANCISCO - With California's budget crisis grinding most of its bond-financed infrastructure programs to a halt, a state board yesterday approved a new policy designed to make it easier to privately place new state general obligation debt.
The Pooled Money Investment Board approved the policy in a regular meeting yesterday.
The policy changes will allow both the Bay Area Toll Authority and the Los Angeles County Metropolitan Transportation Authority each to proceed with plans to buy up to $200 million in privately placed state GO bonds to keep funds flowing for some transportation projects in their respective regions.
"It's kind of a Rube Goldberg way to try to finance things," said state Treasurer Bill Lockyer, who chairs the investment board. "It's not what we would want to do but we don't know what else to do."
The two transportation agencies aren't the only entities looking at taking private placements.
"There've been a lot of inquiries," Lockyer said at the meeting.
The PMIB usually functions in a ministerial manner, fronting state funds to public works projects that are subsequently reimbursed when California issues bonds.
But the state hasn't issued GO debt since June, and is facing an operational cash crisis to boot, which has caused it to pull the plug on PMIB financings.
The state is enmeshed in a cash crisis exacerbated by the Legislature's inability to agree on budget revisions to plug a $40 billion-plus deficit. The budget plan was stalled in the Senate yesterday, where the votes of at least three minority Republicans were needed to obtain the required two-thirds vote.
The Senate quagmire was further muddied yesterday when the GOP caucus revolted against its own leader, Dave Cogdill, and replaced him with anti-tax hardliner Dennis Hollingsworth.
In a press conference yesterday, Gov. Arnold Schwarzenegger said he looked forward to working with Hollingsworth, but also said a no-new-tax solution is unrealistic.
"Anyone that runs around and says this can be done without raising taxes has not really looked at it carefully or has a math problem," the Republican governor said.
According to a staff report prepared for yesterday's PMIB meeting, the State Treasurer's Office has been unable to issue GOs in a public sale due to a combination of California's budget problems, and overall municipal bond market conditions.
Given the improvement in muni market conditions since the beginning of the year, "the STO is exploring whether it would be possible for the state to issue GO bonds in a public sale, though how long these favorable market conditions will last is unknown," the staff report said.
It added that the treasurer's office is working with the Department of Finance, the state controller's office, the attorney general's office, and its disclosure counsel to attempt to develop complete and accurate disclosure that would allow the state to issue GOs in the absence of enacted budget and cash solutions.
"However, this is a very challenging task and it remains uncertain that the state will be able to develop such disclosure necessary to issue any GO bonds or lease revenue bonds in a public sale," the report continued. "The STO is also actively pursuing options for issuing GO bonds in a non-public sale."
Also yesterday, the pooled money board ratified the Department of Finance's decision this week to stop funding 276 projects that will incur very high costs to shut down. The costs will be measured in the hundreds of millions of dollars, according to finance director Michael Genest, a member of the PMIB.
"Those costs will have to be put in the hopper and we're going to have to figure out some way to get them paid at some point," Genest said. "If they continued, we wouldn't know what we're going to do about paying for their continuation."
Board members were warned that the capital funding freeze is going to have an impact beyond the state level of government.
Local school districts have entered into at least $1.2 billion in construction projects that depend on receiving grants authorized in state bond measures and approved by the State Allocation Board, said Tom Duffy from the Coalition for Adequate School Housing.
The districts relied on state statute authorizing them to enter contracts once they receive grants from the allocation board, he said.
"There are districts that could potentially become insolvent be cause of these contracts," Duffy said.
According to Los Angeles Metropolitan Transportation Authority documents, the agency would acquire the state bonds through private placement at a fixed rate, with a maturity not to exceed three years.