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California's LAO Watchdog Likes Brown Budget

SAN FRANCISCO — California’s legislative watchdog has commended Gov. Jerry Brown for his balanced budget proposal that also attempts to rein in general obligation bond borrowing.

“We think [the governor] should be commended for the plan he put before legislature,” legislative analyst Mac Taylor said at a news conference Monday. “I think we are in a very different situation than we have been in the last 10, 12 years.”

Brown released a $98 billion general fund spending plan pitch to the state Legislature last week that said California had eliminated its deficit.

Over the last decade governors have proposed budgets that had to deal with major spending gaps.

Taylor said the governor’s approach to spending is very critical because the state still faces a lot of risk, much of which is out of its control, such as the potential economic impact from the debt ceiling battle in Washington.

“The state potentially faces some daunting choices even in this much-improved fiscal environment,” the Legislative Analyst’s Office’s report says.

Brown plans to continue restraining bond issuance by continuing to require GO bond programs demonstrate they have an “immediate” need for additional bond money before the sale of new debt. The administration has pushed agencies to use unspent bond proceeds before going to the market. 

California over the last decade has typically been the largest state issuer of municipal bonds. It lost that top spot a year ago amid tighter issuance controls by the Brown administration.

The governor said he would like to rethink how to fund school facilities rather than authorizing additional new state GO bonds. Legislation has already been introduced to ask voters to authorize a new round of school facility bonds after previous authorizations were largely exhausted.

The LAO said the spending plan also attempts to limit future bond authorizations for infrastructure backed by the general fund, the main source used to fund infrastructure spending.

Brown’s budget proposes lowering debt-service costs for transportation-related bonds by implementing a new weight fee revenue bond program, which would stream payments directly to debt service from weight fees instead of indirectly through the general fund. The structure is expected to result in a higher credit rating for those bonds.

Brown said in his proposal that the state has $38 billion in authorized infrastructure bonds that have yet to be issued, yet he called the sum “relatively small” compared to California’s infrastructure needs.

The Democratic governor plans to release a five-year infrastructure plan later this year. “The administration states that the plan will rely less on future voter-authorized general obligation bonds than the state has over the past decade,” the LAO said.

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