Regional News

Lockyer: California to Issue $12.5B of Debt Through 2014

LOS ANGELES -- California is expecting to issue around $12.5 billion of debt in the next year and a half, Treasurer Bill Lockyer said Wednesday.

Lockyer gave the keynote address at the California Debt and Investment Advisory Committee event preceding The Bond Buyer’s California Public Finance Conference in Los Angeles.

“That includes what we’re involved in this fall, which is just shy of $5 billion,” Lockyer said.

“If refinancing opportunities seem as good as we’re hoping for, maybe that’ll stretch to $6 billion,” he said.

Around $2 billion of state lease revenue bonds will be issued during the current fiscal year, which runs through the end of June 2014.

California currently has planned a $473 million sale of lease revenue bonds planned for next week, a general obligation bond sale planned for October, and another lease revenue bond sale in November.

Next year, the state expects to issue another $5 billion.

Lockyer said around $300 million of lease revenue bonds could be issued, but said that amount could grow.

Those numbers pale in comparison to the amount of debt that would be required to build the infrastructure that California needs, including transit systems, water systems, and schools.

Over the next 12 years, Lockyer estimates that those infrastructure needs would require an investment of about $600 billion.

“I’ve been the most aggressive or largest issuer as a Treasurer, and just in my six and a half years, it’s been about $60 billion,” Lockyer said. “So one twelfth of what the need is.”

There’s no way the state will be able to issue $300 billion of tax-supported bonds, which means that there must be an active conversation about trying to attract private capital or public pension fund capital to meet some of the public needs, Lockyer said.

Lockyer earlier this year announced plans to retire from public life when his final term as treasurer ends in January 2015.

He predicted that John Chiang, the current state controller, would succeed him and joked about the tough job he would leave.

“I’ve timed it so all the really cheap money will be gone by the time I’m done,” Lockyer said. “And we’ve done a lot of refinancings as well, because of market circumstances.”

The next treasurer will be a big issuer of debt, depending on market conditions,  Lockyer said.

Going forward, the treasurer expects that high speed rail and Gov. Jerry Brown’s water plan will drive California’s need for debt financing.

The treasurer alluded to his efforts to clean up what he sees as some abusive efforts in school bond financing.

This year Lockyer spearheaded legislation to regulate and limit school districts’ issuance of capital appreciation bonds.

The bill cleared the Legislature and is awaiting action from Gov. Jerry Brown.

It would require the ratio of total debt service to principal for each bond series to not exceed four to one. It would also require bonds with maturities greater than 10 years to be subject to early redemption.

The bill was introduced after media attention brought to light situations where capital appreciation bonds had been issued with debt service schedules exceeding a 10 to 1 ratio of payments to principal.

Lockyer said he is still trying to cut down on what he sees as inappropriate uses of bond premiums by issuers.

In 2010, Attorney General Kamala Harris wrote a letter strongly discouraging school district’s issuances of bonds at a premium to generate cash beyond the voter approved bond authorization.

“We may have to be back again trying to explain to the Legislature what premium is in a bond deal,” Lockyer said Wednesday.

Lockyer, 72, will have served two four-year terms as treasurer, two four-year terms as attorney general, and prior to that served for 25 years in the state Legislature, finishing as Senate president pro tem.




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