Calif. Bond Proceeds Can Pay for Capital Projects Until Year’s End

ALAMEDA, Calif. — California can probably keep money flowing to bond-financed capital projects through the end of the year, even if the state’s continuing budget crisis keeps it off the bond market, a state spokesman said Tuesday.

“From the spring sale we believe we have enough to continue these projects certainly through the end of the year, or early 2011,” said H.D. Palmer, spokesman for the Department of Finance.

Palmer cautioned that such estimates are preliminary, noting that “we’re still polling the agencies.”

The state sold $5.9 billion of general obligation bonds in March through two transactions, one taxable and one ­tax-exempt.

Plans published by the Department of Finance forecast that California will issue about $6.4 billion of new GOs this fall, Palmer said.

However, those plans won’t get off the ground until California adopts a budget, because that spending plan is a fundamental component of bond offering ­documents.

The budget is already more than nine weeks late due to differences between the Legislature’s majority Democrats and minority Republicans.

They have not been able to reconcile their views on taxes and spending to put together the necessary two-thirds vote to adopt a budget.

Party leaders from each chamber reportedly held a closed door meeting with Republican Gov. Arnold Schwarzenegger Tuesday.

After a budget is adopted, Palmer said the first order of business before a GO sale will be a multibillion-dollar note deal to fund the state’s cash-flow needs for the fiscal year.

Last year, that took about four weeks, Palmer noted.

The treasurer’s office has already named its underwriting team for both the GO deal and the revenue anticipation note sale. JPMorgan was named senior manager of the Rans.

De La Rosa & Co. and Wells Fargo Securities are co-senior managers.

The treasurer’s office has tapped Citi, RBC Capital Markets, and Siebert Brandford Shank & Co. to serve as joint senior managers of the next GO bond sale.

An intertwined budget and cash crisis kept California from issuing GO bonds between June 2008 and March 2009.

The nine-month gap threatened to bring construction projects around the state to a grinding halt before a budget deal allowed the state to resume issuing bonds.

The situation is less dire now, Palmer said, because the state now sells bonds before distributing money to projects.

Until 2008, it used an internal cash account to fund construction and then sold bonds to reimburse the account. The state’s 2008 cash crunch made the old system untenable.

The budget deadlock is now the second-longest in history, behind only 2008. Lawmakers passed that budget on Sept. 16, and Schwarzenegger signed it on Sept. 23. To access the GO market this calendar year, the effective deadline is late November, Palmer said.

That’s when California traditionally enters a bond-sale blackout because of disclosure issues, he said, as the Finance Department begins to run preliminary tax and economic numbers to prepare the governor’s January budget proposal.

For reprint and licensing requests for this article, click here.
California
MORE FROM BOND BUYER