SAN FRANCISCO — California Treasurer Bill Lockyer said
In the annual California Debt Affordability Report, Lockyer said the state needs to ease the debt burden on its general fund while still financing future public works projects. The report lays out the blueprint for where the state’s debt stands and where it may go.
“With limited general fund resources, we have to both heavily invest in infrastructure and adequately fund critical public services,” Lockyer said in a statement Friday. “Reducing the general fund’s infrastructure financing burden should be in the mix of options for striking the right balance.”
Gov. Jerry Brown attacked the state’s “wall of debt” as a way to help close a $27 billion budget hole for this fiscal year and the state cut back on bond sales, forgoing its normal multibillion-dollar spring sale. Nevertheless, the state still has almost $50 billion of voter-approved but unsold general obligation and lease revenue bonds.
The report noted that debt service is expected to rise to 7.8% of the general fund in fiscal 2012 from 7.1% last year. That percentage is based on an increase of $95.8 million to $6.9 billion of debt service payments versus $88.5 billion in general fund revenue.
The treasurer’s office expects debt service payments to increase to 9.2% in fiscal 2013 without any new borrowing because California will have to pay back the $1.9 billion in borrowed from local governments to balance the budget in 2009.
In fiscal 2004, debt service took up 3.4% of general fund revenue.
The treasurer’s office said the 127% increase in the debt service share of the general fund over nine years is a result of more voter-approved bonds, less general fund revenue due to the recession, and the loss of tax revenue this year after temporary taxes expired.
Citing Moody’s Investors Service, the report notes that California’s debt-to-personal-income ratio of 6% is the second highest among the 10 most populous states, behind only New York.
In the report, Lockyer repeated the state’s three likely options for issuing debt over the next decade.
The first option includes no new debt, dropping debt service as a percentage of the general fund to 4.1% and peaking the budget deficit at $6 billion by fiscal 2021.
Another plan would be to sell all of the $49.1 billion of authorized but unsold GO and lease revenue bonds, dropping the debt service ratio by only 1% to 6.8% in 10 years and increasing the budget shortfall to $9.8 billion.
Lastly, the state would issue all of the authorized and unsold GO and lease revenue bonds plus $20 billion of not-yet-approved bonds to fund infrastructure. The debt service ratio would drop slightly to just 7.7% while the budget deficit would jump to $11 billion.
The report reiterates Lockyer’s earlier recommendation that the state adopt a long-term infrastructure financing plan that reduces its reliance on the general fund, through alternatives such as user fees or other new revenue sources dedicated to debt service.
California is still the lowest-rated state in the union, according to Standard & Poor’s and Fitch Ratings, both of which assign an A-minus ratings. The state carries an A1 rating, two notches higher, from Moody’s.
The treasurer’s office estimates the state will issue $10 billion of GOs and $5.5 billion lease revenue bonds over this and the next fiscal year.
So far, the state has sold $2.39 billion of GOs this year, and has at least $1.6 billion of additional issuance lined up for this fall. The size of a GO sale scheduled for the fall is still undecided.
Last year, California sold $10.5 billion of GOs and in 2009 sold $23 billion.
According to the treasurer’s report, the state’s total outstanding debt was $91 billion as of the end of June.
Outstanding general fund-backed debt totaled $82.6 billion, while economic recovery bonds, veterans bonds, and other state bonds not tied to the general fund totaled $8.4 billion.
