SAN FRANCISCO - The California Supreme Court last week declined to hear the appeal of a case that challenged the state's ability to issue lease revenue bonds.

In refusing to hear the case, the high court let stand appeals court and trial court decisions upholding the state's ability to issue such debt.

A pro-prisoner activist group, Taxpayers for Improving Public Safety, or TiPS, filed suit challenging 2007 legislation that authorized more than $7 billion of lease revenue bonds to add thousands of beds to the state's crowded prison system. (The group believes there should be fewer people in prison, not more.)

TiPS argued that lease-revenue bonds - in which a facility lease is structured to match debt service schedules for tax-exempt bonds issued to build the facility - violate California's constitutional debt limit, because they are not voter-approved.

State officials argued that such lease-based financings are well grounded in legal precedents that go back as far as 1942.

The trial court denied TiPS' request for a preliminary injunction in 2007 and dismissed the case. In March, the Third District Court of Appeal upheld the lower court's decision on a 3-to-0 vote, and the case came to an end last week with the Supreme Court's refusal to hear it.

"That was the last legal impediment to us going forward" with the bonds, H.D. Palmer, spokesman for the Department of Finance, said Friday.

Political and financial hurdles remain, however.

When the administration plans to go forward with the financing, it would issue a 30-day notice, during which the Legislature can object, he said.

The more critical hurdle, he added, is the state's tight financial situation.

"The first step to address that is getting the budget problem behind us," Palmer said.

Because of the state's forecast liquidity problems, California's Pooled Money Investment Board isn't authorizing new interim financings for projects that will be paid for with bond issues, he said.

Lawmakers and Gov. Arnold Schwarzenegger are currently negotiating a package to bring the state budget into balance.

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