SAN FRANCISCO - Public pension funds continue to explore the idea of creating a new bond insurer, though such plans are on the back burner at the moment, California Treasurer Bill Lockyer said yesterday.

Lockyer mooted the idea back in March, and believes it still has merit, he told a reporter after speaking at a conference here yesterday.

As treasurer, Lockyer serves on the boards of the California Public Employees' Retirement System and the California State Teachers' Retirement System, the nation's two largest public employee pension funds.

Of the two, CalPERS is more interested in the idea of creating a bond insurer in cooperation with other state pension funds, Lockyer said. But such an action would likely wait until there is greater clarity in the municipal bond market.

One of the market's unknowns is the effect of another effort spearheaded by Lockyer, to realign bond ratings to make municipal bond ratings comparable to corporate ratings, which will have the effect of raising muni ratings.

Moody's Investors Service has announced plans to implement the changes starting next month, while Fitch Ratings has also said it plans to change its ratings system.

"Assuming we receive some upgrades, and it looks like a strong possibility, it won't be to triple-A," Lockyer said. "Then the question is, is there a need for insurance? I don't think anyone has the answer."

The volume of new bonds carrying insurance has plunged below 10% since Moody's placed the Aaa ratings of Assured Guaranty Corp. and Financial Security Assurance Inc. on review for possible downgrade in July.

Lockyer added that CalPERS is currently without a permanent chief executive and chief investment officer, which has the effect of slowing new initiatives.

"Some of the other states still have an interest," he said.

In his address yesterday to Correlation Consulting's conference on mission-related investments, Lockyer took a swipe at Standard & Poor's for insisting that it has one universal rating scale when its two competitors have admitted that they have different scales for munis and corporates.

"I can't tell you how exasperating it is to meet these really very smart people who just lie to you," he said.

Lockyer told the conference he has used the tools of the treasurer's office as a vehicle for fighting global warming and promoting minority and local businesses, citing its hiring of three California firms - Stone & Youngberg LLC, Siebert Brandford Shank & Co., and De La Rosa & Co. - to lead a $1.75 billion bond deal in March.

"They're usually on the food chain way down bellow the Citigroups and the Merrill Lynches," he said. "They did well."

He said he was dismayed that state lawmakers this year were unable to push through his proposal to authorize $2 billion in general obligation bonds to finance energy-efficiency improvements to state buildings, even though the savings on energy would have exceeded the debt service costs.

"I'm going to see if I can get that one by them next year as a revenue bond," he said.

Lockyer was elected treasurer in 2006 after eight years as attorney general. He said he likes the tools the treasury gives him.

"If your goal is to encourage social and economic change, it turns out you produce more of it with money than with subpoenas," he said.

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