SAN FRANCISCO — Appearing before the California Assembly Budget Committee, Treasurer Bill Lockyer this week restated warnings he has issued about the state's rising debt-service costs.
The cost of annual debt service has increased 143% compared to 10 years ago, while general fund revenue is up only 22%, Lockyer told the committee Monday afternoon.
That presents a twofold problem, he said. It puts pressure on the state budget, while the large supply of debt his office has to feed into the market also pressures the state's cost of borrowing.
So far in 2009, California has sold $36.6 billion of debt into the public capital markets, including more than $19.7 billion of long-term general obligation bonds as part of more than $27 billion of long-term debt, according to the presentation Lockyer provided for the lawmakers.
"It's a lot of money, and it's getting harder and harder to go to capital markets to access this kind of money," he said.
The GO issuance alone made California by far the largest issuer of bonds this year in either the corporate or municipal markets, Lockyer said.
Taxable California GOs trade at a wider spread to Treasuries than even speculative-grade sovereigns, he said.
"Compared to Indonesia, the Philippines, and so on, we're paying more than Third World countries," he said.
The biggest thing that could improve the marketability of the state's debt is to bring the budget back into structural balance, according to Lockyer.
"It's been an even dozen years since we had an old-fashioned balanced budget," he said.
Debt service in this year's budget was about $6 billion. If California simply continues issuing already-authorized debt, and voters next year approve the $10 billion water bond measure lawmakers put before them, the state will hit the $10 billion annual debt-service mark within a few years, Lockyer said.
He repeated his recommendation from earlier this year that the state create a master plan for infrastructure spending that actually prioritizes what investments to make.
Lockyer was joined in front of the committee by Mac Taylor, head of the Legislative Analyst's Office, who reminded lawmakers they do have the power to control the state's debt-service bills in both the long and short term.
With the exception of bond measures placed on the ballot by initiative, most GO bond measures originate in the Legislature, he said.
For the majority of voter-approved GO measures, the Legislature still has to appropriate funds before the bonds are issued, Taylor added. And lawmakers have even more control over more than $10 billion in unissued lease revenue bonds that they authorized.
"You can revoke the authority on unissued lease-revenue bonds," Taylor said. "You do have some authority over reducing those numbers."
He said he also believes the state's capital and debt programs could stand a review and a re-prioritization.
"We have a lot of our bond funds that have paid for local parks," Taylor noted as an example. "Is that appropriate?"
Committee chairwoman Noreen Evans, D-Santa Rosa, said she hoped the hearing would help kick-start efforts to launch better long-term planning.
"It's frustrating in a term-limited Legislature, lacking the ability to make decisions that last," she said.
Lockyer said that while it is important to develop a master plan, it's only useful if it carries some authority.
Something that just ends up sitting on a shelf is "a waste of staff time," the treasurer said. "If it's put into statute, it's useful."