SAN FRANCISCO - California Treasurer Bill Lockyer likes the municipal bond market.

"The municipal bond system saves California taxpayers millions of dollars yearly by giving them access to low-cost, tax-exempt financing," Lockyer wrote in an op-ed piece in the Sacramento Bee this week. "Whenever voters have made up their minds to invest in the state's infrastructure, municipal bond financing consistently has given them their money's worth."

Yes, that's the same Bill Lockyer who spent the past year lambasting rating agencies for an "unfair," dual system of credit ratings that he alleges forces issuers to buy unnecessary bond insurance companies or endure the "rip-off" of higher-than-necessary interest rates.

"We never said we didn't like the bond market," said Tom Dresslar, Lockyer's spokesman.

And Lockyer's still unhappy that the credit rating agencies hold munis to a higher standard than corporate debt. He also remains unsure of the value of bond insurance, even though a state budget impasse has led to a series of downgrades and negative outlooks from all three major credit rating agencies and effectively locked the nation's biggest state out of the capital markets.

Standard & Poor's yesterday cut its rating on the state's sales tax-backed economic recovery bonds to A-plus from AA. The outlook on that series is stable. The agency last month put the state's A-plus general obligation rating on negative watch.

Moody's Investors Service and Fitch Ratings have equivalent ratings and outlooks on California GOs. The state is tied with Louisiana for the lowest credit rating.

For all his complaints about the rating process, Lockyer agrees with the agencies that the state budget is a mess that requires immediate attention. In his op-ed, he described California as "standing at the poorhouse door," and he has repeatedly refused to criticize the recent downgrades.

The reason for his article in praise of the muni market is that he thinks the market offers a better alternative to Gov. Arnold Schwarzenegger's plan to use public-private partnerships to build new infrastructure.

P3s have become a big part of the debate on California's budget. Schwarzenegger last month vetoed a Democratic plan to partially close the two-year, $40 billion deficit in the $100 billion general fund budget, citing Democrats' refusal to include provisions that would allow private companies to finance, build, and operate state-owned infrastructure.

Schwarzenegger, a Republican, believes the state should offset economically painful, but necessary, tax hikes with economic stimulus measures such as new P3s and relaxed environmental regulations on some infrastructure projects, according to his budget spokesman, H.D. Palmer, a deputy director at the Department of Finance.

Palmer said the governor and legislative leaders continued to negotiate on a budget deal yesterday. Schwarzenegger said a deal was "close" at a press conference Monday.

While P3s are worth debating, the state's budget shouldn't be held hostage to them, according to Lockyer.

"The single-minded drive to gin up a gold rush by increasing private companies' share of the public infrastructure market has helped push California closer to fiscal calamity," he wrote .

Lockyer, a Democrat, said the state can do the projects more efficiently because it won't need to earn a profit and will get tax-free financing.

"Listen to them and you get the impression that backhoe-loads of free cash are there for the taking," Lockyer argued in his article. "But a revenue source that pays private firms could be used just as easily to pay investors who buy municipal bonds."

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