“Wiser debt management has helped return California to an even keel,” State Treasurer Bill Lockyer said in his 2014 debt report.

SAN FRANCISCO - California is planning to issue around $3.9 billion of general fund-supported debt during fiscal year 2015-16, according to the State Treasurer's Office.

Around $3.3 billion will be general obligation bonds and $539 million will be lease revenue bonds.

That amount is substantially lower than previous years reflecting efforts in the past few years to trim its debt load.

"Wiser debt management has helped return California to an even keel," State Treasurer Bill Lockyer said his 2014 Debt Affordability Report. "The state has slowed issuance of new debt and made more efficient use of bond proceeds already in hand."

GO bond issuance has decreased substantially since 2008-09 and 2009-10, when the state sold $15.5 billion and $12.4 billion, respectively.

For fiscal year 2013-14, GO bond issuance totaled $5.9 billion and for fiscal year 2014-15, total issuance is expected to be around $5.2 billion.

"We've also aggressively pursued opportunities to refinance outstanding bonds to reduce debt service costs," Lockyer said in a letter accompanying the report, released Oct. 1. "Refinancings completed since 2011 will save tax-payers $1.7 billion on debt service."

Still, debt service payments from the general fund are expected to increase in the next two years — by $65 million in 2014-15 and $392 million in 2015-16, according to the treasurer's office.

The state currently has around $75.7 billion of outstanding GO debt and $25.8 billion of GO bonds authorized, but not yet issued.

The debt report is Lockyer's last, as his term comes to an end in Jan. 2015. Lockyer, who has served the maximum of two terms, has announced he will instead retire from elected office.

In his final report, he praised state lawmakers and voters for getting the state moving back in a positive direction, citing the passage of Proposition 25 in 2010 in 2012 to lower the threshold for budgetary approval to simple majority and Proposition 30 to increase sales and income taxes.

Lockyer also noted the November 2014 ballot measure aimed at building a stronger rainy day reserve, saying its adoption would further improve the state's management of taxpayer dollars.

"All the hard work has strengthened California's standing in the bond market," Lockyer said. "The state's general obligation bonds have been upgraded by all three major rating agencies. The premium investors demand to buy California GOs compared to what they pay for higher-rated bonds has declined substantially."

The spread on the state's 30-year bonds compared to the Municipal Market Data benchmark of AAA-rated GO bonds tightened from a high of more than 150 basis points at the end of 2009 to 35 basis points this September.

California is rated A by Standard & Poor's and Fitch Ratings and Aa3 by Moody's Investors Service. Fitch and Moody's assign stable outlooks to the state's ratings, and Standard & Poor's has a positive outlook.

"Despite the significant budgetary improvements over the last few years, the state still faces a number of fiscal challenges and risks," Lockyer cautioned in the report. "These include paying off its deferred obligations, revenue volatility, the cost of public employee retirement benefits, uncertainty regarding the cost of providing health care under the new Affordable Care Act and expenditure mandates."

The treasurer gave one last recommendation in his letter that the state develop his proposed 25-year infrastructure master plan that would prioritize infrastructure projects and provide a financing blueprint.

"The state has to be smarter about the way it plans and finances infrastructure development," Lockyer said. "Our current approach is too ad hoc. Voters and the legislature authorize bonds for particular programs with little thought given to how those bonds fit into a larger infrastructure picture."

Lockyer estimated that just a 15-year investment would cost around $500 billion or more.

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