SACRAMENTO — State government is buying more on credit these days. And the bill, to be paid by future generations of Californians, is growing.
Principal and interest payments next year on California's $8.3 billion in general obligation bonds are estimated at $616 million--up 93.6% in five years.
Payments on the state bonds--which in effect are long-term loans used to finance such things as construction of prisons and school buildings--constitute one of the fastest-growing parts of the state budget under Gov. George Deukmejian.
Since Deukmejian took office in 1983, debt payments have been growing substantially faster than the tax revenues the state receives to pay for them.
So far, most state officials are not alarmed.
In fact, they predict California will continue borrowing at a rate of more than $1 billion a year.
Always popular with government officials as a way of raising money, bonds also are being viewed as a way of getting around the state spending limit imposed by voters in 1979. Spending to pay off voter-approved bonds is not subject to the limit. Thus, with the state near, or possibly even over, the spending limit, pressure is stronger than ever to use bonds to finance state projects.
Those who support the issuance of bonds argue that California historically has maintained an unusually low debt load, contrasted with other states, as it pursued a "pay-as-you-go" policy on such things as construction and renovation of school buildings.
So, even with the heavy borrowing of recent years, this argument goes, the state still is not over-mortgaged. And bond proponents say the cost of today's prisons, school buildings, roads and highways make long-term borrowing necessary to spread out costs over a long period.
'Under the Allowable Limits'
"We are well below any kind of danger points," said Manuel M. Mateo, chief trust officer for the state treasurer's office. "General obligation bonds represent only 1 1/2% to 2% of state spending. That is well under the allowable limits."
Still, there are drawbacks to using bonds to raise money.
Similar to home mortgages, the bonds are paid off over a 20- or 30-year period, backed by the state's promise to raise taxes, if necessary, to pay for them. Interest payments over that time can double or triple the cost of the original bond offering, depending on what rate of interest the state pays to borrow the money.
Another sometimes-cited pitfall is that future generations of Californians will have to pay for political decisions being made today.
And the trend in bond financing means that rising interest costs are eating up more and more of the state's spending money.
Bonds at various times have also been called an inefficient way of raising money. The government, to keep interest rates low, makes the income that investors receive from interest on the bonds exempt from state or local taxes. The Franchise Tax Board estimates that it loses $50 million a year in tax revenues because of deductions allowed for state and local bonds.
But so far the prevailing view inside and outside the Capitol seems to point to continued use of bond financing.
With bonds, everyone seems to win. Lawmakers can avoid tax increases by spreading out payments for capital projects over a period of years. Wealthy investors who purchase the bonds at attractive tax-exempt rates get favorable tax benefits. Wall Street investment firms make money handling the bond financing. And local city, county and school district officials are pleased because the bonds finance new facilities for their communities.
Unanimity of agreement is such that Deukmejian and state school Supt. Bill Honig, now bitter political enemies, signed the arguments in favor of last year's $800-million bond measure to finance public school construction and remodeling of existing elementary and high schools.
Similar alliances were forged in the Senate and Assembly. The $800-million school bond measure passed in the Assembly, 70 to 1, and it got a 29-0 vote in the Senate, winning support from both Republicans and Democrats. A $500-million prison construction bond issue was approved in the Assembly, 68 to 1, and in the Senate, 32 to 0. Both bond issues were also approved by the voters.
No Sign of Abating
The popularity of bonds shows no sign of abating this year.
Lawmakers already have introduced bond measures totaling $13 billion.
Among the bills are proposals to construct medical facilities ($750 million), child-care centers ($100 million), school construction ($800 million), water projects ($750 million), environmental cleanup ($150 million), and so on.
Most recently, Deukmejian kicked in with a proposal to issue $2.3 billion in bonds to finance highway and transportation projects in California.