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Faster Spending of Bonds Is Urged

Davis hopes that accelerating the construction of roads, housing and schools will help stimulate the state's economy.

January 09, 2003|Miguel Bustillo | Times Staff Writer

Gov. Gray Davis hopes to create thousands of jobs and jump-start the economy by more quickly spending $21 billion in bond money that voters have approved for new roads, schools and housing.

Though some state and local officials commend Davis for making the accelerated bond spending a public goal at a time when California faces a budget shortfall estimated at $34.8 billion over the next 18 months, many also question whether the strategy will be as effective as the governor suggests.

Before the money can be spent, officials said, school districts must have plans ready to build schools and housing developers have to get the local zoning approvals needed to proceed with construction.

Furthermore, speeding up the use of bond money could be costly: If California tries to float too many municipal bonds at once, it may have to pay a premium on Wall Street, adding to the state's long-term debt.

California Treasurer Phil Angelides estimates that the state would have to pay increased interest if it tried to sell more than $7 billion in bonds this year. Nonetheless, the benefits would far outweigh the slight increase in debt, argued Angelides, who has long advocated using construction bond money to spark the economy.

"It is in fact an economic stimulus, both in the short and long term," said Angelides, who like Davis is a Democrat. "There is a long history in this country, from the Works Progress Administration onward, of using public infrastructure investments as an economic tool."

Many Republicans disagree, arguing that increasing the state's debt load only complicates California's long-term financial outlook.

"They're trying to tax and spend their way out of this budget crisis," said Peter DeMarco, a spokesman for Republicans in the state Assembly. "Trying to jump-start the economy is a laudable goal ... but this is like maxing out the Visa card."

Davis' proposal, dubbed the "Build California" initiative, is part of a broader effort to add 500,000 jobs during the governor's second term. It involves speeding up the spending of $21 billion in bonds -- including $11.4 billion for K-12 school construction -- to serve as an economic catalyst.

By accelerating the spending of a $2.1-billion housing bond voters approved last year, Davis estimated that he can add 68,000 jobs in the program's first year. Likewise, by ordering the state allocations board to more quickly make the school bond money available, an additional 285,000 jobs can be created, he said.

"The governor only has so many options that he can exercise these days ... and in that fairly limited arsenal he is focusing on an issue that can make a difference," said Kevin Gordon, executive director of the California Assn. of School Business Officials.

Nonetheless, Gordon said that although it is "absolutely a help" for Davis to call on state bureaucrats to release money quickly, "it is also accurate that at the local level, there are numerous hurdles" to construction, including some new factors such as prevailing-wage laws. He cautioned the state against pressing too hard to expedite school construction, and worried that some school districts could fall victim to "shady characters and fly-by-night outfits out there that may be preying on school boards" by promising speedy construction.

"There is the danger of wasting taxpayer dollars, and there is also the danger of losing the confidence of the public, which approved these bonds," Gordon said.

To speed up the projects, government officials are expected to join forces in so-called red teams that would cut the time needed to obtain approvals, process funds and get construction underway.

As part of that effort, the California Department of Transportation and the Resources Agency are being instructed to shorten the environmental permit process by a year -- without sacrificing environmental protection, administration officials said. Caltrans Director Jeff Morales said his agency is looking at ways to expedite 600 projects. For school projects, state officials plan to help school districts prepare project applications.

"The governor has asked us to use this highly coordinated effort, this team approach, to streamline and accelerate the construction process in all major projects," said Aileen Adams, secretary of the State and Consumer Services Agency. If the state accelerates projects, it will have to float bonds sooner than previously anticipated.

To entice enough investors, the state might have to offer higher interest rates. However, Zane Mann, publisher of the California Municipal Bond Advisor newsletter, said California bonds have proved remarkably attractive to investors.

"We worried about the power bonds, and they sold in a matter of hours," Mann said, referring to California's massive bond issue last year to fund the costs of the energy crisis.

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Times staff writer Gregg Jones contributed to this report.

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Excerpts from the State of the State address, delivered Wednesday by Gov. Gray Davis:

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