Financing California’s strongInfrastructurestrong - Sacramento State.pdf

Financing California’s Infrastructure Sponsored by the CSU Faculty Research Fellows Program Michael Semler Government Department Sacramento State University December 2005 Executive Summary California’s infrastructure, including schools, hospitals, highways, water and sewage systems, jails and prisons, have been built over the past fifty years using a myriad of financing strategies. Initially these facilities were paid using current revenues (paying-as-you go), but as projects became larger and more expensive, and state and local governments had to allocate revenues for other purposes, a shift occurred to the use of bonds (borrowing). The use of bonds allows public agencies to complete projects more rapidly and have future residents, who will benefit from the completed project, contribute to the cost. Since 1958, California voters have authorized the sale of $83 billion worth of General Obligation (GO) bonds; sixty percent of these bonds went to construct and modernize higher education and K -12 classrooms and buildings. Additionally, the State has $11 billion in lease-revenue bonds outstanding and currently authorized. As of October 1, 2005, California had outstanding $34.5 billion of General Fund supported GO bonds, exclusive of $10.7 Economic Recovery bonds, and another $30.5 billion authorized and yet to be sold. . This year repayments of these debts use approximately 4.5% of the General Fund. In five years, according the Legislative Analyst’s 2005 Fiscal Forecast, debt service will rise to 5.2%. Investors and credit agencies consider as moderate a range of debt service capacity as between 6% to 8%, but they argue against inserting any specific debt limit into law or constitutions as too restrictive. Creditors want governments to have flexibility in their abi