State Near Limit on Bond Sales, Treasurer Says

SACRAMENTO —  State Treasurer Thomas W. Hayes said Wednesday that California is close to its limit on bond sales and cannot afford the roughly $7 billion in new bond proposals circulating in the Legislature.

Hayes, during a luncheon speech to the Sacramento Press Club, said state legal commitments to use general tax revenues to sell and pay off about $13 billion in voter-approved bonds have brought the state “pretty close” to its limit on bond sales.

“If we sold everything we have outstanding, we’d be right there,” Hayes told reporters after the speech.

The new treasurer, who took office in January after being nominated by Gov. George Deukmejian and confirmed by the Legislature, refused to be pinned down on what he considers the state’s limit, a potentially controversial position given the huge demand for additional bond authority in California.

Legislators, encouraged by voter approval last year of a record $5.5 billion in bonds--nearly twice the amount that had ever been approved in any one year--have introduced dozens of new bond proposals since January. The various proposals represent about $7 billion in potential new bond authorizations.

Bonds are the chief form of borrowing used by the state to raise money to build prisons, schools and water and sewage facilities. During the current fiscal year, the state will need tax revenues of about $500 million to stay current with principal and interest payments due on outstanding bonds. These payments will jump to $610 million during the new fiscal year that begins July 1.

Hayes appeared uncomfortable with the seemingly inexhaustible demand for bond money.

“It’s not a bottomless pit,” he said. “We can’t just keep on selling bonds, selling bonds, selling bonds. It’s not free money.”

Hayes also said he is concerned about private groups circumventing the Legislature and putting bond measures on the ballot. A coalition of conservation groups did that last year and won approval of $776 million in new borrowing authority to buy parks. Hayes said continued use of bond issues by private groups “could be dangerous” and jeopardize the state’s AAA credit rating. A good rating enables the state to borrow at lower interest rates.

During his speech, Hayes said he has instituted a competitive bidding process to select investment bankers to underwrite state bonds and boasted that he has already saved the state money. His predecessor, the late Jesse M. Unruh, was criticized for not allowing competitive bidding in choosing underwriters.

To illustrate his point, Hayes said the treasurer’s office recently agreed to pay an underwriter $8.97 to handle each $1,000 in bonds using a competitive bidding process. Last year, when underwriters were not selected competitively, Hayes said the cost averaged $14.89 per $1,000. On a recent $160-million water bond issue, he said he was able to save the state about $1 million in interest costs.