Governor Would Use Surpluses to Retire Bonds

Gov. George Deukmejian wants to use future state budget surpluses to pay off the proposed $2.3 billion in highway construction bonds, rather than rebating the money to taxpayers as was done last year, the governor’s chief of staff said Friday.

The highway bonds are part of a record bond package that Deukmejian will ask voters to approve this year as part of his newly proposed $44.3-billion budget.

The governor Thursday announced plans to seek voter approval this year for $3.9 billion in bonds to finance school and highway projects and toxic and environmental cleanup, and he is expected to endorse an $850-million prison bond issue soon. When those are added to a $770-million parks bond issue already approved for the June ballot, the total comes to $5.5 billion.

Michael Frost, Deukmejian’s chief of staff, told reporters that the governor wants to sell the highway bonds--$1 billion this year and $1.3 billion in 1990--as short-term notes so that they can be paid off ahead of schedule with funds that might otherwise be returned to taxpayers.

‘That’s Our Proposal’

“That’s our proposal. That’s the way we want it,” Frost said.

The chief of staff added, “It’s not like saying there will never be another (tax) rebate, but it is like saying that, yeah, some of those funds could be used to retire bonds early.”

When Deukmejian first announced his highway bond proposal last year, it was widely interpreted as a strategy to bypass the voter-approved spending limit and still free up money for highways. But until now, Administration officials would not openly discuss their plans.

The 1979 voter-approved initiative that put a lid on state spending also mandated that end-of-the-year budget surpluses accumulating in the treasury be returned to taxpayers.

There is growing dissatisfaction with the limit because of restrictions it places on state spending. Already heading for the ballot this year are two initiatives that would amend it, including one sponsored by the author of the original spending limit measure, anti-tax crusader Paul Gann.

Called Within Intent

Frost said that although the governor’s strategy on short-term bonds could eat up any future surpluses, it is within the intent of the original 1979 initiative. “The Gann limit itself provided for this mechanism. They said it was OK if the people voted on it,” he said.

Frost predicted voters will approve the bond measures.

He said California currently has one of the lowest levels of bonded indebtedness among major states, with less than 2% of the state’s $33.7 billion in discretionary revenues now going to pay off bond debt.

“You are talking about a state that is fiscally sound, has a AAA bond rating and is able to handle this debt,” he said.

The chief of staff said he is concerned that the public might say no, but on balance he reasons that voters will judge the need for new dollars for schools, highways, prisons and other projects, weigh that against the state’s ability to pay the debt, and approve the bonds.

Departure From Practice

The highway bonds would represent a departure from the state’s long-standing policy of paying for highway maintenance and construction projects with gasoline tax and highway user fees.

Issuing bonds is preferable to increasing the gasoline tax, which some Democrats want, Frost said. “You would have to raise the gasoline tax a lot. You are not talking about just one or two cents . . . You are talking about a major increase in the gasoline taxes to do this and there is just no need to do it,” he said.