Gov. George Deukmejian's proposal to seek voter approval this year to issue a record $3.9 billion in bonds received mostly favorable reviews Wednesday during its first legislative budget hearing.
Members of the Joint Legislative Budget Committee were told by state budget experts that California could easily afford to finance the bonds. They also heard predictions that financial markets would scoop them up hungrily and that the proposal made fiscal sense.
Legislative Analyst Elizabeth G. Hill said that although bonds were being issued at a record clip, "there is no evidence that California's current debt is excessive or poses any significant fiscal threat."
But several lawmakers sounded warnings, noting that voters have already authorized $5.1 billion in bonds that have been unsold and that another $6 billion, counting the governor's $3.9-billion program, are headed for the ballot.
When the state issues a bond, it borrows a specific amount and agrees to pay it back over a period of years at a fixed rate of interest, using tax dollars or revenues from a particular project, such as park fees.
Among the bond issues Deukmejian wants the Legislature to put on the June or November ballots are a $1.6-billion proposal for school construction and maintenance, $1 billion for highways, $700 million for state colleges and $600 million for environmental and toxic cleanup projects.
There was no vote during Wednesday's hearing. Sen. William Campbell (R-Hacienda Heights), chairman of the committee, said he and other lawmakers are in the process of developing a long-term policy on bonds.
But concerns were expressed that interest payments are adding to state costs and that the amount borrowed may become so large as to jeopardize the state's credit rating.
Assemblyman William P. Baker (R-Danville) said the state's demand for bonds could total $40 billion to $50 billion over the next few years, well beyond what voters might be expected to approve.
Sen. Alfred E. Alquist (D-San Jose), chairman of the Senate Budget and Fiscal Review Committee, said state debt was growing so fast that California could develop a drug-like dependency on "easy" money financing.
But, state Finance Director Jesse R. Huff, the governor's chief budget adviser, said the state historically "has been very careful in its use of bonds."
Hill, in her report to the committee, said the state owes $23.1 billion in bond debt. Principal and interest payments next year are estimated to be $650 million just on the so-called general obligation bonds financed from general tax receipts.
In addition, another $46 million in interest and principal payments must be paid out for so-called revenue bonds. In the past, these bonds were generally repaid by money generated by the projects themselves, such as paying for parks with camper fees.
But now the distinction is blurred, and some state agencies use their annual state budget allotments to pay off the bonds. By the 1991 budget year, principal and interest payments on revenue bonds paid for from the general fund are expected to grow from $46 million to $164 million.
Hill, in her report, said, "The state's use of bonds has expanded dramatically since 1980." The report said the total number of bonds increased by $14 billion in this period, a jump of 150%. Most were revenue bonds for special purposes, such as pollution control or industrial development.
Still, Hill said paying off the debt is "not a significant problem" because the bonds represent less than 2% of the state's annual discretionary budget--which is low relative to other states. She also noted that California bonds continue to be rated AAA, the highest possible rating.
Hill criticized the lack of a coordinated bond policy by either the governor or the Legislature. The state "currently does not have a comprehensive multi-year capital outlay plan," she said.
Acting Treasurer Elizabeth Whitney said financial markets are eager to grab up state bonds because California is considered such a good credit risk. She said that was especially true since the October stock market crash. "The marketplace is always looking for California paper," she said.