The Bond Issues : Government Financing on the Installment Plan : Like credit-card accounts, there’s a limit to how much Sacramento can go into debt by selling bonds.

California should consider lengthening its motto to: “Eureka--we found bonds.”

Next week, the state’s voters will decide the fate of seven proposed bond issues totaling $5.1 billion. That’s on top of $5.5 billion approved in 1988, by far the most general-obligation debt authorized in any election year. And even before this binge began, the state owed $8 billion from previous bond issues.

Another big bond package is already being prepared by the Legislature for the November ballot, and there is no end in sight to the demand for megabucks to build the public-works projects needed by the state at the start of the 21st Century.

California was essentially forced into heavier bond financing by the tax revolt of 1978, which placed limits on spending but left a loophole for financing projects through voter-approved bond issues. The Gann spending limit does not apply to funds raised through the sale of bonds, thereby encouraging officials to accomplish as much as possible on the installment plan.

In addition, environmental organizations have discovered that they can sell bond issues to the public by way of the initiative process, as they did in 1988 with a $776 million parks proposal and as they are attempting in June with a $2 billion passenger-rail construction measure. Gerald Meral, executive director of the Planning and Conservation League, has spearheaded the use of bond initiatives as a means of circumventing the legislative budget process and mobilizing the environmental movement in the state.

Californians generally approve bond proposals because debt is easier to sell to voters than higher taxes and because inflation helps government make its payments with relatively cheap dollars. One standard argument for using credit financing is that bonds pay for projects that will be used by future citizens, so it is only fair that they share the burden.

But just like individual credit-card accounts, there’s a limit to how much government can go into debt or burden future generations. State Treasurer Thomas Hayes, supported by Wall Street debt-rating organizations, warns that the markets can absorb only about $2 billion in California general-obligation bonds a year without impairing the credit of the state. “The bond market is not a bottomless pit,” Hayes says.

California’s reliance on bonds also carries heavy risks of unfulfilled expectations of citizens and possible strain on future budgets. Because the politicians and the public are authorizing bonds faster than they can be prudently sold, there could be long delays in delivery of the benefits promised by bond sponsors.

Richard Larkin of Standard and Poor’s, one of the three major credit rating agencies, says his firm would consider downgrading California bonds if the state starts to exceed $2 billion a year in sales. The effect would be an increase in interest rates and thus increased cost to taxpayers over the life of the bonds, typically 20 years.

California has not yet reached the danger point. It has the highest credit rating and still gets favorable interest rates. But that could change rapidly if the pace of bond issuance continues to accelerate.