The Bond That Ties California Together : The many good years give it the wherewithal to survive the bad

Faced with a national and regional economy that seems to get no better, and plagued by a state budget deficit that seems to grow more daunting every month, California would appear to have no choice but to slit its wrists.

But hold that razor! The state is in better shape than it thinks and in the long run should emerge a bigger powerhouse than ever.

One reason: Years of prosperity left California with a level of bond indebtedness considerably lower than the national average. In addition, delays in bringing its bonds to market kept the state’s overall bond indebtedness down. So now it can cash in its chips, as it were: It can issue more bonds without undermining its basic fiscal soundness.

And it can do so at precisely that moment in history when, because of declining tax revenues, bond issues are just about the only way to keep pace with vital infrastructure needs. Cheat on these needs now and the state will pay dearly later as roads and school roofs begin to cave in.

For starters, state Treasurer Kathleen Brown is working to market $6.7 billion in bonds already authorized by voters. She will sell a $1.4-billion bond issue this month at a time of very favorable interest rates, which should save California considerable money. More than half of the bonds will go to transportation projects and $150 million to schools.

At the same time, Republican Gov. Pete Wilson and leaders of the Democratic-controlled Legislature are working on a bipartisan deal to shape a new $6-billion bond package for this year. Bonds alone are not the cure-all for the state’s economic problems, of course, but they are crucial to maintaining economic vitality.

The state’s debt service as a percentage of general fund revenues was 2.59% for fiscal 1990-91, well below the 5% median for all states. So California can afford to authorize about $6 billion in bonds, but not more than that amount, during each two-year election cycle.

But the governor and Legislature must craft a responsible bond package and speed the process of getting the bonds to market. Sacramento must prioritize fiscal needs because voters require compelling reasons to approve more debt.

All the more motivation for Sacramento to be diligent.