Easier OK on Public Works Bonds Urged

State Treasurer Kathleen Brown Wednesday called on the Legislature to make it easier for local governments to finance public works projects with tax-secured bonds.

Brown called for the repeal of a constitutional provision that requires voters to agree by a two-thirds margin to issue general obligation bonds. A simple majority vote should suffice, Brown said.

Faced with California’s continuing budget problems, cities, counties and other local entities need to be able to tap into secure sources of revenue to pay for projects ranging from parks and public buildings to sewer systems and roads, Brown argued.

Brown, a possible candidate for governor in 1994, pitched the idea as a way to help boost California’s economy, contending that the infusion of cash would open the way for the construction of projects that would attract new businesses and help the building industry.

The idea also could result in higher taxes. General obligation bonds used by local governments are repaid from property tax revenues.

In a lengthy address to a joint meeting of the Senate and Assembly local government committees, Brown called the two-thirds requirement an anachronism.

The provision was adopted in 1879 in reaction to tough economic times when local governments were defaulting on their obligations. Only three other states require a two-thirds vote to approve local bond issues.

“The two-thirds vote requirement is a barrier to our economic competitiveness,” Brown said. “None of the states we compete with to keep or attract businesses have such a requirement, and as a result, we find ourselves at a distinct disadvantage.”, Brown said.

Brown also advocated the use of public employee pension funds to help guarantee repayment of local bonds. She said she envisioned a system by which managers of California’s huge public employee pension fund would help underwrite local bond issues as a way of investing some of the pension funds.

As it is, she said, strapped local governments, unable to get two-thirds votes to support bond issues, resort to financially risky bond schemes--which do not require voter approval--as ways of raising money to pay for public improvements. Such transactions also come at a high cost to local governments because of inflated rates of interest. “This is undemocratic and it is potentially dangerous,” Brown said.

In order to remove the two-thirds requirement, voters would have to amend the state Constitution. In the past, most legislative efforts to place a measure on the ballot that would remove the two-thirds requirement have died for lack of the required two-thirds vote in both houses of the Legislature.

Lawmakers did, however, agreed last year to put a measure on the June, 1994, ballot that would allow voters to approve local school bond measures by simple majority votes.