Brown Cites Poor Economy in Urging Curtailed Bond Sales

With the state’s tax revenues sinking and its debt soaring, Treasurer Kathleen Brown said Wednesday that she will have to curtail her aggressive sale of bonds for state public works projects and suggested that the Legislature allow only half as many bonds on the ballot as she had recommended a year ago.

Brown has been selling the voter-approved bonds for schools, prisons, roads and other projects at a record pace to spur the economy and fulfill a campaign promise to reduce a $13-billion backlog that existed when she took office two years ago.

But Brown says she has had to rethink her strategy because an increasingly large portion of the state’s general fund is going to pay off the debt.

As a result, she will sell only about $5.9 billion in bonds over the next two years, compared to $8.7 billion in the last two years, Brown said. And Brown suggested that the Legislature and the governor put no more than $2.4 billion in bonds on the 1994 ballots, rather than the $6 billion she suggested last year.

Despite the slower pace, Brown said she will continue to meet the financing needs of state programs that rely on bond money by drawing down a $2-billion reserve in the state’s bond money account.

“This plan ensures that we will keep our commitment to our future while at the same time adjusting to the realities of our current hard economic times,” Brown said.

The state sells bonds to private investors as a way of borrowing money for construction projects. Like home mortgages, the bonds are notes with interest and principal that are paid off over a long period, usually 20 years. Generally, the state has tried to keep these debt payments to less than 5% of its annual revenues.

Last year, Brown suggested that she could sell about $7.9 billion in bonds in 1993 and 1994. But with revenues stagnant because of the state’s faltering economy, that schedule would have driven debt service to nearly 6% of the state’s general fund, she said. The new plan will keep the debt payments at about $2 billion, or about 5.25% of the general fund.

If no new bonds are approved by voters in 1994, Brown’s new schedule would reduce the backlog to about $3.4 billion by the end of her term in 1994. Since taking office, Brown has sold $8.7 billion worth of bonds. But the Legislature and voters have approved another $4.8 billion, so the backlog, she said, stands at $9.3 billion.