Angelides: Refinance to Trim Deficit

State Treasurer Phil Angelides proposed a plan Thursday to knock more than $1 billion off a projected $12-billion state budget deficit by taking advantage of low interest rates to refinance the state’s debt.

Under the restructuring plan, the state’s bond payments would be minimized by deferring principal payments for four years and by switching from fixed-rate to variable-rate bonds, which have proven cheaper in recent years.

The plan would require the state to make larger payments beginning in 2008-09, but using variable-rate bonds is expected to save taxpayers about $181 million on $26 billion worth of general obligation bonds through 2033-34.

Angelides predicted the plan would save the state from having to make about $1.1 billion in payments over the next 18 months, when California is expected to face a $12-billion budget deficit. Keeping the money in the general fund could minimize the need for deep cuts to schools and public health and safety, he added.

The proposal would free up another $964 million in the 2003-04 fiscal year.

Angelides said fixed-rate bonds have recently come in at a little more than 5%, while the constantly changing variable rate has been around 2% or less. If the variable rate were to suddenly shoot up, Angelides said, the state could switch back to fixed-rate bonds.

Angelides said he plans to use variable-rate bonds and delay principal payments on both the anticipated sale of bonds between now and June 2004 and certain existing debt scheduled to be repaid during the same period.

The plan, he added, will require approval from a variety of state finance committees established to authorize the bonds, all of which include Angelides as a member.

As of last January, California owed $19.3 billion on general obligation bonds, with principal and debt service payments estimated at $2.6 billion for the current fiscal year.

“It makes good sense to refinance when interest rates are at a historic low,” Gov. Gray Davis said when asked about Angelides’ proposal Thursday during an appearance in Los Angeles. “It could ease some of the budget pressure we’re going to be facing this year and next.”

State finance officials declined to comment on the specifics of Angelides’ proposal.

“We’re certainly exploring the concept of organizing our debt service obligations in the most economical way as part of the larger budget solution,” said Sandy Harrison, spokesman for the state Department of Finance.

“It sounds like a win-win situation to me,” added Assemblyman Tony Cardenas (D-Panorama City), chairman of the Assembly Budget Committee.

Assemblyman John Campbell, the Irvine Republican who serves as vice chairman of the Assembly Budget Committee, said: “Some restructuring of debt could make some sense. I’m not sure this is it. It depends on the structure of the whole budget solution. It can’t all just be accounting tricks and throwing more debt at the problem.”

While Angelides pushes to restructure the state’s debt as a way to ease the budget crunch, a far more significant effort to relieve the state’s fiscal problems--selling $12.5 billion in bonds to recover the costs incurred in the energy crisis--remains stalled.

To avoid blackouts, California spent more than $6 billion last year buying electricity for the state’s private utilities, which were too saddled with debt to continue supplying their customers. The state was supposed to recover those costs through the bonds under a plan approved nearly a year ago by Davis and state lawmakers. Utility ratepayers were then supposed to pay off the bonds as part of their electricity bills.

However, the bonds, which Angelides initially predicted he would sell as early as last May, have yet to go to market, leaving a massive hole in the budget. If the budget is not repaid for the energy costs by this summer, the projected budget deficit will swell to $18 billion.

A political dispute over how to handle the overall costs of the crisis has prevented Angelides from selling the bonds. Angelides indicated Thursday that negotiations to resolve the dispute may yield results in coming days, but said it is unclear whether he would be able to complete the bond sale by this summer.

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Times staff writer Daren Briscoe contributed to this report.