Faster Spending of Bonds Is Urged

Gov. Gray Davis hopes to create thousands of jobs and jump-start the economy by more quickly spending $21 billion in bond money that voters have approved for new roads, schools and housing.

Though some state and local officials commend Davis for making the accelerated bond spending a public goal at a time when California faces a budget shortfall estimated at $34.8 billion over the next 18 months, many also question whether the strategy will be as effective as the governor suggests.

Before the money can be spent, officials said, school districts must have plans ready to build schools and housing developers have to get the local zoning approvals needed to proceed with construction.

Furthermore, speeding up the use of bond money could be costly: If California tries to float too many municipal bonds at once, it may have to pay a premium on Wall Street, adding to the state’s long-term debt.

California Treasurer Phil Angelides estimates that the state would have to pay increased interest if it tried to sell more than $7 billion in bonds this year. Nonetheless, the benefits would far outweigh the slight increase in debt, argued Angelides, who has long advocated using construction bond money to spark the economy.

“It is in fact an economic stimulus, both in the short and long term,” said Angelides, who like Davis is a Democrat. “There is a long history in this country, from the Works Progress Administration onward, of using public infrastructure investments as an economic tool.”

Many Republicans disagree, arguing that increasing the state’s debt load only complicates California’s long-term financial outlook.

“They’re trying to tax and spend their way out of this budget crisis,” said Peter DeMarco, a spokesman for Republicans in the state Assembly. “Trying to jump-start the economy is a laudable goal ... but this is like maxing out the Visa card.”

Davis’ proposal, dubbed the “Build California” initiative, is part of a broader effort to add 500,000 jobs during the governor’s second term. It involves speeding up the spending of $21 billion in bonds -- including $11.4 billion for K-12 school construction -- to serve as an economic catalyst.

By accelerating the spending of a $2.1-billion housing bond voters approved last year, Davis estimated that he can add 68,000 jobs in the program’s first year. Likewise, by ordering the state allocations board to more quickly make the school bond money available, an additional 285,000 jobs can be created, he said.

“The governor only has so many options that he can exercise these days ... and in that fairly limited arsenal he is focusing on an issue that can make a difference,” said Kevin Gordon, executive director of the California Assn. of School Business Officials.

Nonetheless, Gordon said that although it is “absolutely a help” for Davis to call on state bureaucrats to release money quickly, “it is also accurate that at the local level, there are numerous hurdles” to construction, including some new factors such as prevailing-wage laws. He cautioned the state against pressing too hard to expedite school construction, and worried that some school districts could fall victim to “shady characters and fly-by-night outfits out there that may be preying on school boards” by promising speedy construction.

“There is the danger of wasting taxpayer dollars, and there is also the danger of losing the confidence of the public, which approved these bonds,” Gordon said.

To speed up the projects, government officials are expected to join forces in so-called red teams that would cut the time needed to obtain approvals, process funds and get construction underway.

As part of that effort, the California Department of Transportation and the Resources Agency are being instructed to shorten the environmental permit process by a year -- without sacrificing environmental protection, administration officials said. Caltrans Director Jeff Morales said his agency is looking at ways to expedite 600 projects. For school projects, state officials plan to help school districts prepare project applications.

“The governor has asked us to use this highly coordinated effort, this team approach, to streamline and accelerate the construction process in all major projects,” said Aileen Adams, secretary of the State and Consumer Services Agency. If the state accelerates projects, it will have to float bonds sooner than previously anticipated.

To entice enough investors, the state might have to offer higher interest rates. However, Zane Mann, publisher of the California Municipal Bond Advisor newsletter, said California bonds have proved remarkably attractive to investors.

“We worried about the power bonds, and they sold in a matter of hours,” Mann said, referring to California’s massive bond issue last year to fund the costs of the energy crisis.

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Times staff writer Gregg Jones contributed to this report.

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Excerpts from the State of the State address, delivered Wednesday by Gov. Gray Davis:

Tonight, I come before you with a challenge as great as our state has ever faced -- and a real plan to meet that challenge.

When governors speak from this podium, they ordinarily discuss a range of issues.

But these are not ordinary times. We have one overriding task before us. We must come together to create new jobs and get our economy back on track.

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Together, my friends, together, we’ve made real progress.

Today, our student test scores are up four years in a row. One million more children have health insurance than four years ago.

[Two hundred thousand] Cal Grants for college will be awarded this year -- a 53% increase. Two-hundred twenty-thousand Governor’s Merit Scholarships have also been earned over the past two years.

Three thousand more peace officers are on the street to keep us safe. Three thousand miles of freeway are being improved.

Five-hundred thousand more acres of precious land have been protected. Prescription drugs for seniors are being discounted. Services to our veterans are being improved. Five more veterans’ homes are being built.

We’ve healed old wounds with Mexico, recognized the rights of domestic partners, and passed the first significant laws in America on stem-cell research, global warming and paid family leave.

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Now, much of what we’ve built is being threatened by a struggling national economy and declining stock market.

The conditions which brought us to this point are well-known. Personal income is down. Employment is down. Retail and manufacturing are down. The national recession has forced nearly every state into the red.

These are tough times. But Californians are made of tougher stuff.

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Our current fiscal structure has not been updated in 25 years to reflect either our changing demographics or our changing economy. Our budgets have become painfully dependent upon extremely volatile sources of revenue, constraining our ability to make long-term vital public investments. It’s high time to free ourselves from this boom-bust syndrome.

My budget will discuss several structural reform proposals for the Legislature’s consideration. They include restoration of the executive’s authority to make mid-year budget reductions in difficult times....

I will convene the legislative leadership, as well as major stakeholders, to solicit other reform proposals.

I don’t have all of the answers. None of us do. But I will lead the discussion. And I will not sign a budget without substantial structural reform.

My friends, we must end the budget roller-coaster ride....

State government will need to do more with less -- and we will. But we also need to do more to create new jobs now and to stimulate our economy. Obviously, the federal government can do more than any state to promote economic growth. Washington needs to step up and pass a real economic plan -- one that puts Americans back to work this year.

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We’ll begin with “Build California” -- a new initiative to accelerate the flow of billions of dollars of bonds into our economy. Last November, the voters of this state did their part by approving $18 billion worth of bond measures for better schools, affordable housing and new water projects.

In December, I asked the State Allocation Board to expedite $5.5 billion from our new school bond. I want to thank them for their quick action. As a result, these funds will finance 1,000 new schools, 1,400 modernized schools and 135,000 new jobs.

Now, I’ll be calling on them to commit the remaining $6 billion in half the time of previous bonds. Specifically, I’ll ask them to allocate $300 million a month until every dollar is out the door -- and another 150,000 new jobs are created.

We must also fast-track our $2.1-billion housing bond. I’m asking that $230 million of that bond issue be made available this month. This, by itself, will create another 68,000 new jobs. The entire bond issue will produce a total of 276,000 new jobs.

I’m also going to direct my agencies to accelerate freeway and public transit projects by one full year.

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To keep California on the cutting-edge of this life-saving field, we need to launch a new Life Sciences Initiative. My administration will focus on three things: first, increasing the number of qualified lab technicians. Second, working with the University of California to simplify the transfer of technology. And third, increasing access to venture capital and federal grants.

The true value of this industry, however, lies not in its bottom line, but in its higher purpose.

To read the full text of Gov. Davis’ speech, go to latimes.com/davistext

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Governor’s Speech at a Glance

Here are some key points of Gov. Gray Davis’ State of the State address:

Budget

* Davis says he wants to “rewrite the book on California budgets” so state spending is less dependent on the economy and the volatile stock market.

Housing

* He will recommend that the UC Board of Regents Pension Fund invest in California housing.

Employment

* Davis called for speeding up the use of $21 billion in voter-approved bond money for schools, housing, parks and water systems.

Business

* Davis called for the extension of a manufacturers tax credit, which he said is recognized with creating hundreds of thousands of jobs.

Homeland Security

* He announced the creation of a permanent state Office of Homeland Security.

* Davis said he will name his security advisor, George Vinson, a law enforcement veteran, as director.

Science

* Davis said he will launch a life-sciences initiative to increase the number of laboratory technicians and increase access to venture capital money and federal grants.

- Associated Press