How big is $37 billion?

THE GRIDLOCK-MONGERS in Sacramento finally broke through their own malaise and passed a $37.3-billion infrastructure bond package Friday morning. It would be the biggest bond -- by far -- in California history and would allow voters to weigh in this November on fixing the state’s crumbling roads, schools and water systems. But what would a debt issue that large really mean?

Putting bonds on the ballot is one of the least painful ways for legislators and the governor to show that they are, in fact, doing something. As the imminent budget season is sure to show, it’s harder to set spending priorities than it is simply to call for large outlays of cash that needn’t be paid off until everyone will be term-limited out of office.

But bonds are not free. When the state issues debt, it borrows money that must be paid back, with interest, over 20 or 30 years. Bonds are a lot like mortgages -- expensive to maintain but considered good debt to carry if they’re affordable and pay for solid investments that will accrue value over time. So one question for voters to consider over the next few months is this: Will the four bond proposals on the ballot fund sound investments?

Another question: How much debt is too much? In absolute terms, these proposed bonds are ginormous. The next largest to date, according to Department of Finance records going back to 1972, was an $18.6-billion package in 2002. Standard and Poor’s estimates that California already carries $1,455 per person in outstanding bond debt. That still isn’t the highest of any state -- that’s $2,696, in Connecticut -- but it represents a substantial increase over historical norms. For many years, California’s approach to bonds was unusually conservative. As recently as 2001, the state’s per-capita debt was just $815.

Being more highly leveraged isn’t super for California, but it isn’t the end of the world either. Gov. Arnold Schwarzenegger has long pledged to keep the state’s debt-service ratio -- the portion of money from the general fund that goes to interest payments, currently at 4.31% -- below 6%. The Department of Finance projects that this will remain possible even with the added $37.3 billion.

And it does not appear that the new debt will hurt California’s standing with bond investors. Yes, the state’s bond rating is the worst in the nation, but that’s not because of debt load; it’s because of the state’s persistent “structural” budget woes. As far as Wall Street is concerned, the governor’s May budget revision is far more important to California’s bond rating than the size of any future debt.

Which brings it back to Sacramento. Given how hard it is for legislators to balance the books every year, it’s fair to ask how they’ll deal with the $6.9 billion in debt service the state is tentatively projected to owe in 2010-11. Scrutiny of the bonds is as crucial as the improvements to our infrastructure.