infrastructure and the use of bonds in california · lao infrastructure demands the department of...
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LAO
Infrastructure and the Use of Bonds in California
Legislative Analyst’s Office
www.lao.ca.gov
October 3, 2007
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LAO
Infrastructure Demands
The Department of Finance releases annually a five-year assessment of the state’s infrastructure needs.
The 2007 plan proposes spending $113 billion through 2011-12, $57 billion using bonds.
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What Type of Spending Under the Five-Year Plan Is Proposed?Cumulative Spending, 2007-08 Through 2011-12(Dollars in Billions )
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LAO
Travel in California—Increasing Steadily
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Resources Demands Could Be Even Larger
Flood control.
Water supply reliability.
Water quality.
Parks deferred maintenance.
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AB 900 Authorizes $7.4 Billion in Lease-Revenue Bonds
12,000 beds and programming space—existing prisons.
16,000 re-entry beds.
13,000 beds—local jails.
Medical, dental, and mental health beds and treatment space.
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LAO
What Options Exist for Financing New Infrastructure?
Different financial approaches available.
Different funding sources available.
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Bonds Are the Largest Infrastructure Funding SourceState Capital Outlay Expenditures by Selected Program Areas2000-01 Through 2006-07 (In Billions)
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Types of Bonds the State Uses
General obligation (GO) bonds.
Lease-revenue bonds.
Traditional revenue bonds.
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Arguments For and Against Bonds
On the downside:• Bonds do cost more because of interest.
But, on the positive side, bonds allow for:• Projects put in place sooner.• Project costs shared over time.
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LAO
Current Outstanding Debt
GO infrastructure bonds: $40.9 billion.
GO deficit-financing bonds: $8.3 billion.
Lease-revenue bonds: $7.7 billion.
Total outstanding bonds: $56.9 billion.
As of September 1, 2007
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LAO
Outstanding GO Infrastructure Bond Debt by Program AreaAs of September 1, 2007
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LAO
Use Thus Far of the 2006 Bonds(Dollars in Billions)
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Authorized GO Infrastructure Debt Yet to be Sold
Authorizations prior to November 2006: $21.1 billion.
Authorizations approved in November 2006: $42.7 billion.
Total unsold authorizations: $63.7 billion.
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LAO
Authorized But Unsold GO DebtBy Program AreaAs of September 1, 2007
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What Does Our Infrastructure Debt Cost Us Each Year?
Total debt service in 2007-08: $4.8 billion.
Projected to rise to $7.5 billion in 2011-12.
Currently the fourth-largest spending item in the state budget.
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Affordability—How Much Debt Is Too Much?
No “hard rule” exists. Instead, depends on policy choices.
Also depends on the state’s ability to sell bonds at reasonable interest rates.
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LAO
Historical and Projected Infrastructure Debt-Service Ratios
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Legislative Considerations
Determine what and how much to fund and when financing is needed, considering:• State versus local responsibilities.• How do policy actions affect level of infrastructure
needed?• What improvements are needed within a specified
time horizon?• What criteria should be used to prioritize projects?
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Legislative Considerations (continued)
Determine financing approaches and funding sources.
• What general approach should be used to fund specific projects?
• What should be the ultimate source of funding for infrastructure investments?
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LAO
Where Do We Stand?
Infrastructure demands—large and growing.
State needs strategic, long-term approach.
Current debt load in reasonable range.
Payments must fit into overall budget plan.
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