LOS ANGELES -- California's treasurer has proposed selling an annual $3 billion to $5 billion of general obligation and public works lease-purchase bonds to reduce the state's backlog of authorized but unsold debt by 1995.
Treasurer Kathleen Brown recently prepared a bond-sale management plan that details her strategy for addressing the backlog. The pileup, a key issue in her election campaign last year, will stand at about $8.3 billion after next week's $495 million Public Works Board sale.
The report discusses at length how projected debt sales could affect the state's credit standing -- particularly in regard to various debt-affordability ratios -- and the sales plan is tailored to keep debt service below 5% of general fund revenues through 1995.
The state's current figure is 2.45%. Credit analysts generally consider a rate of 3% to 6% to represent a moderate debt burden.
A big reason for the state's swelling backlog is that voters approved almost $11 billion of GOs in the 1988 and 1990 elections.
California responded by accelerating its GO issuance. Volume hit $1.23 billion in 1989, $2.63 billion in 1990, and then a state high of $4 billion in 1991. In 1985 it had been just $635 million.
Ms. Brown's office prepared the 33-page report on a bond-sales plan "as an important first step" in developing a multiyear strategy for reducing the bocklog, a spokeswoman for the treasurer said yesterday.
The report, which discusses California's bond sales history and future strategy, includes various assumptions that underpin the proposed rate of sales.
It notes, for example, that the state risks an interest rate penalty by selling more bonds than the market can comfortably absorb. Based on conversations with market participants, the report concluded that California can sell from $3 billion to $5 billion of GO and public works bonds in any one fiscal year "at desirable interest costs."
Actual bond issuance over the next five years will hinge on various factors, including when programs are ready for funding and whatever new bond authorizations are approved in the 1992 and 1994 elections.
The report lists three scenarios, assuming annual legislative authorizations for Public Works Board lease-purchase revenue bonds and varying levels of GO authorizations by voters.
The bond backlog could still total about $9 billion in 1995, the report says, but it notes that most of that figure would reflect new authorizations from 1992 to 1995. The treasurer proposes to reduce the current backlog to $873 million by June 30, 1995.
California voters generally have approved most GO measures, but they scuttled 12 out of 14 propositions appearing on the November 1990 ballot. Accordingly, it remains difficult to predict potential authorizations in 1992, particularly if the state's economy remains weak.
The municipal market can absorb proposed annual sales of $3 billion to $5 billion in California GOs and public works bonds as long as individual deals are spaced properly, said W. Peck Ferrin, vice president and manager of municipal underwriting and trading at Bank of America.
"California is going through a little bit of a rough time right now" because of the state's economic slowdown, Mr. Ferrin said.
But investors who covet California's paper -- such as wealthy individuals and trust departments -- have "a lot of faith in the credit itself," especially because the state's difficulties are "not perceived as being a long-term problem" without a solution in sight, Mr. Ferrin said.
He predicted that investors' desire for high-grade paper will help to absorb the projected supply, even at record-setting levels.
