A new law might help generate bond sales on behalf of some of California's rural communities.

Assembly Bill 1977, signed by Gov. Pete Wilson last month, allows the Rural Economic Development Infrastructure Program to issue bonds to help generate rural loans.

The state's 1988 Rural Renaissance Act created the infrastructure program; it has already loaned about $8 million to rural communities. Under the act originally, state general funds were appropriated to pay for loans and grants to rural communities.

Once a state appropriation was made, the program's funding was designed to revolve on repayments of the loans. But the program gave more money in grants than in loans, so the revolving structure did not pan out as anticipated, said Brooke Bassett, chief counsel of the state's Trade & Commerce Commission.

The new law lets the rural infrastructure program issue bonds, secured by both existing loans and new loans from bond proceeds.

Most rural communities have never had a bond rating on their obligations, making it unclear how much investors would be willing to absorb, Bassett said. "If we don't have buyers, we don't have a program," she said.

Payments on the existing loans are current -- none of them has ever been behind -- so default is not an immediate issue, Bassett said. However, "we don't have a track record except for the $8 million we've loaned."

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