LOS ANGELES -- California Gov. Pete Wilson last Thursday vetoed a bill sponsored by state Treasurer Kathleen Brown that would have given her office the authority to issue tax-exempt commercial paper.

Separately, the governor signed into law a bill to force greater general obligation bond disclosure by the treasurer's office -- a bill described as "redundant" and "pointless" by Larry Kreig, the general counsel in the treasurer's office.

The GO bond measure requires the treasurer's office to provide a written explanation whenever it takes the highly unusual step of selling voter-approved GO bonds via negotiation instead of by competitive bid. Since the early 1980s, the state has sold just two negotiated GO issues, according to Kreig.

Brown, a Democratic, is challenging Wilson, a Republican, in the November gubernatorial election.

On behalf of Brown, state Sen. Lucy Killea, an independent from San Diego, introduced a measure in February to allow the treasurer's office to issue commercial paper for short-term financing of construction projects. The projects ultimately would be funded through GO bonds, revenue anticipation notes, or public works bonds.

The commercial paper program was viewed as a way to give the state lower borrowing costs. The financing tool is available to local governments in California.

The treasurer's office staff and its financial adviser, Public Resources Advisory Group, developed the program over several years, and they were disappointed by the Wilson veto.

"Any piece of legislation that has Kathleen Brown's name on it is a veto target," Kreig said on Friday.

In a veto message, Wilson said the bill "appears to have been improperly drafted." He said the measure requires the state's general fund to make interest payments on behalf of special funds participating in the commercial paper program. But, under the bill, Wilson said, the general fund would never receive reimbursements for the costs.

"Under current law, each special bond fund pays its own debt service," Wilson said. "This bill would inappropriately shift costs to the general fund that rightfully belong with the special fund bond sources that [benefit] by the use of commercial paper."

Wilson's veto message contained "a number of inaccuracies" concerning the special bond funds, said Karen Stapf Waiters, a consultant to the Senate Appropriations subcommittee on bonded indebtedness and methods of financing. The subcommittee is chaired by Killea, the bill's sponsor.

Wilson's veto message was based on an analysis by the state department of finance, whose director is appointed by the governor. "The treasurer's office talked to them, and we thought things had been straightened out," Waiters said.

The veto message said the "intent of this bill may have merit." The governor said he would reconsider the issue if new legislation were submitted that included "appropriate protections for the state's general fund."

Walters said she believed "it would be good to reintroduce" the measure, but no discussions have been scheduled.

In another action that partisan observers say has election-year overtones, Wilson signed a bill that requires the treasurer's office to "make a finding on the public record" concerning its reasoning for selling GO bonds on a negotiated, rather than a competitive, basis.

The bill's author is Sen. Tom Campbell, R-Los Altos.

Kreig, the treasurer's office general counsel, said the bill is not necessary. Only in rare circumstances are GO bonds sold via negotiation, he said. In those cases, the treasurer's office already routinely "makes an exhaustive report."

"We did advise Campbell his legislation was pointless," Kreig said, adding that the bill signed by Wilson is "redundant."

Current state law allows the treasurer to sell GO bonds through competitive bids or by negotiated sale after determining which method "will result in a lower interest cost," according to a Senate floor analysis of Campbell's bill.

Historically, competitively bid sales have achieved the best savings for the state.

Campbell's bill "is intended to identify facts on the public record that support the determination that a negotiated sale... would result in lower costs," the floor analysis said.

Kreig said he recalled only two occasions in recent years when California sold GO bonds via negotiated bid.

In March 1993, the state sold $17 million of capital appreciation bonds via negotiation as part of its zero-coupon college savings bond program.

The only other negotiated GO bond deal that Kreig remembered occurred in the "hyper-inflation era" of the early 1980s. At the time, the treasurer's office tried to sell bonds competitively, but bids submitted by underwriting syndicates exceeded the then-statutory 10% interest-rate cap.

The state rejected the competitive bids, and later negotiated a rate of under 10%, Kreig said, "That was a classic instance where [negotiating] worked to the state's advantage," Kreig said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.