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Informational Hearing on Debt Service

Informational Hearing on Debt Service. Legislative Analyst’s Office. Presented to: Assembly Budget Committee December 14, 2009. www.lao.ca.gov. How Does the Legislature Affect Debt Service?. Over the longer run, the Legislature has virtually total control over debt service.

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Informational Hearing on Debt Service

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  1. Informational Hearing on Debt Service Legislative Analyst’s Office Presented to: Assembly Budget Committee December 14, 2009 www.lao.ca.gov

  2. How Does the Legislature Affect Debt Service? • Over the longer run, the Legislature has virtually total control over debt service. • Determines bond amounts submitted to the voters. • Authorizes lease-revenue bonds. • Exception: Voter-approved initiative bond measures. 1

  3. Legislature Also Has Considerable Control in the Shorter Term • Most bond proceeds must be appropriated by the Legislature. • Biggest exception: K-12 bonds. • The Legislature can statutorily suspend authority for previously authorized lease-revenue bonds. 2

  4. Projected Debt Service Ratio (As a Percent of General Fund Revenues) 3

  5. Is There a “Right” Level of Debt Service? • No. • Ratio will vary significantly with changes in revenues. • Ratio should vary based on state’s capital outlay needs. • Trade-off is with the hit on budget. • $70 million in debt service for each $1 billion in bonds sold. 4

  6. How Can the Legislature Better Control Its Debt Service Payments? • State has a five-year infrastructure plan. • Not changed the administration’s or the Legislature’s approach to capital budgeting. • Treasurer proposes a Master Plan. • Takes planning process further. • The Legislature should do more. • Create a Joint Committee on Infrastructure. 5

  7. What Would a Joint Infrastructure Committee Do? • Assess the annual five-year plan. • Assign state/local responsibilities. • Maximize use of non-General Fund revenues. • Maximize use of existing facilities. 6

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