Bonds for Infrastructure -- Without New Taxes

Without raising new taxes or fees, the state has a way to finance an
additional $500 to $800 million in infrastructure projects.

It's a simple plan. Here's how it would work. A tax-exempt revenue bond
would be issued by the Treasurer for $500 to $800 million with a term of
five to ten years. The bond proceeds would be invested in all kinds of
state infrastructure projects. With these proceeds we can finance new
classrooms for elementary school children, build new research labs and
libraries for our colleges and universities, construct more prisons, and
build roads and bridges.

Of course, the first question is how can we pay for these bonds?
California's per capita debt burden has almost tripled in the last four
years. Should we be issuing more bonds? The answer is yes, if we have
the revenue to pay for them.

Under my proposal, the state can use an existing revenue source to pay
for the interest and to retire the principal amount of the bonds. No new
taxes or fees would be required.

The revenue source I have identified is the money the state receives each
year from the sale of state owned oil. Most of this revenue now goes to
the general fund. I believe the state can get more future benefit from
these revenues through the issuance of bonds that will finance major
infrastructure projects. Using this existing source of revenue, the
state can pay for interest and retire the principal amount of the bonds.

With fluctuating oil prices, state oil revenue varies from year to year
ranging in the past five years from $35 million to $235 million. We can
secure the bonds with a stable revenue source by entering into a hedging
contract to lock in a fixed oil price for a period of years.

In the last three years, using hedge contracts has become an accepted
practice by oil companies around the world. With its ownership of oil
reserves, the state essentially is an oil company with no debt. Using
the bond sale combined with a hedge contract would be a perfectly
acceptable private sector practice that we can adapt for the state.
Other states, such as New Mexico, also use "severance bonds" supported by
state owned resources.

We should take advantage of California's existing revenue stream from the
sale of oil and leverage it to invest in the state's crumbling
infrastructure. The general fund monies that would have been devoted to
these projects could then be redirected to help retire the state's
existing budget deficit.


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California Voter Foundation 1994, 1995, 1996, 1997 & 1998