Hearing tomorrow on Sen. Alex Padilla’s bill to create new state bonds to finance transportation projects

As I’ve said many times before, the world of transportation finance is truly understood by roughly six people on the entire planet. The rest of us — on most days — would rather be spared the details.

That said, everyone does understand this: paying for big transit projects is challenging on the best of days, the reason that big transit projects aren’t popping up anywhere. The challenge for Metro is to find new and innovative ways to secure large amounts of money upfront that can be used now instead of waiting years or decades for funds (such as sales tax receipts) to accumulate in local coffers.

In that vein, there is an important informational hearing tomorrow at the Metropolitan Water District building in downtown Los Angeles on a proposed state law, SB 867, by State Senator Alex Padilla, the Los Angeles City Council President before he was elected to the State Senate in 2006. The hearing is at 11 a.m. and is open to the public.

Padilla’s bill would create “Build California Bonds” to help finance transit projects in California. The idea is similar to the America Fast Forward law that Metro is pursuing at the national level to secure federal loans and financing to speed up construction of Measure R projects.

“We’re trying to create a new type of bond,” said Michael Turner, a member of Metro’s government relations team who focuses on state issues. “Right now with the state infrastructure bonds, the state has to pay the principal and the interest — like a mortgage. But the state can’t afford those types of investments anymore with their debt. But we are still looking for ways for them to partner with us on transportation projects.”

The Build California Bonds would allow an agency such as Metro to issue bonds and then repay the principal later using sales tax receipts. But instead of paying interest to whoever buys the bonds, the state would grant a tax credit to the buyer. That could be attractive to someone buying the bonds who is looking to lower their tax burden. It would cost the state revenue, of course, but wouldn’t be a direct hit to the general fund.

Does the bill stand a chance? Turner says that it will be a challenge — many state lawmakers are trigger shy about anything that will cost the state money in any kind of way. On the other hand, Turner says, the Padilla bill is the best idea out there at present to help local agencies get transit and road projects built in a state with a deteriorating infrastructure and growing population.

“It’s a question of whether the states wants to look at a new funding mechanism or shut the system down,” he said.

4 replies

  1. “It would cost the state revenue, of course, but wouldn’t be a direct hit to the general fund.”

    How is that?

    I don’t see the functional difference between the state spending money on interest payments and spending money on “tax credits” for bondholders.

    The market is still going to demand the same amount of interest on this new type of bond, and as such, the bonds will have the same impact on the state budget. It will just look like a “tax cut” instead of spending.

    • Hi ds;

      That’s a fair point. The big advantage, however, for the transit agencies would be not having to pay interest on the bonds. That’s a big chunk of change usually and would mean money could be spent on actual projects not interest.

      Steve Hymon
      Editor, The Source

  2. Whoa! Hold on a second. By giving a tax credit instead of interest payments it could lower the persons tax bracket and could therefore substancially lower the states income

    • Hi bhj;

      Yes, a tax credit would lower revenue the state would receive. And that will likely be a sticking point in the State Legislature. That said, it still may be preferable to the state than paying out the interest costs.

      Steve Hymon
      Editor, The Source