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The California Strategic Growth Plan
Affordability
The single most important indicator of a state's creditworthiness and ability to carry debt is the existence of a balanced budget capable of handling its debt load without the need to cut other existing programs to pay debt service. While the SGP will increase the state's debt load over the next 10 years, under this plan state debt service will remain within prudent bounds into the foreseeable future. Last year's original proposal for a Strategic Growth Plan proposed a 6-percent cap on the state's debt service ratio (the percentage of General Fund revenue committed to making debt service payments). However, at that time, the state was still facing a structural budget deficit. But this budget does not propose to spend more on ongoing programs than the state receives from ongoing revenues.
In 2009-10 the state will have made its final payment on the Economic Recovery Bonds (ERBs). Payment on those bonds is about 1.5 percent of General Fund revenues. The revenue dedicated to paying the ERBs is not dedicated to any other expenditure when the ERBs are retired. Consequently, that revenue could be allocated toward debt service without adversely affecting the ability of the General Fund to continue supporting other state programs. Since debt service in the year prior to repayment of the ERBs will account for slightly more than 5 percent of the General Fund revenue, a debt service ratio of 6.5 percent is affordable. Debt service under SGP will remain within this affordability limit. Figure INF-04 displays the state's debt payments and debt ratio into the future under the SGP.
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