Bloomberg News

California’s Brown Reaches $7.2 Billion Drought Bond Deal

August 12, 2014

California’s Brown Negotiates $7.2 Billion Drought Bond Deal

With California in the grip of one of the worst droughts in its history, state leaders plan to ask voters to approve new debt to shore up water supplies from the Sacramento and San Joaquin rivers in Northern California and strengthen connections to population centers in the arid south. Photographer: Justin Sullivan/Getty Images

Governor Jerry Brown and California Democratic lawmakers reached tentative agreement on a $7.2 billion bond measure for water storage and delivery to drought-stricken cities and farms.

The legislature yesterday approved a two-day extension of the deadline to give all parties time to finalize the deal, according to a statement released by Brown, a Democrat. A two-thirds vote by the legislature is required to place the package on the ballot this fall, and at least two Republican votes will be needed in the Senate to reach that threshold.

The extension “provides additional time to get an acceptable water bond -- one that’s affordable and considers the needs of all Californians,” Brown, 76, said in a statement. “Let’s work together to get this done.”

Related: California Drought Transforms Global Food Market

With California in the grip of one of the worst droughts in its history, state leaders plan to ask voters to approve new debt to shore up water supplies from the Sacramento and San Joaquin rivers in Northern California and strengthen connections to population centers in the arid south.

Three years of below-normal precipitation have reduced 10 of the 12 major reservoirs to less than 50 percent of capacity, according to the state Water Resources Department. Communities from San Diego to the Oregon border are restricting when people may water lawns, how they wash cars, and whether restaurants serve water to patrons. Violators are subject to fines of as much as $500.

New Bonds

The compromise, negotiated by Brown and Democratic legislative leaders, includes almost $7 billion in new bonds and $200,000 from previous debt measures, said Will Shuck, spokesman for Assembly Speaker Toni Atkins, a San Diego Democrat. Brown had previously urged legislators to limit the spending to $6 billion, saying it was what the state could afford.

Whittled down from an $11.1 billion package awaiting a vote since 2010, the compromise includes measures to store and deliver water to farms and cities, restore the Sacramento-San Joaquin delta ecosystem, recycle water and protect against floods.

“Governor Brown and the legislature have worked hard to revise the water bond to provide sufficient funds for water storage and other priority issues,” U.S. Senator Dianne Feinstein, a Democrat, said in a statement. “I hope members of the legislature act quickly to place it on the ballot and I will do all I can to help get it passed this November.”

The biggest allotment in the package would devote $2.5 billion to storage, such as dams and reservoirs. Senate Republicans argued for $3 billion in storage projects, and Brown last week proposed $2 billion.

Won’t Settle

“We will not settle for a water bond that doesn’t provide a critical and sustainable water supply,” Senator Andy Vidak, a Hanford Republican, said in an Aug. 8 statement from the Republican caucus in the upper chamber.

The agreement sent to Brown would replace a proposal developed in 2009 by lawmakers and then-Governor Arnold Schwarzenegger. Brown called the 2009 measure “pork-laden” and said it would add $750 million a year to the state’s $8 billion annual debt service.

California’s borrowing costs for general-obligation bonds have dropped this year as a recovering economy lifts revenue above Brown’s projections. Taxes and fees collected in July came in 4.5 percent above expectations, Controller John Chiang said yesterday.

The extra yield that buyers demand to own 10-year California debt rather than top-rated securities narrowed to 0.23 percentage point yesterday, from 0.39 percentage point May 12, according to data compiled by Bloomberg.

To contact the reporter on this story: James Nash in Los Angeles at jnash24@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Jeffrey Taylor, Pete Young


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