San Diego Business Journal

BY HOWARD FINE

Southern California ports, freeways, rail lines, water supplies and even affordable housing projects could get a boost from a multi-billion-dollar infrastructure bond now being crafted in Sacramento for June's statewide ballot. While negotiators from the Democrat leadership and Gov. Arnold Schwarzenegger's office are still hammering out details, the bond proposal will likely be in the $11 billion to $15 billion range.

Those amounts could stretch the state's debt levels beyond acceptable limits set by Wall Street. And experts warn that the money would represent just a down payment on an estimated $100 billion tab to fix the state's aging infrastructure.

But after Schwarzenegger's drubbing at the ballot box last month, the bond measure is seen as an effort by the governor to reach across party lines as he runs for re-election.

"This is a governor who thinks big and who wants to make a lasting difference," said H.D. Palmer, spokesman for the state Department of Finance, which is taking the lead in negotiations on the infrastructure bond.

Both state Senate President Don Perata, D-Oakland, and Assembly Speaker Fabian Nu & #324;ez, D-Los Angeles, have touted infrastructure spending proposals all year. Perata put forward a bill to put a $10 billion bond on the ballot, only to get held up in committee as relations between the governor and legislative leadership soured with the approach of the special election.

Now, Perata's bill has become the starting point for negotiations over the bond package. It's been revised upward to $11 billion, including $2.5 billion for goods movement, $2 billion for general highway improvements, repayment of $2.3 billion in borrowed gas sales tax dollars to transportation funds, $2 billion for levee repair and disaster preparedness and $1.2 billion for infill housing development.

As negotiations continue, it's likely that the bond package will get bigger. A common figure being discussed in Sacramento is $15 billion.

Also under discussion is having a much larger bond package split up into measures on two separate ballots, such as the $13 billion and $12 billion school facilities bond measures that voters approved this decade.

A complicating factor is a $10 billion bond measure for the backbone of a high-speed rail network that's slated to be on the November ballot. That measure has already been postponed twice; now it's possible it could be axed completely. The Perata measure contains language eliminating the high-speed rail measure, replacing it with just $1 billion in high-speed rail funds.

There are also concerns that significant additional borrowing could increase the state's annual debt repayment tab, which now stands at about 6 percent of state revenues. That approaches the generally accepted debt limits set by Wall Street bond rating agencies.

With the state still mired in a structural budget deficit of at least $4 billion, bond-rating analysts have said they are concerned that additional debt payments could strain future budgets. They have said the state should resolve its deficit before undertaking much more borrowing. Also, some lawmakers have raised concerns that spending on existing programs would have to be slashed to make the additional debt payments.

Whatever the final structure and amount, there's a narrow window to get a measure placed on the June ballot. The constitutional deadline for the Legislature to pass a bond measure is Jan. 26. The title and summary for a bond measure must be finalized by Feb. 16.

With these tight deadlines, negotiations are expected to pick up next month.

"At the top of the list is transportation," said Palmer, noting that Schwarzenegger will likely introduce part of his proposal during the State of the State speech in early January.

Mindful of the discord between Northern and Southern California over funding for the Bay Bridge replacement project earlier this year, Perata has pledged that the southern half of the state will get at least 60 percent of transportation and goods movement funds from the bond.

In Los Angeles County, the biggest beneficiary of any bond proposal is likely to be the ports of Los Angeles and Long Beach, as well as the road and rail routes leading out of the ports. All told, more than $1 billion out of any bond proposal may end up going to goods movement within Los Angeles County.

"The goods movement infrastructure at the ports is in dire need of repair," said Brendan Huffman, legislative affairs director for the Los Angeles Area Chamber of Commerce, which is pushing to ensure funding for the ports and related transportation corridors.

Local port and government officials sought $300 million from Congress for an urgent repair and realignment job for the bridge, which conveys truck traffic from the port. Besides shoring up the bridge, port officials want to raise it to accommodate larger cargo ships.

Several San Diego County transportation projects are likely to be vying for funds from a state infrastructure bond measure. Among them:

- A new border crossing at Otay Mesa and a new east-west highway in the vicinity.

- Improvements to the Tenth Avenue and National City marine terminals, as well as improvements to the rail lines to Los Angeles and Imperial County.

- Extra lanes for Interstate 805, Interstate 5 in North County and Interstate 15 between the port and Escondido.

If history is any guide , and if voters approve the bond , county projects could receive 7 percent to 10 percent of the bond money, said John Duve, a planner with the San Diego Association of Governments.

Southern California has plenty of other infrastructure needs besides transportation and goods movement, including upgrading aging water, sewer and flood control systems, building more affordable housing and finding more landfill space.

The Perata bill allocates $2 billion for levee repair and other water system upgrades. After the failure of levees in New Orleans during Hurricane Katrina, levees in the San Joaquin Valley and the San Francisco Bay-Sacramento River Delta region were regarded as vulnerable to flooding or failure during an earthquake. If the levees in the Bay-Delta area were to fail, up to one-third of Southern California's water supplies could be cut off.

Meanwhile, both current Los Angeles Mayor Antonio Villaraigosa and the city's former mayor, James Hahn, have made affordable housing a priority. Hahn created an affordable housing trust fund; Villaraigosa has brought the current fund balance to $1 billion.

Additional affordable housing funds are part of the infrastructure bond discussions going on in Sacramento. The Perata proposal calls for $1.2 billion in "transit-oriented infill housing."

Although Nu & #324;ez has yet to release details of his bond plan, he said in a recent radio address that housing funds would be part of it.

"Our bond proposal will put a new home within reach of thousands of Californians who work hard and play by the rules," he said.

Staff writer Brad Graves contributed to this report. Howard Fine writes for the Los Angeles Business Journal.