A "yes" votesupported authorizing the state to issue $380 million for a water resources program and changing provisions of the Water Conservation Bond Law of 1988 related to administrative fees and the Safe Drinking Water Bond Law of 1976 related to water agencies' interest cost on loans.

A "no" voteopposed authorizing the state to issue $380 million for a water resources program and changing provisions of the Water Conservation Bond Law of 1988 related to administrative fees and the Safe Drinking Water Bond Law of 1976 related to water agencies' interest cost on loans.

No

• This act provides for a bond issue of three hundred eighty million dollars ($380,000,000) to provide funds for a water resources program and make changes in the Water Conservation Bond Law relating to administrative fees and the California Safe Drinking Water Bond Law of 1976 relating to loans.

I.1990 Bond Costs

Direct Cost of Paying Off the Bonds. For most of these bonds, the state typically makes principal and interest payments from the General Fund over a period of about 20 years. If the bonds are sold at an interest rate of 7.5 percent, the total cost would be about $735 million to pay off both the principal ($380 million) and the interest (about $355 million). Generally, the interest on bonds issued by the state is exempt from both federal and state taxes. However, due to changes in federal tax law, a portion of the bonds may not be exempt from federal taxes. In this case, these bonds would be issued by the State Treasurer at a higher interest rate. If this occurs, the total cost of paying off the bonds would be higher.

Net State Costs. Part of the total cost of paying off the bonds will be offset by the principal and interest repayments on the various loans. These repayments will total about $205 million over the life of these bonds. (These repayments would be about $70 million higher if the full interest costs were charged on these water loans.) This will reduce the net state cost to $530 million, or an average of about $22 million per year.

II.State Cost From Reducing Interest Rate on 1976 Safe Drinking Water Bond Loans

Between 1976 and 1986, the state made loans of about $120 million to local water agencies from this bond act. The repayments of these loans are used by the state to pay off the bonds. This measure reduces, by 50 percent, the interest rate charged on these loans. That in turn, will reduce the state revenues available to pay off the bonds. Assuming that these loans were to be repaid over a term of 30 years, the loss in state revenue would be about $110 million. This measure does not provide a funding source to offset this state revenue loss. As a result, there will be a corresponding increase in state General Fund costs to pay off the 1976 bonds.^[2]

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