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State could securitize repayment of local property-tax raid

June 12, 2009 - 6:00 pm

It’s possible that this has been reported, but I don’t think I’ve seen it, so here goes:

We all know that local officials are pissed about a proposal by state lawmakers to borrow roughly $2 billion in local property tax money to help close a $24 billion state budget gap. On Wednesday, when Mayor Jerry Sanders was briefing reporters on his fruitless trip to Sacramento the day before, I asked him if he’d presented any alternatives to Gov. Arnold Schwarzenegger and the Senate leader, Darrell Steinberg. The only alternative he had was an idea to securitize repayment of the property tax money.

Prop. 1A from 2004 allows the governor to declare a fiscal emergency and borrow (albeit in a hostile manner) local money, but it requires the state to pay it back within three years with interest. Problem is, everyone expects the state to welch on the debt. Sanders said private investors could loan local governments money to backfill what the state takes, and, presumably, that debt would have to be repaid by the state.

“While securitization has been done in the past (in 2004 with Vehicle License Fee funds),” a spokesperson for the mayor said in a follow-up e-mail, “there are concerns that it would be much harder to do this time around, in part because of the state’s financial situation, but also because of such issues as interest, repayment priority and collateral/guarantees. Currently, other than the governor’s stating that we could securitize, no actual proposal has been floated by the state.”

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