3.9.1 State General Obligation Bonds
State GO bonds are issued under a voter approved bond act authorizing the issuance of bonds up to a stated amount for described purposes adopted in accordance with California Constitution Article XVI, Sections 1 and 2, the State General Obligation Bond Law (California Government Code Section 16720 et seq.), and a bond resolution. The timing of the bond sales is determined by the State Treasurer. Each bond act provides that the State will collect annually in the same manner and time that it collects other State revenue an amount sufficient to pay principal of and interest on the related series of GO bonds in that year.
Each bond act further provides that the bonds issued under it “shall be and constitute a valid and binding obligation of the State of California, and the full faith and credit of the State is hereby pledged for the punctual payment of the principal of, and interest on, the bonds as the principal and interest become due and payable.” The pledge of the full faith and credit of the State does not create a lien on any particular moneys in the State General Fund or any other assets of the State but is an undertaking by the State to be irrevocably obligated in good faith to use its taxing powers as may be required for the full and prompt payment of the principal of and interest on all State GO bonds as they come due. Only California Constitution Article XVI, Section 8 (which says that the State will first set aside money to support the public school system and public institutions of higher education) creates a higher priority for any State fiscal obligation.
State GO bonds are issued for a wide variety of purposes and, because they are supported by the financial resources and taxing power of the State, provide low cost, long term, fixed rate financing. State GO bonds differ from the local government GO bonds described above in Section 3.3.1, Local Agency General Obligation Bonds, in two critical respects: (1) State GO bonds are payable from State general funds, not ad valorem property tax revenues; and (2) unlike the authorization of an increase in ad valorem property tax rates inherent in voter approval of local agency GO bonds, the authorization of State GO bonds does not create an additional source of revenues. If the facilities or program financed with State GO bonds generates revenues, however, the revenues may be applied to the bond payments, making the State’s GO credit more a guarantee than a primary source of payment.