California needs billions in bonds: Schwarzenegger

California Governor Arnold Schwarzenegger makes a point during an interview with Reuters editors in the governor's office in San Francisco, March 1, 2007.

SAN FRANCISCO (Reuters) - California's approval of record levels of debt last year was just the start of many more billions of dollars of borrowing needed for the country's most populous state, Gov. Arnold Schwarzenegger said on Thursday.

"I was at a meeting this morning where someone said, 'Look, we need $150 billion just for infrastructure and transportation.' It's true," Schwarzenegger told Reuters in an interview in a state office in San Francisco.

"We need $500 billion to rebuild California the way it ought to be," he added. "But this is of course too big for people to digest, so you don't talk about that."

Speaking about the total of $42.7 billion in general obligation bonds authorized by voters last year for public works spending, Schwarzenegger said: "This was only the foot in the door, to whet the appetite."

"Now we are going to go and say this is a good down payment, now let's go all out and let's rebuild."

An aide later stressed that the governor supported public-private partnerships that would share some of the cost of infrastructure spending.

In the short term, Schwarzenegger acknowledged California could face lower tax revenues than projected in his January budget plan, but said he opposed new taxes.

"If we are short of projections, then we have to deal with that -- sit down with the Democrats and Republicans at that point and talk about it, where should we make cuts and how should we make the adjustments there so that we can bring our structural deficit down this year," he said.

"We have done tremendously with the revenue increases, but we do not want to do a tax increase."

LOWER TAX REVENUE

In recent weeks, California's finance department, the state controller and the state's budget analyst have each issued estimates that show California's tax collections are running about $1 billion below the level forecast by the administration.

As part of Schwarzenegger's $143.41 billion budget plan for California's 2007-08 fiscal year, the governor has proposed making $1.6 billion in prepayments on its economic recovery debt to help retire it by mid-2009.

But he told Reuters that proposal could change if revenues fall below initial projections, noting: "That is one of the things that we can talk about"

Schwarzenegger presents a revision in May of his budget plan for the fiscal year that begins in July.

He said he does not expect California to issue less debt if the economy slows. "I don't think we have to do that," he said.

The former actor and bodybuilder also warned against using one-time revenues to fund multiyear programs.

He warned against repeating the situation under his predecessor Gray Davis in which a revenue spike during the Internet boom was followed by big deficits when the boom went bust.

"The direction that we don't want to go is to fall in the same trap that Davis did," said Schwarzenegger, who is using a cane after breaking his leg in a skiing accident.

"The big mistake they made is that they used one-time revenues that spike. They used this one-time revenue for ongoing programs down the line for the next 20 years, which is the wrong thing to do."