Nov. 9 (Bloomberg) -- California Governor Arnold Schwarzenegger signed a bill placing an $11.1 billion bond referendum on a statewide ballot to finance an overhaul of the water system serving the most populous U.S. state.

Voters in November 2010 will be asked to approve the bond which, combined with federal and local monies, would finance $40 billion of projects such as building new dams and below-ground water storage and a canal to circumvent the Sacramento-San Joaquin Delta, which supplies water to two-thirds of California’s 36.7 million people.

The referendum is part of a package of five bills lawmakers passed Nov. 3-4 to modernize and expand California’s water system, which depends on aqueducts, reservoirs and pipelines, some dating from the early 20th century. If approved by voters, the bond measure would add to California’s $53 billion of debt approved but not yet sold.

“This is long overdue,” Schwarzenegger said at a dam north of Fresno. “This is the linchpin of the water package. Today we are setting forth a bold vision of the future. I hope the people are going to be with us in passing these bonds.”

California, which sells more municipal bonds than any other state, has borrowed more than $10 billion in the last five weeks. The state’s general pledge to meet its obligations to bondholders is rated BBB by Fitch Ratings, Baa1 by Moody’s Investors Service and A by Standard & Poor’s, the second-, third- and fifth-lowest investment grades, respectively.

The bond bill includes $250 million to help pay for the removal of four dams on the Klamath River in Oregon and California. In September, PacifiCorp, a utility owned by Warren Buffett’s Berkshire Hathaway Inc., reached a draft agreement with U.S., state and local officials for the potential removal of the dams, which generate hydroelectric power for the region and impede salmon runs.

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net

Last Updated: November 9, 2009 18:06 EST