California will postpone bond sales to save money
California is postponing its usual spring sale of general obligation bonds as part of Gov. Jerry Brown’s plan to attack the state’s massive budget deficit.
Treasurer Bill Lockyer’s office said the decision to forgo bond sales until later in 2011 would save about $248 million in expected interest cost in the fiscal year that will begin July 1.
The delay also could help calm the municipal bond market by limiting the supply of new debt at a time when many investors have become reluctant to buy muni issues.
The state has borrowed heavily in the last two years to fund voter-approved infrastructure projects, including roads, schools and water facilities. Lockyer sold a record $19.8 billion of general obligation bonds in calendar 2009 and $10.4 billion in 2010.
Under Brown’s budget plan the state would limit general obligation bond sales to $5.76 billion this calendar year, and sales wouldn’t occur before fall.
Lockyer spokesman Tom Dresslar said the state’s cost of servicing its outstanding general obligation debt is expected to total $4.93 billion in fiscal 2011-12, up slightly from $4.89 billion in the current fiscal year but an estimated $248 million less than if the state added to its debt load via bond sales this spring.
Forgoing the sale won’t affect infrastructure projects already underway, but an undetermined number of new projects are likely to be delayed, Dresslar said. That could cost jobs.
The state’s last bond sale was in November -- just as market interest rates on muni issues were soaring. Investors suddenly balked amid a heavy suppy of new bonds nationwide, expectations of rising interest rates with the rebounding economy, and concerns about state and local budget woes.
The muni market has continued to struggle since November as buyers have remained wary. Yields have been rising again in recent days even though new bond issuance plummeted last week.
Federal Reserve Chairman Ben S. Bernanke on Friday said the central bank had no intention of providing financial help to cash-strapped state and local governments.
-- Tom Petruno