PROP. 1A MAY COME AT RIGHT TIME EDUCATION-BOND DEMAND HIGH, RATES LOW, BUT OPPONENTS THINK DEBT LOAD TOO GREAT.
Byline: Ben Sullivan Daily News Staff Writer
Whether California voters give a yea or nay nay
1. No: All but four Democrats voted nay.
2. And moreover: He was ill-favored, nay, hideous.
1. A denial or refusal. on Proposition 1A to authorize $9 billion-plus in school expansion bonds, financial analysts say now is a great time to float such a bond.
With interest rates at near-record lows, and the investment community ready to gobble up to capture in a mass or in masses; to capture suddenly.
See also: Gobble education-driven municipal bonds, the state should have little trouble unloading Unloading
Selling securities or commodities whose prices are dropping to minimize loss. what would be the largest such offering in U.S. history.
``The interest rate is the key, and it wasn't so long ago that you were looking at rates 50 percent higher than they are today,'' said Richard Lehmann, president of the nonprofit Bond Investors Association, which collects data on public and private bond offerings.
If sold at current market rates - among the lowest in 10 years - the 1A bond likely would carry an annual interest rate of about 5 percent. Over the 25-year life of the bond, taxpayers would wind up paying about $15.2 billion on its principle and interest, or about $600 million a year.
While hefty by any measure, the price is significantly less than what a similarly sized bond would have cost just five years ago, when interest rates were higher, and the state's economy and credit rating worse. Three years ago, for example, when interest rates on municipal bonds were about 17 percent higher, the same bond offering would have cost Californians an extra $1.75 billion to pay off.
``Just like mortgage rates are low, the same thing is true of these bonds,'' said Bill Hauck, president of the California Business Roundtable Business Roundtable (BRT), an association consisting of the chief executive officers of major U.S. corporations that was founded in 1972 through the merger of the three preexisting business organizations. and a key supporter of the measure. ``Our being able to sell the first increment To add a number to another number. Incrementing a counter means adding 1 to its current value. of these bonds in the next 30 to 60 days will save California taxpayers a substantial amount of money.''
Long list of needs
Under terms of the proposition, 1A bond money would go toward construction of new schools, expansion and maintenance of existing facilities, and improvement of the educational system's technology infrastructure. It's a laundry list laundry list A popular term for a long list of Sx, diseases, or etiologies that share something in common–eg, differential diagnosis of acute abdomen both opponents and supporters of 1A say deserves filling.
But while groups including the California Teachers Association The California Teachers Association (CTA), initially established in 1863 as the California Educational Society, is by far the largest teachers' union in the state of California. It is considered by many to be the most powerful union in California. and Congress of California Seniors insist a bond - which amasses needed money upfront - is the best way to pay for the work, others, most vocally Assemblyman as·sem·bly·man
A man who is a member of a legislative assembly.
pl -men a member of a legislative assembly
Noun 1. Tom McClintock Thomas Miller "Tom" McClintock (born July 10, 1956 in White Plains, New York) is a California State Senator. He ran for Governor of California in the 2003 California recall election of Gray Davis and finished third out of 135 candidates with 13.5% of the overall vote. , R-Granada Hills, say such an undertaking should be paid for on a pay-as-you-go basis Pay-as-you-go basis
A method of paying income tax in which the employer deducts a portion of an employee's monthly salary to remit to the IRS. .
``A fundamental principle of sound public debt financing Debt Financing
When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay is that you restrict its use to capital projects that will last at least as long as the service on the debt,'' McClintock said.
Construction of new schools could arguably ar·gu·a·ble
1. Open to argument: an arguable question, still unresolved.
2. That can be argued plausibly; defensible in argument: three arguable points of law. be justified, but more than $2 billion of the proposed $9.2 billion funding is targeted at maintenance projects that will have to be repeated within a few years, McClintock said.
``Our children's generation is going to have its own walls to paint and bathrooms to clean up, their own furniture to buy,'' but will still be saddled with annual payments on the Prop 1A bond if passed, he said.
McClintock instead believes money for short-term projects should come out of the state's general budget. Given California's $4 billion-plus budget surplus this year, he said, much of the needed work could be paid for without borrowing.
History of success
If recent state history is any guide, McClintock will be disappointed come Nov. 4. Since 1986, California voters have passed $8.8 billion in state general obligation bonds to finance school construction and maintenance, turning down just three of the last 15 education-bond measures to make it to the ballot.
But California's very willingness to take on debt in the past could threaten its ability to do so in the future. Though enjoying a recently upgraded AA3 rating from Moody's, and a comparably strong single A-plus from Standard & Poor's, as California's debt burden increases, its risk profile also typically rises, making new bonds more expensive to sell.
``Our debt service (as a percentage of the state budget) is currently 2.5 percent. This will push it to 4.9 percent, and most bond analysts get very uncomfortable when a state exceeds 5 percent,'' McClintock said. ``We need to recognize that public debt capacity is not unlimited.''
Prop. 1A supporters point out that any money raised through the new bond and not immediately used for projects can be invested and the proceeds put toward debt retirement. But McClintock said he is skeptical of even this possibility. Schools throughout the state are already lining up with pet projects for the 1A money, he said, ensuring the bond funds will be ``sucked up very quickly, indeed.''