State's bond rating may ease.CALIFORNIA'S proposed record $15 billion deficit borrowing may get higher credit ratings and lower borrowing costs than debt backed by the state because of security provided from a dedicated sales tax sales tax, levy on the sale of goods or services, generally calculated as a percentage of the selling price, and sometimes called a purchase tax. It is usually collected in the form of an extra charge by the retailer, who remits the tax to the government. revenue instead of from the state's operating budget Noun 1. operating budget - a budget for current expenses as distinct from financial transactions or permanent improvements budget items, operating cost, operating expense, overhead - the expense of maintaining property (e.g. . "I'm looking at the revenue stream instead of the budgeting process," said George Strickland George Strickland may refer to:
Santa Fe, city (1991 pop. 341,000), capital of Santa Fe prov., NE Argentina, a river port near the Paraná, with which it is connected by canal. New Mexico New Mexico, state in the SW United States. At its northwestern corner are the so-called Four Corners, where Colorado, New Mexico, Arizona, and Utah meet at right angles; New Mexico is also bordered by Oklahoma (NE), Texas (E, S), and Mexico (S). , including $200 million in a California fund. Strickland, who hasn't been buying the state's general obligation bonds, said mutual funds and other buyers can now invest without fear Of more wrangling over budget deficits. California needs the money from the bonds to pay off $14 billion of notes and warrants maturing in June and help erase two years of deficits that left California with the lowest credit rating and highest borrowing costs of all U.S. states. The deficit bonds, backed by a quarter-cent of the gate's sales tax revenue, would include maturities as long as 15 years and may be paid off in nine years from budget reserves under the plan. Bids on a 4.2 percent California general obligation bond due in 10 years are about 99.84 cents to yield 4.22 percent. The state's 10-year bonds yield 0.71 percentage point more than top-rated municipal debt, up from a difference of 0.56 percentage point when the bond was sold on Oct. 29. A wider yield gap is a sign investors perceive more risk. Standard & Poor's rates California bonds BBB BBB A medium grade assigned to a debt obligation by a rating agency to indicate an adequate ability to pay interest and repay principal. However, adverse developments are more likely to impair this ability than would be the case for bonds rated A and above. , the second lowest of 10 investment-grade levels following a three-level downgrade in July. The cut came during a budget impasse over closing what was then a record $38 billion budget gap. By contrast, "a sales tax revenue bond with good levels of coverage should be rated higher than the state is currently rated," said Steve Permut, who helps oversee $2.4 billion of municipal bonds at American Century Investments American Century Investments is a privately held investment management firm. Its headquarters are located at 4500 Main in Kansas City, Missouri, near the famous Country Club Plaza. It was formerly known as Twentieth Century Investments. The company was founded by James E. . "The bonding plans appear very reasonable." Bonds backed by sales tax revenue, and sold by county transportation authorities in California, frequently are rated two levels above the state's current general obligation rating. Municipal bonds with an A rating yield 3.91 percent in 10 years, or 0.31 percentage point less than California now pays on general obligation debt, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Municipal Market Data. That yield difference would save California $46.5 million a year in interest costs on a $15 billion borrowing. Investors still have concerns about the state's plans to close a projected budget gap of $14 billion in the next fiscal year beginning July 1. And Gov. Arnold Schwarzenegger Arnold Alois Schwarzenegger (German pronunciation (IPA): [ˈaɐ̯nɔlt ˈaloɪ̯s ˈʃvaɐ̯ʦənˌʔɛɡɐ] and lawmakers have to convince voters on March 2 to approve the new budget plan, including a restriction that limits state spending to projected tax revenue. A three-member bond-advisory panel assembled by Schwarzenegger also cautioned that the state has only begun to tackle chronic deficits. John Bohn John L. Bohn (1867 – 1955) was an American politician who served as mayor of Milwaukee, Wisconsin, from 1942 to 1948. John Bohn was president of Milwaukee's Common Council when Mayor Carl Zeidler was lost at sea in 1942 while serving in World War II; Bohn then became , a member of the advisory panel and former chief executive of Moody's, said the cost savings also "will depend on the overall context of budget reform" and the progress in deficit-reduction negotiations next year. "It'll depend a lot on the good faith efforts of the legislature and governor to push forward," Bohn said. --Dennis Waiters, Bloomberg News |
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