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California Adds BABs; Finance Chief Quits

SAN FRANCISCO — It was a strange day yesterday in the world of California finance, as the state treasurer’s office announced a sudden Build America Bonds sale while the state’s finance director said he planned to resign.

California, already planning to sell almost $1.5 billion in tax-exempt general obligation bonds this week, announced yesterday that it will price $750 million of taxable BABs today.

“This public offering is the result of an inquiry we received from a party that expressed an interest in buying a substantial amount of Build America Bonds from the state of California,” said Tom Dresslar, spokesman for Treasurer Bill Lockyer.

Citi is managing the BAB offering. They will be 30-year bonds, Dresslar said. The state will receive a 35% subsidy from the U.S. Treasury on the interest costs for the taxable BABs.

They will carry a make-whole redemption provision, but nothing like the 10-year par call prevalent in traditional municipal bonds, according to the preliminary offering memorandum.

Meanwhile, Gov. Arnold Schwarzenegger’s budget and finance director, Michael ­Genest, announced plans to leave the position before the end of the year.

Genest was named acting director of the Department of ­Finance in September 2005 and formally became director on Dec. 1, 2005.

“He has served at what is arguably the most challenging fiscal period in California history,” department spokesman H.D. Palmer said.

Over the last two years, Palmer said, the department has put together at least 10 distinct budget proposals as the state’s economy deteriorated and tax revenues waned.

In a normal year, the department prepares the governor’s initial January budget proposal and a May revise.

Genest will stay on until a successor takes over by the end of the year.

No announcements have been made, but Palmer said the Schwarzenegger administration has been aware of Genest’s plans for about a month.

“This is something that’s been in the works for a while,” Palmer said.

The successor will be a short-timer, as Schwarzenegger leaves office after the 2010 election. The job requires state Senate confirmation.

Palmer described Genest’s departure as a retirement, while at the same time saying Genest will remain involved in California policy issues from outside the government.

“He’ll be in the same church but be in a different pew,” Palmer said.

Genest’s predecessors under Schwarzenegger, Donna Arduin and Tom ­Campbell, each stayed for less than a year.

The four-year tenure as finance director is believed to be the second-longest since Ronald Reagan was governor, according to Palmer.

Today, as the state prices its taxable BAB offering, it will also launch a one-day retail order period for this week’s tax-exempt bond sale, which prices Wednesday.

The deal is slated to include $1.3 billion in new-money GOs and $194 million in refunding GOs.

De La Rosa & Co.,  Stone & Youngberg LLC and Siebert Brandford Shank & Co. are managing the transaction.

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