SAN FRANCISCO — If Thursday’s scheduled votes on a California budget are successful, the state hopes to be in the market with up to $10 billion of revenue anticipation notes sometime in November, Treasurer Bill Lockyer said Wednesday.
Lockyer, speaking at a California Debt and Investment Advisory Commission workshop ahead of The Bond Buyer’s California Public Finance Conference, also took potshots at pundits predicting municipal bond market doom, and repeated his criticisms of the municipal credit default market.
Democratic and Republican lawmakers and Gov. Arnold Schwarzenegger announced last week they have negotiated a deal to end California’s three-month-long budget standoff.
Thursday is the day they see if the legislative rank and file support them in sufficient numbers to get the needed two-thirds supermajority.
“Having talked to leaders on both sides of the aisle, they both predict a high likelihood of passage tomorrow,” Lockyer said.
With a budget deal in place, the state will be able to put together offering documents, allowing it to return to the public debt markets — starting with the big Ran sale. The notes provide the state government with cash to get through the low-revenue months.
Lockyer could not guarantee that California would be able to get a general obligation bond sale into the market before it enters a disclosure “blackout” period in late November while the next budget is being prepared.
But getting such a multibillion-dollar deal done is a high priority, he said.
“We’d like very much not to have interruptions in the public works projects going on throughout the state,” he said. “I’m hoping time will allow us to do that.”
The treasurer said that, despite the new focus on municipal disclosure, it would be a mistake to repeal the Tower Amendment that forbids regulators from requiring issuers to submit documents to them before issuing securities.
“Repealing the Tower Amendment makes no sense and drastically overstates the case,” Lockyer said. “The so-called tougher private-sector disclosure requirements didn’t do their job in protecting investors in the last five years. I hope the [Securities and Exchange Commission] will be able to distinguish between real threats and phony threats to investors.”
Lockyer took his shots at a recent, well-publicized report predicting danger in the municipal bond market, from banking analyst Meredith Whitney.
Whitney has been on news programs publicizing the findings, saying state fiscal problems pose a systemic risk to the United States.
“She talks about leverage in the municipal market in ways that are nonsensical,” Lockyer said.
Lockyer also repeated long-standing criticisms about the credit default swap markets, saying that the swaps, while they account for a miniscule portion of California’s outstanding debt, outrageously overprice the state’s default risk.
That default risk is nonexistent, Lockyer said.
“What that means to me is some fool is buying this stuff if they think they are protecting themselves from default,” Lockyer said.
Another explanation, he said, is that CDS buyers are speculating, expecting to sell to a “bigger fool” down the road.
“I simply would outlaw CDS muni speculation if I could.” Lockyer said. “I can’t.”
