LOS ANGELES – California has enhanced its ability to borrow money cheaply and nudged its credit rating into high-grade territory amid a period of rising investor clamor for its bonds, according to the annual Debt Affordability Report State Treasurer John Chiang released this week.
"We are selling bonds with lower interest rates and saving Californians billions of dollars," Chiang said in a prepared statement.
California remains one of the largest issuers in the $3.7 trillion U.S. municipal bond market. It has averaged sales of $7 billion in general obligation bonds annually over the past five years, the treasurer said.
The state has sold $7.1 billion in GOs in 2016. Of that total, refundings comprised $4.8 billion. Chiang claims $2.3 billion in reduced borrowing costs for general obligation bonds since becoming treasurer in January 2015.
"The market reception for our bond sales remains positive, thanks to our stable, strong and growing economy, our prudent on-time budgeting and a commitment by lawmakers and the governor to build a financial reserve to prepare for an eventual recession," Chiang wrote in a letter attached to the 36-page debt affordability report.
The bond proceeds from the new money portion of this year's bond sales will fund transportation, water, housing and other public works projects.
The treasurer's office estimates that when other state agency bond sales are included, such as the University of California and the Department of Water Resources, the savings soared to $4.2 billion.
"That is a bankable public benefit," Chiang said. "Every dollar we save in interest charges is available for education, health services, environmental protection and other programs that Californians value."
In August, Fitch raised the state's long-term bond rating to AA-minus. Moody's and S&P Global rate the state Aa3 and AA-minus, respectively.
Chiang also ticked off strides made by his office during his tenure as treasurer. Among those were the DebtWatch website that provides debt-related information on state and local government bond sales over a 30-year period.
He also cited Senate Bill 1029 authored by Sen. Robert Hertzberg that arose out of treasurer's taskforce that mandates reporting of each debt issuance as it is paid and ongoing tracking of how proceeds are spent. The state's issuers are slated to begin providing the additional data to the treasurer's office in January.
In September, the treasurer also asked bond counsel, financial advisors and underwriters who work with the state to sign a letter saying they would not engage in pay-to-play by donating to bond measure efforts and then securing work on the resultant bond sale.
"Such so-called pay-to-play arrangements rip off taxpayers," Chiang said in the letter. "To offset their campaign spending, these firms demand higher fees which can raise issuance costs to taxpayers by as much as 900%."
The treasurer also announced last week that Wells Fargo had been suspended for a year as a managing underwriter on negotiated state bond sales where the treasurer picks the underwriter, as a broker-dealer for buying investments for the treasurer's office, and that the office will suspend investments in Wells Fargo securities.