California's bond sale plans were buoyed Friday when Fitch Ratings upgraded the state's general obligation bonds to AA from AA-minus.
Fitch said the upgrade "reflects the improved fiscal management that has become institutionalized across administrations, which in Fitch's view allows it to better withstand economic and revenue cyclicality." The outlook is stable.
It's California's first upgrade in three years; the last came from Fitch, to AA-minus from A-plus in August 2016,
The upgrade came after State Treasurer Fiona Ma released a $5.2 billion bond sale calendar for the rest of the year during a wide-ranging press conference covering her first eight months in office.
The fall slate of bond sales will provide money for school construction, housing for mentally ill homeless people, support local jail construction and refund existing bonds for interest-rate savings.
It begins with a $2.3 billion deal slated for Sept. 5. The state hasn’t determined yet what the split will be between refunding and new money, said Tim Schaefer, deputy treasurer for public finance. Jefferies LLC and Stifel are joint senior managers,
A $60 million refunding of public works lease revenue bonds will price two weeks later on Sept. 17.
The sales will help provide funding for projects significant to the state, such as funding for homelessness programs, Ma said.
Significant portions of the seven series of bonds also will be used to refinance older debt at today’s lower rates to save taxpayers money and free up resources for other programs, Ma said.
The treasurer said she recently completed a listening tour to learn how her office could restructure the lending programs it oversees for housing to encourage more construction.
The state has constructed 80,000 homes of all kinds annually over the past 10 years, a far cry from the 180,000 estimated annual need,
California Gov. Gavin Newsom has set an ambitious goal of 3.5 million new units by 2025, which would require a construction pace exponentially greater than the current rate. The state’s recently enacted budget includes $1.75 billion to encourage housing production by financing loans and tax breaks for affordable housing developers, funding to help cities plan for more housing and grants to construct housing.
“I applaud the governor for putting his money where his mouth is whether it’s for homelessness housing or for other programs he cares about,” Ma said. “We are trying to be more efficient with financing — and the governor understands the problem.”
One of the issues is trying to figure out how to replace the $1 billion annually for housing that came from the former redevelopment agencies, Ma said. The state’s redevelopment agencies were eliminated through legislation championed by former Gov. Jerry Brown in 2011.
Every year, the treasurer prices a series of bonds in the spring and fall to give policymakers time to deliberate on spending before the bond calendar is set, said Schaefer.
Ma told The Bond Buyer earlier this year that she asked the finance team to split the sales into smaller deals to offer more broker-dealers the opportunity to be the lead manager on the state’s sales. Typically, the bulge-bracket banks are the only ones with the size to be lead manager on the larger deals. The treasurer had said previously she wants to provide more opportunities for minority and women-owned shops.
After pricing the first big deal shortly after Labor Day it will price bonds on deals ranging from $60 million to $2.3 billion every other week through Dec. 2. That $2.3 billion September deal is the largest.
The state will price on Oct. 14 an $800 million various purpose bond refinancing that will take out commercial paper and refund existing bonds and sell $400 million in lease revenue bonds on Oct. 28 to support public works projects.
On Nov. 6, the California Health Facilities Financing Authority, a treasurer’s conduit, will price $500 million in federally taxable bonds to support the state’s “No Place Like Home,” program, which provides money to cities and counties for programs to house mentally ill homeless people.
The second week of November it will price a combined $800 million refunding and new money deal for various purpose general obligation bonds, which support the state’s infrastructure projects.
The California Infrastructure and Economic Bank will price on Dec. 2 $300 million in green lease revenue bonds to fund an expansion of the California State Teachers’ Retirement System’s headquarters building in Sacramento.
