This week the state came to the municipal bond market with one of the biggest deals ever (the fourth largest): a $6.85 billion bond. It wasn't just big, it included the latest new thing in state and local bonds--$5.23 billion in Build America Bonds. These are taxable bonds that sell at higher interest rates. That is, the bonds are not tax-exempt to investors but, under the federal recovery act, the interest rate California is paying--7.4 percent--is subsidized by the federal government, bringing the interest cost to California down to 4.8 percent.
The bonds were gobbled up by investors within hours of the sale. Proceeds will be used for those infamous shovel-ready public works projects.
California is the third large issuer to test the Build America Bond waters.The University of Minnesota and the New Jersey Turnpike Authority have also issued BABs.
