After years in which California’s credit rating ranked among the worst in the nation, the state has completed a massive, $764 million bond sale in which it enjoyed quite favorable interest rates. The Wall Street Journal reports that the premium (the additional interest the state offers compared with AAA rated bonds) was 0.45 percent, down from 0.71 percent a year before. If these are any indication, bond markets are finally sold on a California revival:
Tuesday’s sale shows municipal bond-market participants no longer view the state as “a distressed credit,” said Dan Genter, president and chief investment officer of RNC Genter Capital Management in Los Angeles, which oversees about $2 billion in municipal investments. RNC Genter didn’t plan to buy any of California’s new debt Tuesday, Mr. Genter said, because it could buy the state’s outstanding debt at more attractive yields….
Once a municipal bond market problem child, with delayed budgets and deficits in the tens of billions of dollars, California lately has seen its fiscal picture brighten. The state is no longer the lowest-rated U.S. state, and its credit rating has been raised twice this year, once by S&P in January and by Fitch this month. California expects to end its current fiscal year with a surplus, and for the third year in a row, the state has passed its budget on time.
This is a welcome sign that the rising tide is lifting many boats in the state. It also suggests that Governor Brown’s pension reforms are a step in the right direction (and he says there are more to come). And as long as Silicon Valley and Hollywood are home to two of the country’s most vibrant industries, California will retain some important strengths.
But let’s not forget that the state still has some serious problems: taxes and poverty are both extremely high, its schools consistently underperform national averages, its prisons are hopelessly overcrowded, and multiple cities are still either bankrupt or on the edge of bankruptcy. Signs of economic recovery shouldn’t tempt California’s leaders to procrastinate in facing these challenges.
[Governor Jerry Brown image courtesy of Wikimedia Commons]