California sold $1.49 billion in bonds to finance a series of voter-approved projects.
The state issued both taxable and tax-exempt securities. The taxable bonds, consisting of $885.2 million, mature between 2026 and 2034, yielding between 4.95% and 5.09%. The tax-exempt bonds, consisting of $600 million, mature between 2025 and 2052, yielding between 2.79% and 3.64%. The securities received a rating of Aa2 from Moody’s Investors Service, AA- from S&P Global Ratings, and AA from Fitch Ratings.
The rating incorporates California’s “large and diverse economy, which supports strong, albeit cyclical, revenue growth prospects, a solid ability to manage expenses through the economic cycle and a moderately low level of long-term liabilities,” Fitch analysts wrote.
The issuance comes ahead of a project budget shortfall that could weigh on California’s finances in the year ahead. Estimates for the size of the deficit vary, but it is projected between $38 and $73 billion for the fiscal year beginning July 1.
Fitch warned that the budget shortfall could reduce California’s resilience to economic downturns, but noted that a budget plan proposed by Governor Gavin Newsom “would allow the state to retain very strong gap closing capacity.” That plan includes some delays to planned spending, including to infrastructure and education projects, as well as an expanded tax on health insurance plans and increased internal lending.
The bonds are general obligations of the state, backed by its full faith and credit. California sold an additional $2.6 billion in general obligation bonds earlier this month.
Morgan Stanley & Co LLC, Barclays Capital Inc, and BofA Securities, Inc served as underwriters on the issuance. Public Resources Advisory Group acted as municipal advisor.