California Bonds offering 3.75 - 4.25 Yield

[tripods68]

"California offered attractive yields, setting projections at 3.75 percent for bonds maturing May 20 and 4.25 percent for bonds maturing June 22. Those rates are higher than the 3.37 percent the state paid last year on its $7 billion bridge loan"

This bonds offering is better that I've seen anywhere with less than 1 year of maturity date.

[sweeps]

Good deal if you believe California can stay solvent.

[tripods68]

I think their good. They just sold $3.8 Billion yesterday. They were targeting to sell $4.50B for this round. Another 3 billion is working down the pipeline early next year.

[sweeps]

Schwarzenegger declares fiscal emergency in California

"Without quick action, the state is likely to run out of cash in February."

[kork13]

Good deal if you believe California can stay solvent.

solvent? Can a state go into bankruptcy? If the state cannot meet the obligations of those bonds (or more simply, "runs out of cash"), what happens then?

(sorry, i'm a curious little bugger)

[KB24]

solvent? Can a state go into bankruptcy? If the state cannot meet the obligations of those bonds (or more simply, "runs out of cash"), what happens then?

(sorry, i'm a curious little bugger)

Currently, California carries an A+ bond rating from Standard & Poor's, A1 from Moody's, and A+ from Fitch, still strong investment-grade ratings, though notably one of the lowest of the 50 states.

California state general obligation (GO) bonds, like the GO bonds of any municipality, are secured by the full-faith-and-credit of the state, including taxing authority, in advance of any other expenditures or obligations with the exception of constitutionally guaranteed education spending. The state constitution requires this prioritization, as well. So, barring disaster, or a breakdown of political will, state bond payments will always come first. And the legislature is obliged to raise taxes if necessary to ensure that this will occur.

Bond credit ratings tend to be based, however, on the state's ability to pay all obligations, including bonds. A weakened financial position can reflect an erosion in that safety net, but not necessarily a dramatic increase in the expectation of default. Governments with equal credit ratings to corporate bond issuers have tended to default at much lower rates, a point illuminated in the above-mentioned Moody's default study.

Unlike corporations, governments are also constitutionally created and generally guaranteed to remain in business. Bankruptcy is possible, but uncommon. And dissolution or outright liquidation (especially for a state, but also for the smallest town or school district), has historically been rare. Even in the rare events of bankruptcy, debt service on muni bonds have generally been paid.

[MonkeyMama]

S&P, Moody's? Yes, they gave some high grades to mortgaged back securities as well. Ugh.

I personally would not buy bonds from the state of California.

I would admit odds are if they defaulted on bonds there would be some type of bailout. It's a large state. BUT it still sounds a little too risky for me. (The interest rates illustrate the risk).

[Broken Arrow]

I agree with the concerns, though I suppose that's the reason why they're selling those bonds eh? So, the more people buy these bonds, the more likely that the state will be able to weather this cash crunch and maintain its solvency.

Generally speaking, government bonds are fairly safe, and you might not even have to pay state taxes?

[tripods68]

These bonds carry less than 1 year of maturity. I doubt California would ever bankrupt without some kind of federal government support. The magnitude for this state in Bankruptcy are enormous incalculable consequences globally being California is the 7th largest Economy in the World. That's like saying France will no longer pay its bills. That won't happen.

[scfr]

Issuers do sometimes default on municipal bonds.

Can any Washingtonian forget about WPPSS (not-so-affectionately referred to as "whoops") ... Washington Public Power Supply System which had the largest-ever default in the US ... over 2 Billion, in the 80's?

Also New York City and Orange County, and I'm sure there have been others that weren't so much in the news.

For a state as large as California to default IMHO would be highly unlikely, but not impossible. And it's rating could change very quickly. How many of us who used to have accounts with Indymac, WaMu, and Wachovia have seen that happen?

I wouldn't be opposed to investing some in Cali munis, but I sure wouldn't put my entire retirement nest egg in them. How much would I personally put in? Off the top of my head, maybe 5%? And then only when I'm a resident so I get the state & federal income tax savings.

[tripods68]

Those you mentioned were local municipalities like New York City or Washington Power Supply. They used Revenue bonds which is different than General Obligation bonds. Revenue bonds are paid back by the revenue stream it generates through like toll, fees, or water bills. General Obligations (GO) uses the State as the taxing authority.

I also wouldn't lump State of California with private companies; two are seperate animal completely.

I do however agree with with you that nothing is impossible.

[sweeps]

Money woes could delay Calif. tax refunds
With expected $41.6 billion shortfall, state is on brink of issuing IOUs

[Seeker]

I'm curious as to how many Californians actually end up getting refunds from the state at the end of each tax year? For probably the last 10 years I've been paying State Income tax to a tune of $15-100/year every March or April. Federal gov't seems to allow more deductions than this state does.

As far as bonds, I think (hope) that if anything were to happen, that the government (Federal) would step in to back these bonds.

The state economy rankings are posted at the below site. Seems California is 8th now. You can also view comparison ranks and trends from 2002, 2007 & 2008 (now) more or less.

ITIF: The 2008 State New Economy Index: Benchmarking Economic Transformation in the States

[skydivingchic]

Seeker - I have always gotten a refund from CA. I'm single and am responsible for half a mortgage on a condo in San Diego. Last year I adjusted my withholding exemptions up to 2. I've put most of my numbers in Turbotax this year already and will be getting a refund.

I was going to start another thread about CA taxes withholdings. Due to the talk of IOUs being issued this year, I want to adjust my withholdings so that my refund is close to $0 or I owe a little to the state next year. I know if I owe too much to the federal government, there are penalties associated. Is this true for CA also? Is there a limit on how much you can owe without having penalties assessed?

[Seeker]

Seeker - I have always gotten a refund from CA. I'm single and am responsible for half a mortgage on a condo in San Diego. Last year I adjusted my withholding exemptions up to 2. I've put most of my numbers in Turbotax this year already and will be getting a refund.

I was going to start another thread about CA taxes withholdings. Due to the talk of IOUs being issued this year, I want to adjust my withholdings so that my refund is close to $0 or I owe a little to the state next year. I know if I owe too much to the federal government, there are penalties associated. Is this true for CA also? Is there a limit on how much you can owe without having penalties assessed?

Sky,

I don't really know, but since you have Turbo Tax you can finagle with the numbers and see what happens There's probably penalties with California withholdings.

I get the impression from other readings that California is mainly centering on businesses and tax issues there. Which makes sense, because most of the states money really comes from them and not us little taxpayers.