State bonds sell -- interest payments will be big (Jack Bog's Blog)

Those $220-million-plus of State of Oregon bonds that we wrote about the other day have sold, and State Treasurer Ben Westlund is crowing about what a success the sale was. But some of the interest rates that the state is going to have to pay seem pretty hefty:

The orders from Oregon "retail" buyers sought various maturities and yields, based on the duration of the debt. Those range from one to 30 years, with yields ranging from 1.68 percent for certificates of participation maturing in 2011 to 5.27 percent for COPs maturing in 2039.

Since most of the bonds are double-tax-exempt -- interest isn't taxable for state or federal income tax purposes -- a 5.27% interest rate on a 30-year loan is high. Assuming that an investor's combined tax rate is 35%, that's the equivalent of an interest rate of 8.11% paid on a taxable bond.

Westlund's office isn't disclosing anything more about the yields for a few more days, but while we cool our heels waiting for the numbers that the Merrill Lynch types already have, we have this to ponder:

The next opportunity to invest in State of Oregon bonds will come in the week of March 2, when $147 million in general obligation bonds will be issued to pay for higher education projects....
The Legislature and Gov. Ted Kulongoski last week approved a $175 million "Go Oregon" stimulus package, which will pay for deferred maintenance projects. The bond offering this week includes $91.5 million of the stimulus pricetag.

In addition to that new package, the State is already scheduled to sell roughly $1 billion in several bond sales this winter and spring for projects approved by legislators in 2007 and 2008, including $58 million for a new statewide emergency communications system, $34.8 million to fund a portion the new state mental hospital in Salem, and $350 million for road and bridge improvements.

The remaining $83.5 million of the stimulus package will piggyback on those other sales.

The moral: Have your kids learn Chinese.

Comments (10)

Done! My kid already reads, writes and speaks Chinese.

Posted by Audaciously Hopeful | February 11, 2009 4:35 PM

Time to visit over there and pick out an apartment.

Posted by Jack Bog | February 11, 2009 4:36 PM

There will probably be plenty of jobs here working for American businesses bought out by the Chinese at bargain basement prices.

Posted by Audaciously Hopeful | February 11, 2009 4:55 PM

I read recently that the Chinese are sellers, not buyers due to impact of export market implosion on their economy. Reserve some of those hefty returns for Oregon 529 participants. They need it.

Posted by daveg | February 11, 2009 5:51 PM

Jack, is there any possibility of the State, legislature reversing commitments for some of these bond sales, in light of the more recent bleak economic picture?

Posted by lw | February 11, 2009 6:24 PM

Too late to teach my son Chinese, and jobs are getting even more scarce. I advised him to dump his girlfriend and date the Mayor.

Posted by Gibby | February 11, 2009 6:25 PM

The solution to many of our problems can be found in the Great White North. Read this article about why Canada isn't having the same problems: http://www.newsweek.com/id/183670

Posted by mp97303 | February 11, 2009 7:00 PM

I guess this buggers Rep. Bailey and Angus Duncan's plans to offer state-backed yields of 5% to "investors" in their wild-ass scheme to get homeowners to buy insulation, weatherstripping, and solar panels.

Posted by Garage Wine | February 11, 2009 8:53 PM

Thanks
JK

Posted by jim karlock | February 11, 2009 9:08 PM

The buyers of Oregon tax exempt bonds are not Chinese. They get no value from the tax status, since they pay income taxes in China. You comment is a bit of xenophobia. Reminds me when the tram costs went up and somebody said it was because of the Chinese bidding up the price of steel (this at a time when China, by the way, was a net exporter of steel). Blame China has worked in Oregon for 100+ years, but it is foolishness.

There is a problem with muni bonds, however, that you should note. The buyers are people like me who live in the state. If bonds are being offered at 5.27% I will buy them instead of a taxable bond, which Oregon takes 9% in income tax from the interest I would earn.

Therefore, the effective cost to the state of 5.27 municipal bonds is actually a cost closer to 5.75% since had the borrowing not occur, I would have bought a taxable bond instead. Raising the supply of Oregon (and local county/city bonds) has a negative effect on tax revenues for Oregon.

Posted by R Whelan | February 12, 2009 10:42 AM

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Wednesday, February 11, 2009

State bonds sell -- interest payments will be big

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