Sacramento : California, the largest US issuer of municipal debt, is pursuing its next sale of Build America Bonds, even as Florida suspended its offerings on concern that the Internal Revenue Service may block interest-cost subsidies.
"We plan to go full speed ahead with our BABs," Tom Dresslar, spokesman for California Treasurer Bill Lockyer, said in an interview on Saturday.
The lowest-rated state issued 9 per cent of all Build America securities, more than any peer since the programme began 11 months ago, according to data compiled by Bloomberg.
It's set to sell about $1.3 billion (Dh4.7 billion) this week along with another $675 million of taxable bonds, according to Dresslar. California's sale comes after Florida announced it would temporarily delay selling $255 million of the federally subsidised debt this week.
It followed a conference call in which the IRS said it may annul part of the 35 per cent subsidy if an issuer owes the federal government for programmes such as Medicaid, said the state's debt manager, Ben Watkins.
Other municipalities, such as Portland, Oregon, which is planning to sell some of the debt in June, have also expressed concerns about possible IRS actions.
"The BABs programme has been a jobs-creating machine for California," Dresslar said.
"We do not think it is in the best interest of this state to grind that machine to a halt because of any concerns about potential offset issues. If and when those kinds of issues arise we will deal with them, but for now we are not going to let potential problems trump economic stimulus."
Citigroup and Bank of America Merrill Lynch are underwriting the debt. Individual investors will be allowed to place orders tomorrow and Wednesday, followed the next day by institutional buyers such as mutual funds and insurance companies.
Fastest-growing market
Build America Bonds are the fastest-growing part of the $2.8 trillion municipal debt market. Since April, $86 billion of the debt has been sold. The US Treasury subsidises a portion of the interest costs on the securities, which were created last year as part of the federal stimulus package.
States and municipalities use the bonds' proceeds to fund roads, schools and sewers because their after-subsidy cost of capital is lower than that from issuing tax-exempt debt.
