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Governor asks people to invest in Calif.

October 14, 2008 12:00:00 AM PDT
With California pressed to pay its bills, Governor Arnold Schwarzenegger is asking people to invest in California. Financial planners say California needs to raise more than $4 billion to make its payroll.Depending on the May or June 2009 maturity date, California's new short-term bonds could yield investors as much as 4.5 percent tax-free.

Click here for information on buying California bonds

The state will use the cash to stay afloat until the spring, when the bulk of tax receipts come in.

In a new radio ad, Governor Schwarzenegger is hoping Californians will help out.

"We do this, of course, every year in order to pay for the schools, health care, and other very important services, and your investment actually will protect those vital services," says the ad.

There are California bonds that are typically sold to large investment funds in the state vault. However, in this sale, ordinary people with at least $5,000 get first crack until the end of Wednesday.

The state needs to raise $4 billion. So far, nearly 40 percent was sold on the first day. Given the stock market, and how tight credit has been recently, that is pretty good.

"We got a very high rating from Moody's Investor Services, one of the three bond rating agencies. They gave our offering the highest possible rating. So, we think that's a sign of confidence," said H.D. Palmer, California Finance Department.

California bonds are a relatively safe investment. The state has never failed to make a scheduled payment to bond holders, including during the Great Depression.

Investment managers think California had to offer an attractive rate because credit is so hard to get now.

"You can get it, you just may have to pay a higher interest rate. The state of California can get it from investors, like you and me, but we're going to have to be rewarded with higher interest rates in order for us to make that loan," said Joseph Eschleman, Wachovia Securities.

If the state doesn't raise the entire $4 billion this week, it could go to a bank or the federal government for a loan. But, those moves are a lot more expensive for taxpayers.

Click here for information on buying California bonds

 

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