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Assembly passes bill to give locals breathing room on bonds
By John Hill - jhill@sacbee.com
Last Updated 12:08 pm PDT Monday, March 10, 2008
The state Assembly tried Monday to send some relief to local governments reeling from higher interest costs with approval of a bill that allows cities, counties and other bond issuers to buy back their own bonds.
The Assembly approved Senate Bill 344 by Sen. Mike Machado, D-Linden, on a vote of 67 to 1. The bill now goes to the Senate.
Markets for two types of municipal bonds have been hit with turmoil in recent weeks as a side effect of the meltdown in subprime mortgages. The bonds are sold at short intervals, from weekly to monthly, to investors looking for short-term returns.
But when the companies that insure the bonds were shaken by losses in mortgage-based securities, the municipal market was also rattled, leading to higher interest rates.
SB 344 makes it clear that local entities -- including governments, hospitals, utilities and universities -- can shelter themselves from the interest-rate volatility by buying back their own bonds without "extinguishing" the debt.
Without that clarification, they might have lost their bond insurance or been forced to got back to voters to re-authorize the debt. The bonds could have been stripped of their tax-exempt status.
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