California's first-year treasurer puts her stamp on bond program

As the state’s banker, Ma manages $92 billion in state and local funds and is responsible for $85 billion in outstanding general obligation and lease revenue bonds.

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In her first four months on the job, California State Treasurer Fiona Ma has sold $6.4 billion in municipal debt, freed Wells Fargo to once-again underwrite negotiated deals for the state and testified before Congress to support efforts to bank the cannabis industry.

“I am very happy, I love my job,” said Ma, who conceded it is busier than she thought it would be.

This comes from someone who has a reputation for logging long hours.

At the start of her political career, Ma worked part-time for John Burton, a longtime state and federal lawmaker and former head of the state’s Democratic Party, while running her own accounting firm. Burton told The Bond Buyer in an interview last year that Ma did the work of two people.

The state treasurer’s responsibilities include issuing state bonds, overseeing the state’s Pooled Money Investment Account and serving on the boards of the California Public Employees’ Retirement System and California State Teachers’ Retirement System.

As the state’s banker, Ma manages $92 billion in state and local funds and is responsible for $85 billion in outstanding general obligation and lease revenue bonds.

Ma, who served three terms in the state Assembly, said during her campaign she planned to be active in working with the Legislature. She is sponsoring 15 bills and supporting 30.

Among those are bills that attempt to provide better access to banking for the legal marijuana industry using state mechanisms, because federal legislation for which she advocated hasn’t gained much ground, bills to encourage affordable housing and one that would create a Clean Energy Financing office within the treasurer's office.

The certified public accountant is very involved in the state’s bond program.

She postponed the first bond sale under her tenure of $78 million in veterans home purchase revenue bonds to the third week of March. The deal was set to go in January, but she wanted to know more about what the bonds funded. And once she did, Ma said she wanted to make sure that veterans were aware the state had a program to help them buy a home. So she worked to make sure it was publicized.

Propelled by refundings, California state government was the largest issuer of municipal debt in the first quarter. The state has been in the market every week since the beginning of March pricing deals as small as $20.8 million of lease revenue bonds for the State Public Works Board for a jail project to more than $4 billion of general obligation bonds. The GO bonds supported high speed rail, school construction, and the state’s water projects.

Deputy Treasurer for Public Finance Tim Schaefer said Ma has been pushing the team to explore bond refundings and to sell bonds needed for programs while rates remain low.

“The treasurer is asking: 'Are we carefully thinking through each decision to issue bonds?'” Schaefer said. “She wants to make sure we don’t blindly sell the bonds, but that we sell them when the time is right. So far, she has been very successful. She comes in here and runs me through the ringer when we sell bonds.”

The state achieved $739.3 million in present value savings on the March 4 $2.3 billion GO deal, of which $2.04 billion was a refunding, Schaefer said. The refinancing reduced the interest rates to a range between 3% and 5% from 5% to 6.5%, he said.

On the $2.02 billion GO sale priced April 8, the state realized $362.8 million in present value savings by refinancing into interest rates between 3% and 5% from 5% to 5.75% on the $1.6 billion refunding portion of the deal, he said.

Ma said former Gov. Jerry Brown was really restrained in issuing bonds. She has been reviewing all the bond programs to see where there are voter-approved bonds that have not been tapped.

It is too soon to tell where his replacement, Gavin Newsom, stands on bond issuance.

“At this point, I do not perceive that Governor Newsom materially changed the way the people of California take on debt, but we have a May revise (budget proposal) coming in two weeks that may give us a better look at Newsom’s tea leaves,” Schaefer said. “Because the budget is presented in January, it has some institutionalization of the outgoing Brown administration.”

Schaefer said he doesn't think Newsom’s approach will be a significant shift from the Brown administration.

Ma has her communications director releasing information for each bond sale stating specifically which programs the bonds are funding.

Large states like California often price billion-dollar bond sales that fund dozens of bond programs under the label of general purpose.

“I think voters have the right to know how the bond measures they supported are being used,” Ma said.

She also has the finance team splitting deals into smaller transactions to give more broker-dealers the opportunity to be lead manager, and to broaden efforts to include women, minority and veteran-owned firms.

For instance, the state held two general obligation sales totaling more than $4 billion, which Ma said the finance team originally wanted to market as one deal. She wanted to split it into four sales of $1 billion. They compromised and split the deal into two transactions.

“You know in this market, they all want to be in the top seat, because that is their bragging right,” Ma said.

Ma called the broker-dealers after the sales to see how the state did and was told they were oversubscribed.

The $2.02 billion in general obligation bonds priced on April 11 were “priced and repriced for institutions” by Morgan Stanley “bumping yields across the curve,’ according to The Bond Buyer’s market report. Sales were brisk for the retail order period a day earlier and carried into institutional pricing with the deal “coming in 3-4 basis points tighter than initial talk.”

“I think we got excellent results,” Schaefer said.

He contends investors are rewarding the fiscal discipline in budgeting demonstrated by the governor and Legislature and that voters have been willing to pass bond measures and support tax increases. The state is rated Aa3, AA-minus and AA-minus by Moody’s Investors Service, Fitch Ratings and S&P Global Ratings.

The 2017 federal tax bill’s elimination of the state and local tax may have hurt individual taxpayers during filings, Schaefer said, but it also has motivated retail investors to buy municipal bonds for the tax exemption.

“The frenzied clamor for tax-exempts should maintain tight ratios and low yields through the April tax-filing season and, potentially, the summer,” said Peter Block, managing director of Ramirez, in an April 8 report. Record muni inflows are primarily driven by investor demand to replace limits on deductions for SALT imposed by the Tax Cut and Job Act of 2017, he wrote in an April 29 report.

“We have larger sales and more of them, because the treasurer is focused on the fact that while rates remain low and demand remains high, if we are going to sell bonds, this is the time to do it, so let’s get on it,” said Schaefer, referring to the dual GO sales of more than $2 billion that were mainly refundings.

As for the multiple deals for other state programs, Schaefer said infrastructure needs tend to come in what he calls “nessy waves” referring to the six bumps on the back of the Loch Ness monster.

“We build a new, insert word — highway, hospital — a new something, and it has a 20- to 40-year life, then in 30 years we have to replace it, and it comes in big bumps,” he said.