If you have been listening to the radio over the last couple of weeks, you may have heard commercials about “Buy California Bonds.” Although this blog primarily focuses on real estate, we are all about providing any kind of information that we think Ventura County residents might be interested in. In this post, we will define what a bond is and then talk specifically about Buy California Bonds. The information here will be very general in nature, so if you would like more details about Buy California Bonds, we invite you to check out their website.
What is a bond?
Bonds are also known as fixed-income securities and can be publicly traded on exchanges or traded over the counter. Bonds are debt investments and are similar to an I.O.U. When purchasing a bond, you are loaning money to a government agency, corporation, or other entity for a period of time at either a variable or fixed interest rate. At the end of the life of the bond, the borrower (also known as the issuer) promises to pay back the face value of the bond . In most cases, the issuer uses bonds to raise money to maintain or improve their operations or to start some kind of new project. Instead of going to a bank for a loan, they raise these funds by issuing bonds to investors. Some of the terms you will hear when discussing bonds are as follows:
Issue Price: The price that the issuer initially sells the bond for.
Face Value: The amount the issuer will pay the bond holder on the date that the bond matures.
Maturity Date: The date that the bond matures and the face value is paid to the bond holder
Coupon Rate: The interest rate the issuer pays the bond holder on the face value of the bond.
Coupon Dates: The dates that the issuer makes interest payments to the bond holder.
Types of Buy California Bonds
The state of California sells bonds to finance projects throughout the state, such as infrastructure improvements and building/improving schools, roads, and public facilities. There are several different types of bonds that California offers.
General Obligation Bond: General Obligation (GO) bonds are used by the state to “build schools, university buildings, hospitals, housing, roads, mass transit facilities, parks, water delivery systems, and other projects.” These bonds are paid to the bond holder from the State’s general funds and are backed by the full faith and credit of California.
Lease Revenue Bond: Lease Revenue Bonds (LRB) are used by California to finance public improvements. Although similar to GO bonds, LRBs are not backed by the full faith and credit of California.
State of California Revenue Bond: Revenue bonds are used to finance projects that will eventually produce income, such as universities or water projects. Once these projects start generating income, the proceeds will first go to make payments to the bond holders. State of California Revenue bonds are not backed by the full faith and credit of California.
State of California’s Revenue Anticipation Notes: Revenue Anticipation Notes (RAN) are used to help fund California’s short term needs during a fiscal year. California is required to pay the bond holder their principal plus interest at the end of the fiscal year from available state money.
Grant Anticipation Revenue Vehicle Bond: California also offers Federal Highway Grant Anticipation Revenue Vehicles (GARVEE) bonds to fund transportation infrastructure projects that the state deems as critical. The maximum term for GARVEE bonds is 12 years and they are not backed by the full faith and credit of California.
How to Buy California Bonds
According to the Buy California Bonds website, the following proposed bond sales will be occurring within the next month:
|Proposed Bond Sale||Sale Date|
|Trustees of the California State University||03-30-16|
|The Regents of the University of California||04-06-16|
|IBank – Clean Water State Revolving Fund||04-13-16|
|IBank – Infrastructure State Revolving Fund||TBD|
In order to encourage California residents to invest in their home state, Buy California Bonds is offering a Retail Order Period (ROP) where individual investors can submit orders for bonds before institutional investors get a chance to place orders. While investors from throughout the United States can buy California bonds during the ROP, California residents are given first priority before any other investors. Bonds and notes cannot be purchased from the state and must be ordered through a broker.