April 22, 2009 / 1:58 AM / 10 years ago

San Diego schools sell first U.S. tax credit debt

NEW YORK (Reuters) - California’s San Diego school system on Tuesday sold the nation’s first new bonds that pay investors a tax credit but no interest, one of its financial advisers said.

Congress included $22 billion of this new kind of debt to help build and upgrade schools over the next two years in its economic stimulus plan.

But many states and agencies have instead leaped on another part of the plan, the Build America Bond program, because the issuers of this taxable debt get partial federal interest rate subsidies.

With the new tax credit bonds, the San Diego Unified School District will not pay interest on its $38 million of new debt because it succeeded in pricing it at par, or 100 cents on the dollar, explained Los Angeles-based Jason Richter, of Gardner, Underwood & Bacon, the financial advisers, by telephone.

The quarterly tax credits investors receive would work out to 7.98 percent if the debt were sold on Monday. The U.S. Treasury calculates that rate each day on its web site, www.treasurydirect.gov. The tax credit is fixed for the life of the bond, Richter explained.

San Diego students will get new technology more quickly because not having to pay interest allowed the school system to sell an extra $20 million in debt.

James Masias, the district’s chief financial officer, said: “What we’re essentially going to be able to do is bring on line more quickly a lot of technology projects,” including offering pupils handheld devices, laptops, and audio visual aids.

San Diego’s schools on Tuesday also began selling $131 million in conventional tax-exempt debt to individual investors. The maturities range from 2012, which offers a 2.57 percent yield to 2033, which yields 6.30 percent, according to a preliminary pricing scale.

Retail buyers placed $54 million of orders of those bonds; the remainder will be offered to institutional investors on Wednesday, a day ahead of schedule, said Richter.

Reporting by Joan Gralla, editing by Jeffrey Benkoe and Carol Bishopric

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