Reuters reports that 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.
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, http://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…
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