Vol. 1, No. 6, Published October 1, 2015
Debt Issuance, Investments and Treasury Activities
Debt Issuance
California State and local governments issued a total of $46.4 billion in debt during the first eight months of 2015, a 25 percent increase from the same period in 2014, when $37.2 billion in debt was issued, according to data received by the California Debt and Investment Advisory Commission (CDIAC) as of September 22.1 (See Figure 5.)
As we’ve noted in past issues of Intersections, this is probably the result of an improving economy and issuers attempting to get financing in place before the Federal Reserve raises interest rates.
A total of $2.4 billion in State and local debt issuance was reported for August 2015, a 19 percent decrease from August 2014 ($3.0 billion). (See Figure 6.)
Of the $2.4 billion issued, $2.3 billion was issued by local entities, while $102 million was issued by the State and its agencies or related entities. (See Figure 7.)
So far in 2015, the Treasurer has carried out eight different refinancings that will together save taxpayers $2.2 billion over the life of the bonds. Lower interest rates, as well as lower credit spreads, have allowed the State to refinance significant amounts of its outstanding debt, just as a homeowner might refinance their mortgage when rates decline. The State will continue to refinance its long-term debts as long as interest rates remain favorable.
For the period from August 16 through September 15, a total of $4.3 billion in debt final sale reports were received by CDIAC. (See Figure 8.) These are the top five areas of volume within the reported final debt sales:
- K-12 School Facility: $1.1 billion
- Multiple Capital Improvements, Public Works: $525 million
- College, University Facility: $524 million
- Recreation and Sports Facilities: $352 million
- Redevelopment, Multiple Purposes: $328 million
School districts represent about one-quarter of all governmental units in California. Moreover, the nature of school district finance is to rely on borrowed money to build long-term assets. As a result, when financing activity increases, the portion attributable to school facilities will tend to increase with it. We do observe, however, that refinancing activity still appears to be the primary driver of this phenomenon. See Figure 6.
1 Issuers have 21 days from sale of the debt to report issuances. Since some data is reported late, the State Treasurer's Office regularly updates monthly totals as more information becomes available.
Figure 5: Cumulative California Public Debt Issuance (In Billions)
Source: California Debt and Investment Advisory Commission
Figure 6: California Public Debt Issuance, August (In Millions)
Source: California Debt and Investment Advisory Commission
Figure 7: State* Vs. Local Debt Issuance, August (In Millions)
* State issuers include the State of California, its agencies, commissions, authorities, departments and The Student Loan Corporation.
Source: California Debt and Investment Advisory Commission
Figure 8: Total Reports of Final Sale Received
7/16/2015 Through 8/15/2015, By Purpose (In Millions)
Source: California Debt and Investment Advisory Commission
Read more about debt issued so far this year. See the calendar.
Investments
The Treasurer’s Investments Division manages the State’s excess or idle cash.
The Treasurer invests taxpayer money through the Pooled Money Investment Account (PMIA). This is a commingled pool with three primary sources of funds: the State’s general fund, special funds held by State agencies, and money deposited by cities, counties and special districts in the Local Agency Investment Fund (LAIF).
As of August 31, the PMIA balance was $67.3 billion, with an average effective yield of 0.330 percent and an average life of 216 days. (See Figure 9.) In addition, the year-to-date average PMIA balance was $66.3 billion.
The State Treasurer’s Office anticipates that the investment returns for the PMIA will continue to follow the market as shown in Figure 10.
Because these funds may be required on very short notice, the investment objectives for the PMIA are safety, liquidity and yield, in that order of importance.
The year-to-date earnings rate for the PMIA was 0.325 percent, which reflects the prudent investing of a short-term portfolio in this unprecedented low interest rate environment of the last seven years. As the Federal Reserve begins to raise interest rates, the PMIA is positioned to follow those moves.
Figure 9: Pooled Money Investment Account Stats as of August 31, 2015
Ending Portfolio
$67.3 billion (See Figure 11 for details.)
Average Workday Investment Activity
$857 million
Average Effective Yield
0.330 percent
Average Investment Life
216 days
Local Agency Investment Fund Ending Portfolio
$20 billion (2,476 participating agencies) (See Figure 12 for details.)
Read more about the Pooled Money Investment Account
Figure 10: Average Monthly Yield Comparison
August 2010 Through August 2015
Source: State Treasurer's Office
Figure 11: PMIA Portfolio Composition – 8/31/15
Source: State Treasurer's Office
Figure 12: Local Agency Investment Fund
Participation as of 8/31/15: 2,476 Agencies
Source: State Treasurer's Office
*Includes regular and trustee bond accounts.
Note: Numbers may not add up to 100 percent due to rounding. Read more about the Local Agency Investment Fund.
Centralized State Treasury System Activities
The Treasurer’s Centralized State Treasury System provides banking services for the overwhelming majority of State departments and agencies.
The system handles the flow of more than $2 trillion per year in cash funds.
During August, deposits totaled $71.7 billion, while disbursements totaled $71.6 billion. (See Figure 13.)
These amounts include all federal, State and local funds flowing through the Centralized Treasury System.
Figure 13: Deposits and Withdrawals By Month, August 2014-August 2015 (In Billions)
Source: State Treasurer's Office
The system also determines the amount of idle State funds available in the Pooled Money Investment Account for investment by the Treasurer’s Investment Division. (These investments were discussed in the Investments section and are reflected in Figure 11.)
During August, total new and rollover investments reached $10.0 billion. (See Figure 14.)
Figure 14: Total Investments By Month, August 2014-August 2015 (In Billions)
Source: State Treasurer's Office
Each day, the system also processes hundreds of thousands of State transactions - including department checks; State Controller’s Office warrants; Women, Infants, and Children (WIC) food instruments; Employment Development Department unemployment and disability checks - submitted by banks and other entities for payment.
During August, total items processed reached 5.6 million. (See Figure 15.)
Figure 15: Number of Items Processed, August 2014-August 2015 (In Millions)
Source: State Treasurer's Office