State budget makes grade – for now

As California’s teachers await the outcome of that state’s wretched budget wars, a great teaching moment – or month – may be passing them by.

How better to instruct their youngest pupils in writing, math and the basics of high finance than tracking California’s credit rating as it plunges through the alphabet?

Starting with capital A, they could advance to lower-case a, to capital B, and so on. Moody’s throws in 1, 2 or 3 to nuance its ratings; Standard & Poor’s and Fitch use plus and minus signs.

Heretofore, none of the rating agencies has used anything beyond D, for default. But this is California, so a little imagination seems in order. Why not ZZZ, signifying the state’s seeming nonchalance regarding money management.

For his part, Gov. Arnold Schwarzenegger – once a “Kindergarten Cop” – has already worked his way through I, O and U.

This is practically live-action kindergarten, but with worse behavior.

Washington, meanwhile, and maybe momentarily, can crow about Wall Street’s continued confidence in Olympia’s fiscal rectitude – if that’s the right word for a state that managed to devise a $9 billion budget deficit of its own.

Last week, State Treasurer James McIntyre auctioned three sets of bonds and was rewarded with the lowest interest rates afforded state paper in 30 years.

J.P. Morgan Securities underbid all comers in each auction, taking back to New York a total $765 million in Washington bonds.

For the biggest issue, $401.4 million in 25-year Motor Vehicle Fuel Tax General Obligation Bonds, the winning bid among the six submitted was 4.275 percent. Another 25-year set that will finance $298.8 million in higher education construction, water supply development and other projects, went for 4.43 percent.

Seven-year bonds for the Housing Trust Fund, a total of $64.9 million, were bid down to 3.003 percent (that’s out to the thousandths of a percent) in a contest among 16 bidders.

Don’t you wish you could get that many lenders interested in your car loan?

In a prepared statement, state Treasurer James McIntire attributed the successful auctions to investor satisfaction with the way Washington has handled its own budget gap.

“We have our financial house in order,” he said. “We manage and monitor our financial circumstances quite closely, and we will continue to do so.”

His spokesman, Chris McGann, says the savings to Washington taxpayers from the recent bond auction cannot be quantified because there was no estimate on what rates the bidding might bring. In the last auction, in April, only $38 million in bonds were on the block. Such small offerings are not bid as competitively as larger offerings, he says.

But, McGann says, McIntire has concluded that conducting four auctions per year, instead of two, breaks the offerings into more digestible pieces for investment bankers. The treasurer, he adds, has also had conference calls with the bankers to ease their concerns about Washington’s financial challenges.

Apparently, they are unconcerned by the amount of glass in our orderly home. Moody’s gives Washington, which has $14.7 billion in general obligation debt, an AA rating, Fitch an Aa1 rating, and S&P an AA+. Idaho is constitutionally prohibited from issuing bonds but has a “shadow” rating of AA2 from Moody’s and AA from S&P. Simply put, all those A’s signify ratings just a notch below solid gold.

Good news, but not very teachable.