Bond Weakling California Shows States’ Failure to Disclose Debt

Oct. 28 (Bloomberg) -- California is the world’s eighth- largest economy. Diamond Offshore Drilling Inc. is the largest U.S.-based deepwater oil driller.

The state known for its wine, Hollywood and earthquakes collected about $80 billion in taxes in the year ended June 30, compared with $3.6 billion in revenue for Houston-based Diamond. The two have similar credit ratings, and the state can rely on its taxing authority to address deficits. Still, the company got a better deal than California when each borrowed money this month.

Even though California has never defaulted on its debt, the state paid 1.5 percentage point more in interest -- a difference that translates into about $785 million in additional cost for taxpayers over the 30-year life of $1.75 billion in Build America Bonds.

California and so many of the 50 states aren’t helping themselves get a better rate, partly because they’re not requiring municipalities to file timely financial information. The disclosure that state and local governments provide to investors is in the “dark ages,” Gary Pollack, of Deutsche Bank AG’s Private Wealth Management unit in New York, said in an interview.

“The municipal bond market is the last bastion of hidden information,” said Timothy Koch, chairman of the finance department at the Moore School of Business at the University of South Carolina in Columbia.

Public officials financing in the dark in the $2.8 trillion tax-exempt bond market is costing U.S. taxpayers as much as $6 billion a year, according to data and interviews from more than a dozen states, while the worst recession since the Great Depression forces municipal governments to cut spending or raise taxes.

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