A $180 Billion Program to Spur Government Spending Is Backfiring
States and cities are refinancing bonds and causing investor ire because of federal budget cuts more than a decade ago.
Illustration: Field of Study for Bloomberg Markets
In March the University of California system decided to save itself some money. Just like a homeowner with a mortgage when better rates are available, it set out to refinance some of its debt. But then things got complicated. Current bondholders staged a revolt to stop the $1 billion deal, hiring a big-name law firm that threatened a lawsuit.
The drama surrounding UC’s bond offering is part of a bigger story: the messy demise of a financing program once hailed as a way to use markets to save the US economy. The university system had issued a Build America Bond, part of a federally subsidized program to get the economy moving again in the wake of the 2008 financial crisis. Lenders had pulled back from markets, and Congress and the administration of then-President Barack Obama were looking for creative ways to finance public spending that could generate jobs while upgrading the country’s infrastructure.