L.A. County Looks Abroad for Investors

Los Angeles County is exploring the possibility of raising as much as $500 million from European and Asian investors this year, which would make it the first U.S. municipality to borrow overseas.

County Treasurer Richard B. Dixon was in London last week investigating the Eurobond market as part of an effort to probe alternative methods of financing amid the likelihood that tax reform will limit or raise the costs of issuing tax-exempt municipal bonds.

Los Angeles County, the largest issuer of tax-exempt municipal bonds among counties, became the first state or local government to issue taxable bonds last November through a $50-million offering.

Other municipalities may follow suit and also investigate taxable financing, both overseas and domestically, bond experts said.

“In cases where tax reform shuts certain issues out of the tax-exempt market, municipalities will try other sources,” said George D. Friedlander, manager of municipal bond research for Smith Barney, Harris Upham.

“But it is not going to be anything like an explosion,” he added.

Taxable bonds would be attractive because counties are not limited in how much they can earn by investing money raised from them. But the use of taxable issues generally will require municipalities to pay higher interest rates than tax-exempt issues.

And some nations, such as Japan, restrict investment in U.S. and other foreign securities.

Sandra Tracey, Los Angeles County’s senior assistant treasurer, said a decision on whether to tap the Eurobond market could come later this year after the limits on tax-exempt financing to be contained in an eventual tax reform plan are clarified. The county also needs to know when such limits would take effect.

The $500 million that the county is considering raising overseas is needed to help offset $2.7 billion in unfunded liabilities in the county’s public employees pension plan, Tracey said.

The House tax-reform bill bars such tax-exempt issues unless they were closed by last September, she said.

The county’s overall borrowing needs this year will total about $1 billion, Tracey said.