Selling the idea of buying bonds

State Treasurer Bill Lockyer is about to launch the first campaign urging people to Buy California.

No, the state’s top money man isn’t referring to locally grown corn or nectarines at state-sponsored farmers markets but to $5,000 lots of tax-free California municipal bonds that will finance the construction of highways, bridges, schools and other public works for decades to come.

On June 11, the treasurer’s office plans to kick off a pilot radio and print advertising drive in the well-heeled regions around Santa Barbara and the San Francisco Bay Area to persuade individual investors to purchase pieces of the Golden State.

“Now you have a chance to be a part of California history. Invest in California bonds and you will be investing in California’s future, and yours as well,” reads a prototype newspaper ad.

The ad touts a website -- buycaliforniabonds.com -- that will give potential investors information on how to get in early on the sale of $2.5 billion in state general obligation bonds the week of June 18.

Of course, many Californians already own tax-free bonds issued by the state or its municipalities, either individually or via mutual funds. The bonds’ main appeal, particularly to people in the upper tax brackets, is that the interest they pay is exempt from state and federal income taxes.

But Lockyer believes the debt offering could attract more individual buyers. In the state’s last general-obligation bond sale, individuals accounted for 7% of purchases. By contrast, in New York City, they typically buy 25% to 30% of new bond issues, Lockyer says.

The ad campaign, if it generated a substantial increase in individual purchases, would be “good for the state, good for the investor and good for the taxpayer,” Lockyer said in an interview.

The treasurer’s office hopes that a jump in sales to individuals, who tend to hold on to their bonds longer than institutional investors, will boost prices for California securities traded in the public markets. Higher prices could allow the state to lower the interest it pays on future debt issues.

Keeping interest costs down is crucial to balancing the state’s budget now that voters have approved more than $65 billion in borrowing to rebuild California’s crumbling infrastructure, Lockyer said. Voters are expected to approve even more debt in the coming years.

To highlight the incentives, Lockyer’s publicity campaign will remind would-be investors that the state has a long-standing policy of picking up the brokerage fees and commissions on bonds sold to individuals in new offerings. Waiving the fees could save an individual investor as much as 2% on the purchase of $5,000 worth of state bonds, the treasurer’s office said.

The state’s Buy California campaign is “great shtick,” said Joel Framson, an accountant and personal financial specialist with Silver Oak Wealth Advisors in Westwood. “I think it’s a great idea to be promoting them. We’re in the modern era, and in today’s marketplace, everything is competitive.”

Framson and other independent advisors caution that prospective investors might seek professional help to decide whether state bonds are a good fit in a risk-balanced portfolio.

Ralph Bovitz, a Woodland Hills CPA, wouldn’t advise clients against buying California bonds if they want to support the state’s building program. But “in terms of buying a slew of them, it would have to be in the context of their own portfolio and how it is designed,” he said.

Californians ought to be boosters when it comes to tax-free bonds, said Ross DeVol, director of regional economics at the Milken Institute in Santa Monica. “We eat our own fruits and vegetables. Why not buy California bonds?” he said. “Why not pay ourselves interest at the same time we build more schools, levees, highways and ports?”

marc.lifsher@latimes.com