November 5, 2008 / 8:29 PM / in 11 years

Massachusetts sells debt as voters keep income tax

NEW YORK, Nov 5 (Reuters) - A Massachusetts authority on Wednesday came to market with a $357 million sale of bonds, which it had delayed in October, after Massachusetts voters on Tuesday voted against abolishing the income tax.

The Massachusetts Bay Authority had decided to wait until voters decided whether to keep or kill the state income tax.

With voters deciding against abolishing the income tax by a 69 percent to 31 percent margin, according to unofficial results reported by the Boston Globe, the authority was free to sell the debt. It was priced with a top yield of 5.35 percent in the 2034 maturity with a 5.25 percent coupon.

While the authority sells revenue bonds and not general obligations which are tied more directly to the state budget, repealing the income tax would have made tax-free debt less attractive.

That could have disrupted financing for all the state, county, city, hospital and other entities that rely on the municipal market’s low interest rates to pay for their operations and projects.

Democratic Gov Deval Patrick and other politicians had repeatedly warned that abolishing the income tax would have had a catastrophic effect on the state finances.

Massachusetts gets about $12.5 billion of revenue from the income tax, nearly half its $28 billion budget. This is the second time voters defeated plans to roll back the income tax.

The 5.3 percent Massachusetts income tax rate is in the mid-range of income tax rates charged by other states. Only seven states, Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming, do not levy this tax, according to the Tax Foundation, a think tank in Washington, D.C. (Reporting by Joan Gralla; Editing by Chizu Nomiyama)

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