While last week's California warrants deal caused a stir because of the market discount rule, the state averted a similar problem with today's $3 billion note deal with help yesterday from the U.S. Treasury Department. (See related news story).
The state controller's office last week adjusted the payment schedule on its $4 billion of revenue anticipation warrants after it was discovered that they could be subject to possible taxation under the market discount rule should interest rates rise. The Internal Revenue Service requires that securities pay interest once a year or be considered original issue discount bonds. California corrected the problem by adding an additional interest payment.