Massachusetts delays sale due income tax doubts

NEW YORK—Underwriters put off until the Nov. 4 elections or later a $350 million offering of Massachusetts Bay Transportation Authority assessment bonds planned for sale this week, a municipal market syndicate source said Friday.

Massachusetts voters will vote on a proposal to first halve and then abolish the personal income tax by January 2010, and financial analysts say the Commonwealth cannot afford to lose this important source of revenue. Massachusetts receives about $12.5 billion of its revenue from this tax, nearly half its $28 billion budget.

If the income tax proposal is defeated, it would remove uncertainty clouding the state's finances.

While the authority that delayed the debt sale would sell revenue bonds and not general obligations, which are tied much more directly to the state budget, repealing the tax would give investors less incentive to buy tax-free debt.

That could disrupt financing for all the state, county, city, hospital and other entities that rely on this market's low-interest rates to pay for their operations and projects.

Muni bond traders have been closely following the income tax debate and the decision to delay the bond sale was one of the first repercussions in the $2.7 trillion muni market.

However, Massachusetts voters do not wish to end the income tax, according to some recent surveys.

For example, 59 percent of voters oppose the ballot question and 26 percent support it, according to an Oct. 20-22 survey by Boston-based Suffolk University/7 NEWS.

The poll found 14 percent of voters were undecided, with a margin of error of plus or minus 4.9 percent.

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.

The Massachusetts bond sale, underwritten by JPMorgan Chase , was among a flurry of deals scheduled to debut this week that were welcomed as signs that a drought of new primary offering might be ending. (Reporting by Caryn Trokie and Joan Gralla; Editing by Dan Grebler) REUTERS