April 6 (Bloomberg) -- California plans to sell $3 billion to $4 billion of taxable bonds this month, including a portion backed by federal borrowing subsidies from the Obama administration’s economic stimulus plan, a state official said.

As much as $1 billion from the sale, scheduled for the week of April 13, would be used to replenish a state account that loans money for projects that don’t qualify for tax exempt status, such as stem cell research and housing. Another $1 billion would be used to directly finance such projects, while an undetermined amount would take advantage of the Obama subsidy to build public infrastructure such as roads and levees, said Tom Dresslar, spokesman for California Treasurer Bill Lockyer.

Municipal issuers taking advantage of the Obama plan, known as Build America Bonds, can get cash from the Treasury to cover 35 percent of the interest on taxable bonds sold this year and next for roads, schools, sewers and other public works. Selling taxable debt also allows California to attract pension funds and other traditional buyers of corporate debt with higher yields than comparably rated alternatives.

The bond sale is the second for California in less than four weeks. The state sold $6.54 billion of bonds March 24 in the largest U.S. tax-exempt offering in almost five years and the first for California after the state was frozen out of the municipal market amid a four-month impasse between lawmakers over how to fill a record $42 billion deficit.

California, a state that on its own would rank as the eighth-largest economy in the world, has been battered by collapsing revenue from income and consumer-spending taxes, responsible for about 80 percent of state receipts.

The magnitude of California’s deficits, and protracted battles over how to fix them, led the three major credit rating companies to cut assessments involving more than $46 billion of bonds in February and March, making California the lowest-rated state in the country.

As its fiscal problems have worsened, California has been forced to pay higher interest rates, relative to other state and local borrowers, to entice buyers. When it sold the $6.5 billion of bonds in March, it paid 3.2 percent on the notes maturing in four years, a full percentage point more than top-rated borrowers, as measured by Concord, Massachusetts-based Municipal Market Advisors Inc. benchmarks.

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net;

Last Updated: April 6, 2009 07:04 EDT