Bond sale a plus for state

Finance: Results of latest sale provide rare bit of good news – estimated $3.7 million savings

July 29, 2010 

State Treasurer Jim McIntire reported Wednesday that his latest bond sale was so favorable for taxpayers it saves $3.7 million in debt payments over the next year, giving budget writers a rare speck of good news in a troubled budget cycle.

“This is real money,” McIntire said in an e-mail. “It is no different than an improvement in the state revenue forecast, an increase in tax collections or a substantial cost reduction.”

State budget director Marty Brown of the Office of Financial Management said the savings are $3.7 million in 2009-11 for the state’s general fund. That fund is expected to fall more than $300 million in the hole if federal medical and welfare aid is not delivered by Congress this year.

General-fund savings from Wednesday’s sale are $8.4 million for 2011-13 and they grow to $64.1 million over the life of the bonds, which vary in maturity dates up to 25 years.

McIntire said his office has used the relatively new federal Build America Bonds program and favorable interest rates to save the state about $647 million in long-term debt costs since he took office in January 2009. Those savings include $51.8 million in the ongoing budget cycle and larger savings in the future.

The Build America program did not exist for the Democratic treasurer’s predecessor, Michael Murphy. It uses direct subsidies to borrowing governments for 35 percent of interest costs. McIntire describes it as a second way — in addition to allowing tax-exempt bonds — that the federal government is able to subsidize state and local governments’ costs for borrowing to make investments in roads, schools and other infrastructure.

Of the savings that he claims, McIntire said $415 million is for financing of highway projects, which rely on gasoline taxes. This has let the state’s transportation leaders move about $415 million further down their list of projects than they would have been able to do — in effect getting more projects for the same dollar they had expected to spend, McIntire said.

The Treasurer’s Office said in a news release the overall savings since 2009 could allow another $230 million in capital projects. But that depends on lawmakers’ choosing to put the expected savings into new projects rather than pocketing the savings outright.

Wednesday’s sale of general-obligation bonds totaled $831 million, and the proceeds are for energy efficiency for schools, affordable housing and other investments. It saves about $21.6 million that had been budgeted long-term for the new debt and another $42.4 million on refinanced debt.

The Treasurer’s Office said Barclay’s Capital, Inc., was winning bidder for $347 million at an interest rate of 4.206 percent. Citigroup Global Markets Inc. was low bidder at 2.977 percent for $118 million in bonds, and J.P. Morgan Securities Inc. was low bidder at 2.629 percent for $366 million in bonds.

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