The Massachusetts School Building Authority Wednesday will issue $151 million of taxable qualified school construction bonds secured by a subordinate lien on dedicated sales tax revenue.
To help finance new school buildings, renovations, and upgrades to its public schools, Massachusetts dedicates a portion of its 6.25% sales tax to the authority, with that allocation phased in over time. In fiscal 2011, which begins July 1, the agency will receive the full penny of its one-cent pledge from every 6.25 cents of sales tax revenue. The state anticipates allocating $618 million to the MSBA in fiscal 2011, 4.5% below fiscal 2009 levels, according to Standard & Poor’s.
The taxable QSCB program, part of the American Recovery and Reinvestment Act, offers issuers a 100% federal subsidy on interest costs. Massachusetts’ QSCB borrowing capacity is $291 million for 2009 and 2010, which the authority will issue in two sales, according to spokeswoman Emily Mahlman.
This is the MSBA’s first subordinate-lien borrowing. It has $4.3 billion of outstanding senior-lien bonds, Mahlman said.
Moody’s Investors Service rates the Series 2010A subordinate bonds Aa2. Standard & Poor’s and Fitch Ratings each assign AA ratings to the transaction. Moody’s rates the senior bonds Aa1. Standard & Poor’s and Fitch each rate the senior debt AA-plus.
Barclays Capital is the book-runner on the Series 2010A bonds. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC is bond counsel. There is no outside financial adviser.
Instead of serial maturities for the Series 2010A bonds, the MSBA will pay $8.8 million annually from 2010 through 2026 into a sinking fund, according to the preliminary official statement. The sinking fund balance will be fully funded 11 months before the final maturity in 2027, Mahlman said.
The authority also anticipates selling, in November or December, $140 million of Series 2010B bonds in its second QSCB deal. Officials expect to issue the Series 2010B bonds under a subordinate lien.
Mahlman said the authority has no plans to issue taxable qualified zone academy bonds and there are no refinancing opportunities, at this time, on prior MSBA debt.
While Massachusetts’ sales tax receipts declined in fiscal 2010 for the third year in a row, that revenue stream has an average annual growth rate of 6% over the past 45 years, according to Standard & Poor’s.
Voters in November’s general election could opt to reduce the sales tax to 3% from the current 6.25% if an initiative receives the required 11,099 signatures from certified voters by June 23 and wins a place on the ballot. The Center for Small Government is gathering the needed signatures.
Another initiative, organized by a separate group, would eliminate the sales tax on beer, wine, and hard alcohol. If voters were to support both plans, it would cost the state an estimated $1 billion in fiscal 2011 and $2.61 billion in fiscal 2012.
