CHICAGO — With its triple-A general obligation ratings intact, Missouri will take competitive bids next week on $146 million of special obligation refunding bonds to generate present-value savings and to complete a restructuring aimed at providing budgetary relief in fiscal 2012 and 2013.
The Missouri Board of Public Buildings is the issuer of the current refunding bonds that will sell on Tuesday.
The refunding will generate roughly 12% in net present-value savings, according to Stacy Neal, director of accounting in the state’s Office of Administration. “Because interest rates are volatile that number is moving around a little,” she said Wednesday.
The bonds are rated one notch below the state’s top GO marks due to the need for a legislative appropriation.
The issue will also wrap a two-pronged debt restructuring approved by lawmakers that pushes off debt service payments coming due over the next two fiscal years. The restructurings will save $26 million in fiscal 2012 and another $7.5 million in fiscal 2013.
The first restructuring, for $75 million, occurred earlier this year. The fiscal 2012 budget doesn’t authorize any other new borrowing by the state, which is a rare issuer.
“We are very excited about accomplishing the present-value savings and the budgetary relief,” Neal said. “The restructuring is just a small piece” and so the state was not penalized for the one-shot by the rating agencies.
In June, Gov. Jay Nixon signed into law a $23 billion budget after cutting $172 million from the plan approved by lawmakers in order to keep spending in line with expected revenue and to set aside funds for recent weather-related disasters.
Even though Nixon is a Democrat and the Legislature is controlled by Republicans, the state’s spring session generally was smooth. The budget is based on a 4% increase in revenue and holds general fund spending at $7.9 billion. The plan eliminates 863 positions and makes permanent $217 million in spending reductions.
Ahead of the refunding, all three major rating agencies affirmed Missouri’s top ratings on $500 million of outstanding GO debt, with ratings one notch lower on $790 million of appropriation and special obligation bonds.
Another $3.3 billion of outstanding revenue bonds were issued through the state highway commission and backed by various transportation-related fees and taxes.
The rating “reflects conservative financial operations, a debt burden at the lower end of the moderate range, and a broad and diverse economy,” Fitch Ratings analysts wrote. “The state has a long history of maintaining fiscal balance through spending restraint.”
Missouri benefits from a budget reserve that provides liquidity. The account is equal to 7.5% of net general revenue. It currently totals about $500 million.
The state closed out fiscal 2011 with an ending cash balance of $379 million, up from $184 million a year earlier. Another positive is the state’s constitutional ability to withhold spending in response to revenue shortfalls and an adequately funded pension system at 80%.
The state’s annual pension payment meets the annually required contribution level to fully fund the system, and in fiscal 2011 employees were required to begin making a 4% contribution to their retirement funds.
Missouri also raised the retirement age. The reforms are expected to save $78 million annually by fiscal 2020 and $400 million over the next eight years, according to Moody’s Investors Service.
The state’s unfunded non-pension health care liability was $1.6 billion in fiscal 2010.
It requires an ARC payment of $125 million, but the state in fiscal 2010 paid just $18 million.
“The Missouri economy’s greatest strength is its diversity, in our view, due in part to the state’s location at the geographic center of the nation, which gives it an economic advantage in trade and manufacturing,” according to Standard & Poor’s.
Credit challenges include a limited ability to raise revenue without voter approval because of the Hancock Amendment and economic exposure to a shaky manufacturing sector.
Missouri’s economic recovery is expected to lag the nation even as it turned the corner in fiscal 2011 after two years of revenue declines.
Nixon touted the ratings affirmations in a statement this week as recognition of his stewardship.
“We’ve maintained tight financial discipline, balanced our budget, and laid the groundwork for our economy to keep moving forward,” he said.
The sale comes amid an ongoing special session that began earlier this week on various economic development, tax-credit reform and job creation measures. Savings from the tax-credit reforms would help pay for the job creation package.
Some elected officials had expected the agenda to include a financing package to pay for severe weather-related damage earlier this year, including the May 22 tornado in Joplin, but Nixon said damage assessments were still underway.
While Nixon wants to provide up to $150 million in disaster aid by cutting other spending, some lawmakers are pushing for the state to draw down its reserves.
The Missouri Constitution allows the state to use half of its reserve fund for disasters, though it must be repaid in three years.
Columbia Capital Management is advising the state on the sale and Gilmore & Bell PC is bond counsel.
