CHICAGO — Minnesota is seeking underwriters for a summer sale of $50 million of revenue bonds in what is likely the final state financing needed to fund a statewide digital-radio communications system for public safety personnel.
The state is accepting proposals through March 28. Mark Ruff and Jonathan North of Ehlers are its financial advisers on the emergency system revenue bond program. Kennedy & Graven lawyers John Utley and Steve Bubul are bond counsel. The bonds are secured by a gross pledge of the 911 fees paid by telephone and cellphone users.
The state anticipates selling bonds with a 15-year term under existing legislative authority. Lawmakers authorized $62.5 million of borrowing in 2005 for the early phases of the project and approved another $186 million in 2007 for the final phases.
Minnesota so far has exhausted $188 million of the authority, including a $60 million sale in 2009. No additional bonding is expected after this year’s sale, given the availability of cash to cover remaining costs. “At this point we are in the last phases of the project,” said state debt manager Kristin Hanson.
The state first imposed the 911 fee in 1988. Landlines generated $2.3 million in 2010, up from $2.4 million in 2009, while wireless fees generated $4.3 million, up from $4.1 million in 2009. The current fee totals 80 cents but will rise to 85 cents in fiscal 2012. The state could raise the fee up to 95 cents in fiscal 2012 if needed, but there are no plans to do so. The 911 fees provide debt service coverage of at least 3.1 times.
The bonds carry a range of ratings. from a high of AA-plus from Standard & Poor’s to a low of A1 from Moody’s Investors Service. Fitch Ratings assigns a AA-minus.
The Allied Radio Matrix Emergency Response, or ARMER, system is designed to enable the state’s emergency response organizations to utilize a single, integrated, and highly structured digital-radio communications system. The project has been in the works for years. Planning and development of the first phase began in 1995 — long before the Sept. 11, 2001, terrorist attacks highlighted the need for such systems — when Minnesota formed the Metropolitan Radio Board.
Officials anticipate a summer sale, but its timing hinges on when a contentious legislative session wraps up. The state also expects to sell a large new-money issue after the session ends, but its size has not yet been determined, Hanson said. The $5 billion of GOs carry top marks from Fitch and Standard & Poor’s and a Aa1 from Moody’s. All assign stable outlooks.
Gov. Mark Dayton, a Democrat, earlier this year unveiled a $64 billion budget for the biennium that begins July 1. It raises the income tax and imposes a surcharge on top earners to deal with a $6.2 billion deficit. The governor dropped the surcharge after the February revenue forecast shaved $1.2 billion off the projected deficit.
The budget would cut higher education and health and human services. It also would save money by postponing a plan to begin repaying $1 billion of school aid that was frozen as part of the current budget. State aid to local governments would be maintained. The budget does not include any debt restructuring.
Republicans, who control the Legislature, are opposed to the income tax increase and have instead outlined areas to cut. Dayton’s proposed $1 billion capital budget — known as the bonding bill — also faces GOP opposition.
Hanson, who left Ehlers earlier this year to manage the state’s debt, called the position challenging and said her current focus has been on the budget and legislative process.
She said the proposed budget does not include a provision that would extend a measure giving the Office of Management and Budget the ability to use negotiated sales on GO issues, but that officials were still weighing their options. State law requires GOs to be sold competitively, but the office won authority during fiscal 2010 and 2011 to use negotiated sales due to market volatility following the 2008 financial crisis.
