CHICAGO — Michigan Thursday will competitively sell $150 million of taxable general obligation bonds to finance loans to help local school districts cover their debt-service payments.
The issue marks the state’s first GO sale of the year. No additional GOs are on tap, officials said.
At $150 million, the size of the issue is larger than in the past, reflecting a greater need on the part of local school districts, according to Wayne Workman of Robert W. Baird & Co., the state’s financial adviser. The ongoing decline in property tax revenue has meant more struggling local school districts across Michigan.
The state treasurer’s office will issue the debt.
Part of Michigan’s regular school loan-fund issuance, the bonds will finance a deposit into the revolving fund.
The fund gives districts a tool to make debt service payments without having to raise property tax rates above a level set in state law.
A district with a loan must continue to levy a property tax each year to meet the limit for debt service until it has repaid the state with interest.
The state has only been forced to advance funds once to a district to avoid a bond payment default. Money repaid by the school districts is then placed in the state’s general fund.
Dickinson Wright PLLC is bond counsel.
The bonds mature from 2014 through 2023.
Standard & Poor’s rates the bonds AA-minus and Moody’s Investors Service rates them Aa2 with a stable outlook. Analysts base their ratings — which are lower than many other states — on Michigan’s general fiscal position, which has suffered what is considered the longest economic deterioration of any state.
Despite its 10-year economic struggle, Michigan has managed to maintain several positive credit features, analysts said. Among its key strengths are strong fiscal management, conservative revenue forecasts, a relatively low debt burden, and adequately funded pensions.
“Barring a renewed recession with further impacts on the domestic U.S. auto industry, Michigan’s next hurdle is one shared with other states: replacing federal stimulus funds in fiscal 2012,” Moody’s analyst Edward Hampton wrote in a report on the upcoming sale.
The state’s ability to achieve structural balance in its fiscal 2012 budget without the federal funds will be a key factor in future rating decisions, Hampton added.
After the sale, Michigan will have $4.8 billion of outstanding GO and related debt.
It is Michigan’s first GO sale of fiscal 2011. It issued $60 million of general obligation bonds in fiscal 2010 and $628.5 million in 2009, according to bond documents.
As of Dec. 31, 2001, $14.3 billion in principal amount of qualified bonds issued on behalf of local school districts was outstanding, the documents indicated.
