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Louisiana Splits Up Road Bonds

DALLAS — Louisiana will sell up to $350 million of highway improvement revenue bonds over several years, rather than in a single issue as had been proposed by Treasurer John Kennedy and approved by the State Bond Commission.

Instead of a single tranche, the state will issue the bonds over three years to finance the projects developed by the Department of Transportation and Development.

The negotiated sale had been scheduled for later this week, but will be delayed until the Bond Commission can approve the new structure. Proceeds from the road bonds are earmarked for upgrades and maintenance on state roads in rural parishes that are not eligible for federal matching funds. The commission approved a single-sale structure on Oct. 18 for up to $350 million of the rural road bonds.

The revised proposal calls for annual sales of $100 million in the first two years of the program, with a final tranche of $125 million in the third year. The bonds are rated AA-minus by Standard & Poor’s and Fitch and an equivalent Aa3 by Moody’s Investors Service.

Kennedy, who has been pushing for an early single sale of the bonds, said he was surprised by the change in the sales schedule.

“The state should borrow all the money now and lock in low interest rates,” he said. “If interest rates go up over the next three, and I think they will, we will lose money and we will lose road projects.”

Transportation Secretary Sherri LeBas announced the shift in a Jan. 18 e-mail, but Kennedy said he did not learn of it until contacted by a reporter Monday. It would be a mistake to borrow money now to pay for road projects over three years, she said.

“Because borrowing costs are higher than expected and interest rates are predicted to stay low, it does not make good fiscal sense for the state to borrow more money than is needed,” LeBas added.

Officials from the Department of Administration and DOTD will be summoned to the commission in February to provide details behind the schedule change, Kennedy said. “It doesn’t make sense to me,” he said. “But I’m willing to listen.”

The decision to revert to the original plan for three annual sales was based on economics, said Commissioner of Administration Kristy Nichols. “It comes down to this: it costs money to borrow money. The more we borrow the more it costs.”

The state saves when it only borrows the money it needs when it needs it, Nichols said. “The current sale requires an interest payment this year and a full debt service payment in fiscal 2014 for the full three years of projects,” she said. “We’re now looking to reduce the amount of borrowing to the first year projects and restructure the sale to save the state money.”

The 20-year bonds will be backed by the revenue from fees and taxes on commercial trucks and trailers deposited into the State Highway Improvement Fund.

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