DALLAS – The Louisiana State Bond Commission set up an executive committee Thursday to find a solution to a dwindling capital outlay account without busting the cap on state tax-supported debt.
The executive committee will consist of Gov. Bobby Jindal or his representatives, Treasurer John Kennedy, top legislative leaders, and other government officials.
Formation of the committee was requested by Director Whit Kling, who said the escrow account that funds state capital outlay projects authorized by lawmakers will run out in five months if it is not replenished with bond proceeds.
But Louisiana’s ability to issue general obligation bonds is hampered by a constitutional provision that caps annual debt service at 6% of the anticipated revenues during the fiscal year, Kling said.
Debt service in fiscal 2014 is estimated at $554 million, leaving only $51 million in capacity from expected revenues of $10.1 billion.
Projects are put onto the capital outlay list each year, Kling said, and financed through state lines of credit. When the projects are completed, the state replenishes the escrow account with bond proceeds.
Without an infusion from a bond sale, Kling said, the $283 million in the escrow fund will be depleted in the next five months at the current draw-down rate of $58 million a month
“We have a liquidity issue with the escrow account,” he said. “The lines of credit are IOUs against the bond proceeds.”
Authorized expenditures for capital outlays exceed bond sales by more than $1.1 billion, Kling said.
A total of $3.9 billion in projects have been put onto the capital outlay list of bond-financed projects since fiscal 1999, Kling said, but bond sales have totaled $2.8 billion.
State GO bond sales were capped at $200 million a year in 1992, with annual increases based on inflation.
Some short-term relief could be provided by a proposed $150 million GO bond issue in fiscal 2013, Kling said, which would allow the development of a long-term solution.
“We have the capacity to issue debt that will buy us time for a full work out of this situation,” he said.
A long-term plan of action on the capital outlay debt is needed soon, Kennedy said.
“We can look at this until we’re blue in the face,” he said. “If we don’t do something, we’re going to have a huge problem.”
Louisiana’s net state tax-supported debt totaled $6.15 billion on Dec. 31, 2012, Kling said, with $4.2 billion of associated interest and other costs. Per capita state debt rose to $1,336 in 2012, up $18 from the end of 2011.
Preliminary approval was given to extending a call provision on $170 million of state gas and fuel tax bonds held by Citi to a new call date of 2023 from the original 2016 date.
Citi asked for the extension on the 2006 bonds, and offered a $10 million payment. Kennedy asked for reconsideration to a $12 million payment, which was accepted. All other terms and structures will remain in place.