Louisiana Lawmakers Asked to Intervene in Bond Dispute

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BRADENTON, Fla. — The dispute over Louisiana's fiscal health has reached new heights, as Gov. Bobby Jindal's administration appealed to state legislators in an effort move forward with the issuance of two pending bond deals.

State Treasurer John Kennedy has refused to sign bond documents enabling Louisiana to obtain ratings and issue $475 million in general obligation refunding bonds and $200 million in new GO debt in November, said Kristy Nichols, Jindal's commissioner of administration.

"Those transactions are now being threatened by Treasurer Kennedy's refusal to sign the official statement that will allow the rating agencies to provide ratings for the bonds," Nichols wrote to lawmakers Thursday. "I ask that you join me in urging the treasurer to perform his duty as the chairman of the Bond Commission and sign the official statement."

The public dispute involves a disagreement between Nichols and Kennedy over where the state will stand when the fiscal 2014 books are closed and audited.

Nichols said the state will have a $178.5 million surplus. Kennedy said he believes there will be a $141 million deficit.

"The Division is asking me to sign a document that could violate the anti-fraud provision of the U.S. Securities and Exchange Act," Kennedy said late Thursday in response to Nichols letter. "We are working on language to try to prevent that, and we have plenty of time to do a bond issue."

The Joint Legislative Committee on the Budget delayed taking action on the issue at its meeting Oct. 17, after the state auditor's office reported there may be a year-end surplus but the amount could be subject to "adjustment" in the final audit.

After that meeting, which left the fiscal dispute up in the air until the state's audit is released in January, Kennedy told The Bond Buyer that he was trying to develop language that would allow him to sign preliminary official statements for the upcoming bond deals.

"I can't represent, and I won't represent, to potential investors in a bond deal something that isn't accurate," he said at the time. "A fairer statement for all concerned would be that there's some uncertainty as to whether we have a surplus or a deficit."

Another issue Nichols mentioned to legislators Thursday, deals with a proposal by Kennedy to use "intra-fund borrowing as an alternative to issuing bonds in November." She said that Kennedy recently claimed that at least $400 million currently is available from internal borrowing.

Nichols told lawmakers that at least half of the amount is not legally available, nor does the state have a mechanism to allow intra-fund borrowing.

"This is more make-believe by the Division of Administration," Kennedy said. "The truth is we have more than $600 million available for capital outlay projects.

"After all, the Division says we have a budget surplus," he added.

Kennedy raised the possibility of interfund borrowing at the Bond Commission's Oct. 16 meeting when the commission considered approving the $200 million new-money GO issuance. He urged officials then to establish the mechanism to borrow internally to fund capital, and avoid paying interest costs if possible.

While staff indicated that work would be done to establish an interfund borrowing program, the commission voted to move forward with the bond sale.

In her letter to lawmakers, Nichols also said that if the bonds are not sold in November that the state could run out of money to start work "on hundreds of approved projects," while other projects already under way would be "in danger of being frozen in January."

She also said timing is of the essence. The state's financial advisor recommends against bringing deals to market in December because rating agencies will be "awaiting the state's 2014 audit and will need the first half of January to review" it, Nichols said.

"It is possible funding in the capital outlay account will run out before a January sale date," she added.

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