CHICAGO — Wisconsin is prepping more than $500 million of general obligation bonds for sale this summer beginning with a competitive $255 million new-money deal Wednesday.
The state will follow up with a roughly $200 million GO refunding and another $100 million in new-money floating-rate GOs for sale over the summer.
The state has in the past experimented with call dates shorter than the traditional 10-year feature, and with its issue Wednesday it will use two separate calls: a six-year and an eight-year. The bonds also feature 16-year final maturity, shorter than Michigan typically uses.
The bonds mature serially between 2016 and 2031.
The state polled underwriters that typically bid on its competitive GO transactions and none had concerns about submitting one bid on a deal with two separate call features, said David Erdman, assistant capital finance director.
The bidding is being conducted through i-Deal LLC’s PARITY system.
“The bonds we’ve sold with shorter calls have been priced favorably for the state with the benefit being pricing the bonds lower on the yield curve,” according to Wisconsin capital finance director Kevin Taylor.
Acacia Financial Group Inc. is advising the state and Foley & Lardner LLP is bond counsel.
Proceeds will finance various projects across the state approved by the Public Building Commission.
The state will follow up the sale with about $100 million of floating-rate new money late this summer.
All of the new-money issuance was approved by the commission at its June meeting.
The $200 million of GO refunding bonds for present-value savings could come as early as late July, although Taylor cautioned that the final size is not yet set.
RBC Capital Markets is senior manager.
Loop Capital Markets LLC, Robert W. Baird & Co., PNC Capital Markets, and Bank of America Merrill Lynch round out the underwriting team.
Wisconsin $8 billion of GOs carry mid-double-A ratings from Fitch Ratings, Moody’s Investors Service, Standard & Poor’s, and Kroll Bond Rating Agency.
Kroll, affirming its AA rating ahead of Wednesday’s deal, said the credit’s strengths stem from the strong security provisions of the state’s GO pledge, a fully funded pension system, and increased budgetary discipline that has resulted in the decreased use of one-time revenues to balance the books.
Available cash balances also provide good liquidity.
Gov. Scott Walker erased $3 billion in red ink in his first biennial budget with deep cuts.
The structural spending changes helped drive a projected $1 billion surplus in the current two budget cycle that runs through June 30, 2015.
Walker and his fellow Republicans who control the Legislature tapped about $540 million for a tax cut package approved in March.
The plan cuts property taxes and reduces income taxes through changes in withholding.
It leaves about $100 million in the general fund that was to have gone into the state’s rainy-day fund. The state currently has $279.3 million in its budget stabilization fund.
Democrats wanted more of the surplus to go to pay down debt, reimburse schools and local governments for past cuts, and to bolster state reserves as a $660 million structural shortfall is projected in the next budget cycle.
Kroll said a key credit concern is uncertainty raised in the current two-year budget cycle by the tax cuts given they are funded by increased revenue projections through June 30 next year.
Other credit concerns include a moderately high debt burden, and a long term general fund gap based on generally accepted accounting principles of $1.7 billion.
Growth in modest reserves is also dependent on revenue performance as transfers to the state’s reserve known as the budget stabilization fund are “solely dependent on growth in revenues over projections.”
The Legislative Fiscal Bureau’s January revenue report projected that the state general fund would end with a $832 million surplus this year and $977 million in fiscal 2015.
As part of the tax cut legislation, lawmakers also approved suspending the automatic transfer of 50% of excess general fund revenues to reserves for fiscal 2014 and 2015.
The latest fiscal estimates from the Legislature’s Joint Committee on Finance in May project a gross fund balance of $724 million for fiscal 2014 which ended June 30 and $165 million in fiscal 2015. The changes reflect income tax withholding rates.
“The stable outlook reflects KBRA’s expectation that the state will continue to maintain fiscal discipline and balance future biennium budgets largely with recurring revenues,” Kroll wrote.
“The outlook also reflects the expectation that economic growth will continue at a rate to support the current FY 2014-FY 2015 budget and future budgets,” it noted.
The Joint Committee on Finance also reported that general fund tax revenues were expected to total $14.2 billion for fiscal 2014 and $14.7 billion for 2015, down $171 million and $302 million, respectively, from prior estimates.
In affirming its rating, Moody’s said the Aa2 rating reflects the state’s “improving budgetary performance, an improved liquidity position highlighted by the availability of up to $1.8 billion in alternate-fund liquidity, as well as a fully funded pension system and limited OPEB liability.” It also reflects the state’s below average balance sheet position.
"The state's fiscal position coming into fiscal 2014 was stronger than it had been in recent history," said Standard & Poor's analyst Gabriel Petek. "The state's recently enacted tax reductions reduce its capacity to absorb weaker-than-expected revenue performance, but current economic and revenue projections indicate adequate fiscal performance through the remainder of the 2013-2015 biennium."
Wisconsin has released a report on its implied rate subsidy for its retiree health insurance program that shows an unfunded other post employment benefits liability of $943 million. “The state’s debt profile compares more favorably to other states if unfunded pension liabilities are also considered, because many states have relatively low debt but very large unfunded pension liabilities,” Moody’s said.
Standard & Poor’s affirmed its AA rating but a report was not yet published Tuesday afternoon. Fitch Ratings, which most recently rated Wisconsin AA, had not yet released a new report.
Walker is seeking a second term and faces Democratic challenger Mary Burke in the November contest.
Burke is a former secretary of the state Commerce Department and a businesswoman who helped expand the Waterloo, Wisconsin, company founded by her father that makes Trek bicycles.
