DALLAS – Arkansas will issue a solitary $496.5 million tranche of general obligation bonds for highway projects in September, down from an initial projection of $1.3 billion of new debt over 10 years for the effort.
The 10-year bonds are tentatively set for competitive sale on Sept. 10 under a financial plan adopted Tuesday by the Arkansas Highway Commission.
The bonds are supported by a 0.5% increase in the state sales tax for 10 years, approved as a constitutional amendment by voters in November 2012.
Collections of the additional tax began July 1. The tax will expire in June 2024.
The September sale should be the only debt needed to complete the program, said Dennis Hunt of Stephens Inc., the state’s financial advisor.
“It’s a cash flow situation,” Hunt said. “We’ve worked with the project managers and engineers to develop a financial plan that matches the construction schedule of the road projects with cash flow from the tax over the next 10 years.”
Proceeds from the September sale will cover the initial costs of the Connect Arkansas Program of four-lane highways, Hunt said, with projects in the later years funded with annual tax collections.
The newly adopted financial plan is more realistic than issuing several tranches of GO, Hunt said.
“That would require selling $300 million to $400 million every three years or so,” he said. “You cannot complete $400 million of highway projects every four years.”
The $1.3 billion of bonds that was projected when voters approved the tax increase last year was based on available capacity, Hunt said.
“That’s the amount of new debt that the tax would support,” he said. “The estimate was not based on the construction schedule of the program.”
More tax revenue will flow to projects rather than paying debt service, Hunt said.
“The commissioners were pleased,” he said. “The plan they adopted will divert fewer tax dollars to debt service and more to projects.”
The 0.5% sales will generate $1.45 billion for the state highway department over the next decade and another $626 million for city and county road projects.
The state’s 70% share of total collections in fiscal 2014 is estimated at $158 million. Retailers began collecting the tax July 1, but it won’t be show up as state revenue until August.
Revenue in fiscal 2015, with 12 full months of collections, is estimated at $169 million. Collections are expected to increase 3% each year thereafter.
Arkansas GO bonds are rated Aa1 by Moody’s Investors Service and AA by Standard & Poor’s.