CHICAGO — Columbus, Ohio, is taking its annual summer trip into the market this week, offering investors $330 million of high-grade paper to raise money for capital projects.
The bonds are set to sell competitively on July 30. Bricker & Eckler LLP is bond counsel and Prism Municipal Advisors LLC is financial advisor.
Carrying top marks from all three major rating agencies, the bonds will likely stand above any market volatility from troubled credits like Chicago or Puerto Rico, market participants said.
The city heads into a midsummer market where trading activity is relatively quiet, said Robert Miller, senior portfolio manager at Wells Capital Management.
"The summer in muniland gets pretty darn slow in terms of trading volume; there's a reduction in dealers and the liquidity is down," Miller said.
"There's news about Chicago and pensions, but none of that is going to affect Columbus at all," he said. "It's gilt-edged. There's been a lot of high-grade issuance out of Texas lately, and this is a different name. I don't see any problems for them getting it done."
Columbus comes to market nearly every summer to drum up money for various capital projects across the city. Every three or four years, the city asks, and, since 1985 has always won, permission from voters to issue general obligation bonds, the most recent being a November 2013 authorization for $842 million.
Columbus has enjoyed a strong recovery from the 2008 recession, and its downtown is in the midst of building boom. The downtown area has seen nearly $2 billion in new public and private investment in the last 10 years, with a "tremendous pipeline of projects over the next five-year horizon," according to 2015 budget documents. The new deal will finance improvements to the city's streets, parks and public utilities.
The Ohio State University, the city's largest employer, is in the midst of its largest construction project to date, and the Nationwide Children's Hospital is undergoing a significant expansion. Columbus also has a new casino near downtown, one of four in the state that opened in 2013.
Franklin County's convention authority recently bought the Nationwide Arena, where the National Hockey League Blue Jackets play, and Columbus has pledged a piece of its casino revenue to help pay for the purchase. The arena is in the Nationwide Arena District, a 75-acre district and $800 million project that includes office, retail, entertainment and residential space.
"The socio-economic indicators around Columbus are quite strong right now," said Megan Kilgore, assistant city auditor. "It's a combination of the economy coming back at a very regular pace and the long-term projects that are going now going live and bringing significant levels of new jobs."
The city's proposed capital improvement plan totals $2.4 billion through 2020, according to bond documents. Columbus plans to issue roughly $900 million over the next two years.
On this week's deal, officials opted for a competitive sale in part because it's a fairly simple transaction, Kilgore said.
"If it's a complicated deal with several series, it behooves us to take a look at a negotiated sale," she said. "But we like to have a competitive sale every once in a while because it gives us a comfort in knowing what the baseline is in the market."
The deal features four series: $230.6 million of unlimited-tax GO bonds; $74.6 million of limited-tax GO bonds; $13.6 million of limited-tax, federally taxable GO bonds; and $14.5 million limited-tax notes.
All the bonds carry triple-A ratings from Standard & Poor's, Moody's Investors Service and Fitch Ratings. Moody's rates the notes MIG-1, its top short-term rating.
Proceeds from the notes will refund notes originally issued in 2014 to finance construction of downtown parking garages.
The city's unlimited-tax general obligation bonds carry a full faith and credit pledge and a pledge of its ad valorem tax without limitation with the LTGO ad valorem pledge restricted to a 10-mill limitation.
But the city instead dedicates one-fourth of its 2.5% income tax to pay debt service on its GO debt. City officials tout their long-standing promise to voters that if they authorize new borrowings, the city will repay the debt entirely from the income tax. Columbus has not levied a property tax for debt service since 1957.
The city raised its income tax rate to 2.5% in 2009 from 2%, a 25% increase that analysts said made a material difference to the city's fiscal position and offset some of the risks associated with relying on the economically sensitive revenue source.
Like most Ohio cities, Columbus relies heavily on income taxes for its general fund. In the city's case, income taxes make up more than 75% of the general fund, with property tax revenue accounting for less than 6%.
Ohio Gov. John Kasich, who is running for president as a GOP contender, recently signed into law a $71 billion two-year budget. Local government advocates complain that the budget continues the years-long trend of cutting local government aid.
State revenues made up less than 4% of Columbus' general fund at the end of fiscal 2014, or $29.4 million. That's down from $49.5 million in 2010, according to bond documents.
"We have weathered every cut the state has made," Kilgore said. "We try and predict what we can, and we are hyper-aware of the continuing effects of the state cuts but we believe we have very favorable conditions right now to weather them."
Ratings agencies ahead of the deal praised the city's effort to rebuild its rainy-day fund, which it was forced to tap post-2008. The city has a goal of replenishing the fund to $75 million by the end of 2018. As of the end of 2014, the fund had $64 million.
Analysts warned that the city's debt is somewhat elevated and may continue to increase in the near term. But all of the debt will be paid either from the income tax or enterprise funds, and the city's conservative debt policies mitigate risks tied to the debt burden.
The city provides pensions and retiree health care through two state-sponsored pension plans. Moody's calculates the city's three-year net pension liability at $3.1 billion.
The city's 2014 contribution to the state plans covering pensions and retiree health care totaled 10.6% of its operating revenue. The city has negotiated a few reforms with its unions and the state Legislature in 2014 enacted its own reforms that should provide some relief for local governments, Moody's said.
"The stable outlook reflects the expectation that the city's long-term economic and financial health will continue given the diversity of the employers and tax payers as well as management's demonstrated commitment and policies to support operations and repayment of debt, offsetting the risks associated with a dependence on volatile income taxes," Moody's said in its report.
Columbus has $2.6 billion of outstanding general obligation bonds and roughly $1.4 billion of revenue bonds for a total of $4 billion. It expects to issue another roughly $1 billion through 2017, including GO and revenue bonds.
A piece of the city's unlimited-tax general obligation bonds with a 5% coupon and a 2024 maturity yielded 2.26% in trading on July 20, according to EMMA. A chunk of limited-tax GO bonds with a 5% coupon and 2020 maturity were yielding 1.56% in mid-June trading.
