Coronavirus kept lottery players home, so Oregon delays bond sale

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A COVID-19-driven decline in lottery revenue led Oregon to postpone a $302 million bond sale.

The state needs to wait to sell lottery revenue bonds, according to Oregon Treasurer Tobias Read.

Due to the pandemic, “Projected 2019-21 lottery revenues are down approximately $364 million, or about 24% compared to the March 2020 forecast, and will remain lower than previously projected for the 2021-23 biennium,” said he wrote in a June 19 letter to Gov. Kate Brown and state lawmakers.

A decline in state lottery revenue means a lottery revenue bond sale had to come off the calendar, said Oregon State Treasurer Tobias Read.

“As a result, the state will not be able to complete the planned sale of $302 million of lottery revenue bonds in the spring of 2021 as we no longer meet the additional bonds test required by the lottery bond indenture, which requires 4-times revenue to debt service coverage,” Read continued. “Even without the planned 2021 sale, we now project that the lottery debt service coverage ratio will only be at 3.1 in FY2021.”

“Assuming lottery revenues and the lottery bond debt service coverage ratio improve at the pace projected by [the Office of Economic Analysis] in the June 2020 Economic and Revenue Forecast, it may be possible to sell lottery bonds in late FY 2022 for at least a portion of the projects originally slated to be financed in the spring of 2021, with the balance of projects financed in FY2023,” Read said.

The money was to be used for 37 projects in 2021.

"When the restrictions on bars and restaurants were enacted in order to slow the spread of COVID-19, the Oregon Lottery followed suit by turning off the video lottery terminals at retailers statewide. This resulted in essentially no sales for a seven or eight week time period," according to a revenue outlook released by the state's Office of Economic Analysis.

On a different note, Read told Brown that General Fund debt capacity remains “strong.” The state can still finance all $946 million in legislatively authorized projects during the state’s two year budget biennium and up to $200 million in additional projects while remaining within the state’s debt policy commission’s recommended 5% target ratio for debt service to General Fund level.

However, the amount of debt service available in the biennium running from July 1, 2021 to June 30, 2023 “will be substantially affected by our target limit, with only an estimated $305-505 million available in the next biennium,” Read said.

Read went on suggest that the state may want to consider exceeding the 5% guideline given the low interest rate environment and great economic needs.

Finally, Read recommended the governor not issue bonds to fund operating expenses.

Oregon’s senior debt is rated Aa1 by Moody’s Investors Service, AA-plus by S&P Global Ratings, and AA-plus by Fitch Ratings.

In June Moody’s highlighted the state’s large reserves of cash as one of its credit strengths. It said that the technology and “active start-up culture” could lead to quick resumption of economic growth.

In June S&P cited the state’s “demonstrated” willingness to make revenue and expenditure adjustments as a factor for its rating.

Also in June, Fitch pointed to the state’s strong economy until the virus hit, which led to strong personal income tax revenues. Along with Moody’s, it said the state had moderate long-term liabilities.

According to Moody’s, as of 2019 Oregon had $8.5 billion in debt outstanding.

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