As New Jersey looks to defease $650 million of outstanding debt, officials yesterday added general obligation bonds to the state's list of potential candidates for debt reduction.
Gov. Jon Corzine and state Treasurer David Rousseau authorized $2.52 billion of outstanding GO bond series for possible defeasance after officials designated those bonds as potential candidates from the state's total GO debt of $2.8 billion.
Officials are working on paying down $650 million of New Jersey GO and-or state appropriation debt within the next two months in order to decrease the state's total fiscal 2009 debt service payments by $135 million. The transaction will also generate savings of roughly $130 million per year for the next four fiscal years.
The move to add outstanding GO bonds to the list of candidates follows last week's announcement that officials may pay down all or a portion of various outstanding state-backed bonds issued through the New Jersey Economic Development Authority, the New Jersey Sports and Exposition Authority, and the New Jersey Building Authority.
Officials selected the various outstanding bonds after evaluating which bond series would be most cost effective to paydown, according to Nancy Feldman, director of public finance.
"The main issue is to look at the cost of the escrow, the price of the escrow versus the expenses needed to pay for the bond," Feldman said. "So, it's a differential between the tax-exempt coupons on the bonds and the taxable rate on the escrow investment - that is the main consideration that drives the cost of the defeasance."
The GO candidates and their current outstanding balances include Series 1992 refunding bonds for $120 million, Series 1996 refunding bonds for $41 million, Series 1999 for $53 million, Series 1999 taxable bonds for $2.17 million, Series 2000 for $80.7 million, Series 2002 for $110 million, Series 2004 for $141 million, Series 2004 taxable bonds for $19.6 million, Series 2007 for $199 million, and Series 2007 taxable bonds for $37.2 million.
In addition, issuance dates of the following GO candidates could not be confirmed by press time - Series F for $225 million, Series H for $587 million, Series J for $150.8 million, Series K for $106 million, Series L for $352.7 million, Series M for $109.6 million, Series N for $185 million.
Officials need to wrap up the transaction quickly in order for the state to generate the expected savings of $135 million for the current fiscal year, which began July 1.
"We're hoping to execute the whole defeasance transaction within 30 to 60 days, and the reason is the legislation requires that we accomplish a certain amount of savings in fiscal 2009," Feldman said. "The longer we wait, the less savings in fiscal 2009."
In May, Corzine proposed creating a special debt reduction fund from $684 million of surplus revenue from prior fiscal years to help pay down New Jersey's $32 million of outstanding debt and other long-term obligations. Those include the state's pension and other-post-employment liabilities of $25 billion and $68.7 billion, respectively. Lawmakers included the initiative to retire $650 million of outstanding debt and allocate another $34 million towards infrastructure projects in the fiscal 2009 operating budget, which the governor signed into law in early July.
"I'm proud that today for the first time ever we're using budget surpluses to pay down state debt," Corzine said in a press release.
Yet whether lawmakers will choose to use any future surplus funds for defeasing bonds or addressing other long-term liabilities remains to be seen as allocating any excess revenues to the debt reduction fund is subject to annual appropriation.
New Jersey has $32 billion of total outstanding debt, including $2.8 billion of GO bonds, $9.1 billion of revenue bonds, and $20 billion of state-appropriation debt sold through authorities, agencies, and corporations.
