CHICAGO - The Iowa treasurer's office expects to issue as soon as early June $635 million of revenue bonds to support a revised $750 million infrastructure program promoted by Gov. Chet Culver to kick-start the state's economy.
The legislature was poised on Friday to pass a compromise package, so Treasurer Michael Fitzgerald cautioned that the final borrowing plans are subject to change if lawmakers make any significant alterations in order to win approval. The state would follow up this June's sale with another $115 million of bonding to finance approved projects.
The treasurer's office earlier this month named Barclays Capital as senior manager on the transaction after a request for proposals process, and Dorsey & Whitney LLP as bond counsel. Public Financial Management Inc. is the office's financial adviser on the transaction. Additional members of the underwriting team will be named in the coming weeks.
This year's transaction will be secured by gaming revenues and carry a backup pledge of liquor taxes. The secondary pledge is needed as voters weigh in on the continuation of state gaming every 10 years. The state will also tack on a moral obligation pledge. The $117 million transaction planned for June 2010 will be secured by an appropriation pledge.
"We expect ratings one to two notches below our general obligation rating," Fitzgerald said.
Iowa does not issue stand-alone GOs, but it carries a Aa1 issuer rating from Moody's Investors Service, an implied GO rating of AA-plus from Fitch Ratings, and a AAA from Standard & Poor's.
The bond deal has been on a fast track even as officials awaited legislative approval because the program it will finance is geared towards much-needed flood relief and shovel-ready projects that are expected to create jobs in the struggling economy. Bond proceeds will fund various building projects, grants to local governments to fund sewer and water quality projects, flood recovery, and flood prevention projects.
Some lawmakers had initially expressed skepticism over how much the state could afford to borrow, but last week the Democratic legislative leadership and Democratic governor agreed to a compromise package that limited the level of borrowing earmarked for road and bridge projects.
The governor had originally wanted $250 million for such projects, but he agreed to just $100 million. Culver was willing to lower the amount given the increased federal funds in the stimulus program available for transportation projects.
Lawmakers instead wanted more than the $150 million Culver proposed to go towards flood recovery efforts. Local governments - like Iowa City, Coralville, and Cedar Rapids - are depending on state revenues as they continue to recover from the devastating floods of last spring.
"I think it's a victory for the people of Iowa, especially the thousands who are looking for jobs," Culver said. "I really feel good about the fact this will not only speed up flood recovery efforts and create jobs, but allow our state to work our way out of this recession."
Lawmakers and Culver have yet to reach agreement on a final budget. Culver earlier this year proposed a $6.23 billion budget for fiscal 2010. Under the plan, the state will use $56 million in the current fiscal year and $200 million in the next budget from its reserves to fund disaster relief.
Iowa enjoys reserves of $600 million, including $444 million in a cash balance from last year and $148 million in its rainy-day fund. It would end fiscal 2010 with $380 million in reserves under Culver's budget proposal.
Total revenue in the current fiscal year and next year is expected to fall below fiscal 2008 levels. The latest revenue estimates showed a $137 million decline for the current fiscal year and $26 million in the next budget. Corporate income taxes will show the steepest percentage decrease this year of 15.9% and next year of 6.8%.