BRADENTON, Fla. — The Louisiana State Bond Commission has approved a plan to defease $210 million of state general obligation bonds to provide the state with cash flow relief in the fiscal 2015 budget.
The plan, which will free up $210 million to fund other programs, received final unanimous approval at the commission's June 19 meeting.
The state will defease certain GOs maturing in the next fiscal year using non-recurring revenues from 2014, including $152.8 million from the state general fund's fiscal 2013 surplus and $20.1 million of surplus from prior years.
Other sources include $7.4 million from other revenues in the general fund, $4.5 million in fees and self-generated revenues from the state Attorney General's office from the National Mortgage Settlement Agreement, and $25 million from over-collections and other, unspecified, non-recurring sources.
The non-recurring funds will be used to buy Treasuries that will be placed into escrow to pay principal and interest on the $210 million of bonds maturing July 1, 2014 through June 30, 2015, according to state documents.
By defeasing the bonds, the debt will no longer be secured by the full faith and credit of the state, and no longer a liability on the balance sheet.
The state Attorney General said the procedure is legal in an opinion provided to the Bond Commission last month.
State Treasurer John Kennedy, chairman of the commission, opposed the maneuver and said that using non-recurring revenue to pay debt service would leave the state $210 million "in the hole" in fiscal 2016.
After the so-called prepayment, the state will resume debt payments on remaining maturities of the obligations in 2016.
GO debt service will drop to $150.017 million from $359.956 million in fiscal 2015 after the defeasance.
In fiscal 2016, debt service will rise to $342.416 million, according to state documents.
Surplus funds cannot be used to address an operational deficit, which the state is facing, Commission member Rep. Joel Robideaux, R-Lafayette, said last month.
"By doing this we are freeing up this year's debt service to use in next year's [operating] budget," he said. "I'm being told the constitution allows for it."
Louisiana's fiscal year begins July 1.
Lamont Financial Services is the commission's financial advisor. Foley & Judell LLP is bond counsel for the defeasance.
