Maine goes to market today with its annual general obligation debt offering as the ink dries on a conservative 2010-2011 budget that closed a $440 million gap.

The budget, which was signed by Gov. John Baldacci last week, also closed a $129 million gap that had opened up in the current fiscal year as revenues declined.

The bonds will be marketed to retail investors as $105.9 million of tax-exempt debt and $24.8 million of taxable debt.

In recent years the state has relied on retail sales to sell its bonds, and this time around is no different.

"The last two or three years we have entirely or nearly entirely sold out retail," said state Treasurer David Lemoine. "We've been able to rely on Maine investors."

He did not, however, rule out an institutional pricing. Lemoine said the state will look at how investors receive the deal today to decide whether to extend the retail order period or to go after institutional investors.

"This year is a different year, and we're in the market," he said.

Citi is to lead manage the sale of the bonds with maturities out to 2019. Maine has long gone on the shorter end of maturities, with 10-year bonds.

"It's the way it has always been done," Lemoine said.

Holding bonds to 10-year maturities is a conservative approach that limits how much a state can leverage its financial operations, said Municipal Market Advisors managing director Matt Fabian.

"The state is preserving some flexibility to sell longer debt later if they really need to do so," Fabian said in an e-mail. "Also, by focusing on individuals, the state is raising cash from buy-and-hold investors that are unlikely to sell later."

However, the state is forgoing the opportunity to sell long-dated paper at prices that are currently "extremely aggressive," he said, and without long-term bullet maturities it is reducing its bonds' secondary market liquidity.

"This means that Maine primary market underwritings will have less influence on broad market pricing, and so they attract less interest from both buyers and sellers," Fabian said.

Edwards Angell Palmer & Dodge LLP is bond counsel, and Public Financial Management Inc. is financial adviser.

The state is to use the bond proceeds to fund capital projects and to take out bond anticipation notes.

Maine has sold $788.8 million of GO bonds in the past 10 years, including $104.1 million last year, according to Thomson Reuters. The state has $453 million of GOs outstanding.

In a sign of how the recession has hit state revenues, the state plans to return to selling tax anticipation notes in fiscal 2010 and could bring the notes to market during calendar 2009. During previous episodes of pressure on state finances, it borrowed annually for cash-flow purposes, selling a single Tan issue in each of the four years from 2002 through 2005.

The state's $5.8 billion operating budget for the 2010-2011 biennium is the first in 30 years to be less than the previous budget, which was $6.3 billion. The budget includes 20 days of furloughs over two years for state employees and requires state employees to contribute to their health-care premiums.

"Today's circumstances place demands on the Legislature that we haven't seen in generations," Baldacci said in a press release. The budget "asks state workers to do more with less, to sacrifice pay and benefits. It asks counties and towns to stretch resources more, and make do with a small state subsidy."

The state will not be able to provide the same level of services that people have come to expect, but the budget "meets Maine's obligations," Baldacci said.

The state had built up reserves since the last recession, but this budget depletes the reserves, using $116 million out of the rainy day and working capital reserve funds.

"It's performing as designed, helping us work through a challenging period," Lemoine said.

Moody's Investors Service analyst Nicole Johnson said that tapping its reserves "doesn't give them a lot of flexibility in the event that revenues don't improve quickly. On the other hand they've taken actions on the spending side to address their budget shortfall without any big tax increases."

"Many states are doing a lot of one-time actions, so Maine is not alone in that regard," Johnson said. "They're putting the federal stimulus money into their budget, and we're seeing that in a lot of states."

Like many states, however, Maine has not said how it would fill the stimulus money gap once it is no longer available, she said.

"They did take a lot of action on the spending side, so that creates recurring savings that will help," she said.

Moody's rates the bonds Aa3 with stable outlook, and Standard & Poor's rates them AA with a stable outlook. Fitch Ratings rates Maine's outstanding GO bonds AA.

The state's borrowing plans, which the Legislature must consider separately and which require voter approval, were not included in the budget. Baldacci has proposed a $306.2 million bond package, of which $265.8 million would appear on the November ballot and $40.4 million on the June 2010 ballot. The package includes $127.8 million for transportation projects, $67.5 million for energy-related projects and building improvements, $67.5 million for research grants and economic development and $43.4 million for clean water and environmental projects.

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