Maine plans to issue $116.8 million of general obligation bonds through competitive bid, the first time the state will sell long-term debt competitively since 1990.
The transaction includes $40.5 million of Series 2011A taxable bonds and $76.3 million of Series 2011B tax-exempt bonds. The taxable portion will mature in 2012, 2013 and 2014, while the tax-exempt bonds will mature annually from 2012 through 2021, according to the preliminary official statement. By law, Maine’s borrowing must amortize over 10 years.
The state typically sells GO debt annually but this will be the first competitive GO deal since 1990 as officials are looking to achieve a lower cost of borrowing.
Treasurer Bruce Poliquin said the state may issue bonds in the future via competitive bid depending on what happens this week.
“What we’re trying to do is be successful with the sale — and we have every reason to believe that we will be — but at the same time we want to minimize the costs for the taxpayers and also make sure that we maximize transparency,” Poliquin said in an telephone interview. “And we feel that this is the best way to do it.”
Edwards Angell Palmer & Dodge LLP is bond counsel and Public Financial Management Inc. is financial adviser.
Standard & Poor’s rates the Series 2011A and 2011B bonds AA with a negative outlook. Moody’s Investors Service rates the transaction Aa2 with a stable outlook.
Maine had $470.3 million of GO bonds outstanding as of April 30, according to deputy treasurer Barbara Raths. That amount includes $337.4 million of general fund bonds and $132.8 million of highway bonds. While the 10-year maturity schedule may attract retail buyers, officials anticipate the taxable component will appeal to institutional investors.
“Maine does sell a lot of retail, but [there are] firms that are looking for bonds for their retail buyers, as well as institutional — we’ve got that big taxable piece,” Raths said.
Bond proceeds will help pay down $69 million of notes that will mature later this month and reimburse the state for spending allocated to capital projects. Overall, the bond sale will help support highway infrastructure, rail road improvements, and research and development projects, among other capital needs, Raths said.
Both Moody’s and Standard & Poor’s note the state’s limited liquidity and shortfalls in its unreserved general fund as credit challenges. Internal cash borrowing helps the state avoid issuing short-term debt, a plus for the credit.
“We could lower the rating if there are further significant declines in the state’s liquidity positions,” S&P said in a May 20 report. “However, Maine began to rebuild its stabilization fund in fiscal 2010, and officials project improved liquidity and financial results for fiscal 2011.”
Lawmakers are working on a fiscal 2012-13 biennial budget. To help balance it, Gov. Paul LePage, a Republican, proposes cuts in pension spending, local aid, and health and human services programs. The pension reforms include freezing cost-of-living adjustments for three years and capping them at 2% per year, increasing employee contributions by 2%, and increasing the retirement age for non-vested employees to 65 from 62.
Administration officials anticipate the pension changes would generate a combined $470 million of savings in fiscal 2012 and fiscal 2013, according to Standard & Poor’s.
The budget plan also includes reducing the income tax rate for the state’s highest earners to 7.95% from 8.5%.
Poliquin said the state is looking “to reduce the cost and complexity of doing business in the state. We think that given our tremendous advantages in our quality of life and our natural-resource base that we’ll be able to attract entrepreneurs to invest capital in the state, create businesses, and create jobs so we can keep our young folks here.”