CHICAGO — Michigan officials are highlighting the state's recovery from the Great Recession as they gear up for a $990 million sale of revenue bonds, a deal that will mark the state building authority's largest borrowing to date.
Refunding bonds make up the bulk of the deal, accounting for $917 million. Another $196 million of new-money debt will be used to finance renovations and construction at 15 state-owned buildings, ranging from universities to community colleges and state agencies.
The borrowing would make up nearly a third of the authority's overall debt portfolio.
The state said it expects to see $64 million in net-present value savings from refunding fixed-rate bonds originally issued in 2005, 2006 and 2008. After the sale, all of the authority's $3 billion of debt will be organized under one master indenture from 2003.
The pricing is set for July 30. The finance team is holding investor presentations in Boston and New York next week to promote the deal. JP Morgan is senior manager and Morgan Stanley is co-senior. Robert W. Baird & Co. is the state's financial advisor.
The bonds feature a final maturity of 2050.
State officials touted Michigan's economic recovery in an Internet road show, saying the state has made a "dramatic" recovery since 2000. The state, rated between the AA-minus and AA levels, has spent the last several years trying to recover from what some dub a lost decade.
Employment has been among the many bright spots in the state's recovery, according to Jay Wortley, chief economist and director of the Office of Revenue and Tax Analysis.
Michigan's unemployment has fallen to 5.5% from 14.9% in 2009.
"Since the end of the Great Recession, Michigan's economic recovery has been very dramatic," said Wortley. "It's evident in all the key economic variables we look at, including population and personal income."
The state's economy has diversified, with the manufacturing sector falling to 14% of overall employment from 19% in 2000. The education, health services, business and professional sectors have all added jobs in the past 10 years, he said.
"The strength and growth in the economy has had positive benefits on the state's overall financial position," he said, noting that the budget stabilization fund has grown and the state's cash flow has improved.
"This improvement in our overall cash position means it's no longer necessary to borrow on a short-term basis to bolster our cash position - the last time was in fiscal 2011," he said.
Under Gov. Rick Snyder, Michigan has restructured its tax policies starting in 2011.
Broadening the base of the personal income tax has helped boost revenue to a projected $6.4 billion in 2016 from $4.7 billion in 2012. Michigan business and corporate taxes have plunged due to tax policy changes, dropping to a projected $161 million in 2016 from $1.3 billion in 2012.
The bonds are secured by rentals paid by the state and by a debt service reserve fund and insurance that covers the buildings as well as any interruption in rentals, Deborah Roberts, executive director of the building authority, said in the Internet road show.
Michigan also has a provision that requires the governor to appropriate debt-service dollars.
"Unlike appropriation credits in other states, the Legislature and future legislatures [in Michigan] are contractually obligated to appropriate sufficient amount each year to cover rentals," Roberts said. "If the line-item appropriation is for some reason not sufficient, there is an automatic appropriation from the general fund in the amount necessary."
