CHICAGO — Minnesota enters the market next week with a small but rare revenue issue for refunding savings. It plans to return on Aug. 7 with $658 million of new-money general obligation bonds to pay for statewide building and transportation projects.
The state will take competitive bids Tuesday on $21 million of Minnesota retirement system building revenue bonds that will refund debt sold in 2000. Kennedy & Graven is bond counsel and Public Financial Management Inc. is financial adviser.
The securities are special obligations of the state payable from separate semiannual payments made from each of the retirement systems and drawn from employer and employee pension payments.
Fitch Ratings rates the bonds AAA, one notch above the state’s GO rating, as they benefit from “enormous coverage on the small amount of debt that is provided from pension contributions as well as the magnitude of the available system assets that could be tapped if needed,” the agency’s report said.
Standard & Poor’s rates the bonds AAA but hasn’t released a new report.
In the event the systems do not make their semiannual payments, the Minnesota Management and Budget commissioner has the power to decertify investments for deposit to the debt service fund. Debt service is included in the retirement systems’ administrative expenses and payment is required under law.
The 2000 bonds are the only outstanding debt under the credit and the state has no additional borrowing plans. The refunding will also shave five years off the maturity schedule, with the debt fully retired in 2025.
The original bonds financed construction of a new office building and adjoining parking facility to house the state’s three major retirement systems, the Minnesota State Retirement System, the Public Employees Retirement Association and the Teachers Retirement Association.
Minnesota’s competitive GO sale will offer a $422 million series of various-purpose bonds, $234 million of trunk highway bonds that are repaid with transportation taxes and fees but carry a full-faith-and- credit pledge, and a $2.5 million taxable series. Kutak Rock LLP is bond counsel and Public Resources Advisory Group is financial adviser.
Proceeds will finance various projects included in annual capital budgets. Gov. Mark Dayton this past spring signed the state’s latest program — a $566 million package. Top state finance officials, including debt manager Kristin Hanson, met with rating agencies this week.
A budget stalemate and the heavy use of one-time revenues to erase red ink in the state’s $35 billion biennial budget approved last year drove a round of downgrades. Standard & Poor’s lowered its rating a notch to AA-plus. Moody’s Investors Service revised its outlook on Minnesota’s Aa1 rating to negative. Fitch downgraded the state’s $6 billion of GOs to AA-plus from AAA.
With its economy on the mend, Minnesota finance officials announced last week that revenues for fiscal 2012 ending June 30 were $336 million more than predicted when the annual February forecast was released.
While economic indicators suggest the state’s economy has stabilized, the February forecast still projects a $1.1 billion deficit in the 2014-15 biennium.
“This is good news, but it doesn’t mean that the state’s financial problems have gone away. A lot of the additional revenue came from one-time sources,” MMB commissioner Jim Schowalter said.
The state has two future bond issues in the works. The state filed a lawsuit in April asking the Minnesota Supreme Court to validate its ability to use an appropriation pledge. If validated, the state would refund by the end of the year its $790 million tobacco issue from 2011, trading in a backing of tobacco company payments for an appropriation pledge. A court hearing is set for Aug. 21.
Legislation signed earlier this year by Dayton authorizes the issuance of up to $498 million of state appropriation bonds for a new Minnesota Vikings football stadium.
The state would repay its $348 million share of the costs for the project with new revenue from expanded gambling. The city of Minneapolis would repay about $150 million of the debt beginning in 2021. The timing of the sale has not been set.