CHICAGO - Missouri will begin tapping about $300 million in borrowing authority when its sells $60 million of high-grade special obligation bonds Tuesday for renovations to the state capitol and other state and university building projects.
The competitive issue will sell through the state's Board of Public Buildings. Columbia Capital Management LLC is advising the state and Gilmore & Bell PC and Fields & Brown LLC are co-bond counsel.
Proceeds will help finance $78 million of state building projects including state parks. It will also help cover the $75 million price tag for state capitol building and annex renovations, and $161 million for public university projects.
The state plans to tap all its borrowing authority for the various programs in three phases, returning to the market over the next two years to use its authority. The state also anticipates returning to the market next year with about $106 million to raise to complete financing of a new mental health corrections facility.
"We do not expect that the additional planned debt issues will materially increase the state's debt levels," Standard & Poor's said.
The state is also backing a public financing package for a new St. Louis Rams football stadium but it's not yet been finalized, the rating agency noted.
Ahead of the sale, all three major rating agencies affirmed the state's triple-A general obligation ratings and the one-notch-lower special obligation ratings that reflect appropriation risk.
Gov. Jay Nixon boasted of the affirmations that come after the state's adoption of a $26 billion fiscal 2016 budget. "Year after year, our bipartisan work to maintain a balanced budget and make smart investments pays off as Missouri's AAA credit rating is reaffirmed," Nixon said. "The dividends from these efforts come back to Missouri taxpayers in the form of continued low interest rates and reduced principal, which will save millions in the years ahead."
Fitch Ratings said the ratings reflect the state's long record of conservative operations and its consistent "willingness and ability to support fiscal balance, even after incorporating recent tax changes and a revenue shortfall in fiscal 2014."
Missouri ended fiscal 2015 with $543 million in its reserve and a $278 million ending balance, which combined represent 9.4% of net general revenues.
The state's debt levels are considered low and its pension obligations are funded at 68% with the state making payments at an actuarially-recommended level. Overall, the state has $3.7 billion of tax-supported debt, much of it tied to transportation borrowing. The state has about $671 million of outstanding appropriation-backed debt and about $266 million of GOs.
One of the state's biggest credit risk is its ability to accommodate previously approved tax cuts that take effect in the coming years. "How Missouri plans to balance its budget through a recent income tax reduction that will incrementally reduce revenues by 6% over five years beginning in fiscal 2017 will be a key rating consideration going forward," Moody's Investors Service wrote.
The state must experience $150 million in revenue growth in the prior fiscal year for each phase of the tax cut to take effect which rating agencies say provides some measure of protection against unforeseen revenue weakness, but it would not help should a rapid decline occur. Once fully phased in, the annual impact is expected to total $620 million.
Nixon has raised concerns over the statutory ambiguity of the tax cut legislation pushed through by the Legislature's Republican majority. He is concerned that as written, the state can't collect taxes on any income over $9,000, which would result in a loss of $4.8 billion. He's also worried any attempt to enact a change now would be subject to voter approval. Lawmakers have dismissed those worries and no legal challenge has been filed.
"We believe it's possible that lawmakers will address the differing interpretations before that. To the extent any follow-up legislative or judicial responses to the measure lead to a significant loss of revenue for the state, we could lower the rating if it were not offset by other corrective measures," Standard & Poor's wrote.