CHICAGO — In a deal that debuts expanded disclosure about its pension obligations, Missouri will take competitive bids Tuesday on $76.9 million of refunding certificates of participation with the savings aimed at providing budgetary relief.
The certificates carry a state appropriation pledge and are a notch lower than Missouri’s triple-A general obligation ratings.
While the conservative state, which rarely issues new-money debt, will take most of the savings over the next two fiscal years, it also will shorten the final maturity of the refunded debt by six months. Overall, officials expect to achieve between 7% and 8% in present-value savings.
Columbia Capital Management LLC is financial adviser and Gilmore & Bell PC is bond counsel.
With the offering, the state will debut expanded pension disclosure that it scrambled to compile this month. It originally intended in a future refunding planned for September to overhaul its pension information, given the heightened regulatory scrutiny of pension funds and enforcement actions.
After the National Association of Bond Lawyers released its public-sector pension disclosure guidance earlier this month, Missouri shifted gears and decided to get additional information into the offering statement for the upcoming sale.
“We have always thought that the state provided adequate pension information in offering statements, but we had decided it was time to beef it up,” said Mark Kaiser, director of the Division of Accounting. “After the NABL recommendations, we decided to get it done sooner.”
The state has increased the number of pages devoted to pension reporting to about eight from just a few in past offering statements. The state’s primary fund is the Missouri State Employees Retirement System, which was funded at an 80% ratio as of June 30, 2010.
The disclosure section outlines the plans’ various tiers and their benefit structures, contribution levels, actuarial assumptions, and information on other smaller state retirement funds. The system smooths results over five years and assumes an annual 8.5% rate of return on investments. Under law, the state must fund the annual actuarially required contribution, or ARC, as set by its managers.
Missouri’s unfunded liability for other post-employment benefits was estimated at $1.6 billion as of June 30, 2009. The state paid $31.6 million on a pay-as-you-go basis in fiscal 2009, about $94 million short of the ARC payment. The state does not have to meet the ARC on its OPEB obligation.
Kaiser said additional changes may still be forthcoming in the next sale. NABL released its guidance in the form of a draft discussion and the National Federation of Municipal Analysts is considering the development of a pension-disclosure white paper.
The state will take bids in September on the refunding of $100 million of revenue bonds issued through the Missouri Board of Public Buildings. The deal should achieve similar present-value savings.
“With both refundings, we have significant economic savings, and so there is room to build in a little cushion for budget relief,” said Stacy Neal, assistant director in the Division of Accounting.
Ahead of the sale, all major three rating agencies affirmed the state’s top marks on $487 million of outstanding GO debt and ratings of one notch lower on $609 million of appropriation-backed bonds.
The rating is supported by a “history of excellent financial performance, strong fiscal management controls, and the state’s moderate debt burden,” Moody’s wrote. Missouri law allows lawmakers to act quickly by withholding expenditures to offset a revenue shortfall and a budget reserve provides liquidity.
Credit challenges include a limited ability to raise revenues without voter approval because of the Hancock Amendment and economic exposure to the health of the manufacturing sector.
Even though Missouri’s economic recovery is expected to lag the nation’s, it remains on pace to close out the current fiscal year with 3.6% growth in revenues after two years of declines. The state expects to close out fiscal 2011 with a $155 million surplus. The budget reserve is equal to 7.5% of net general revenues, totaling $527 million in fiscal 2011.
Lawmakers last week adopted a $23.2 billion spending plan for fiscal 2012 that closely mirrors the plan presented earlier this year by Gov. Jay Nixon. The budget is based on a 4% increase in revenues. It holds general fund spending nearly flat at $7.9 billion. K-12 spending is held steady while higher education is cut by 5.5%. The plan eliminates 863 positions and makes permanent $217 million in spending that was withheld this year.
Nixon praised lawmakers for their cooperation in passing a plan but warned there remains a small gap. “We are projecting a budget gap of at least $30 million,” he said. “I will analyze this budget in its entirety and make the expenditure restrictions necessary to make it balance.”