DALLAS — As New Mexico's legislature nears completion of a budget, the state plans to raise about $140 million for state universities and other programs through the competitive sale of general obligation bonds on March 19.
With short maturities through 2023, the bonds carry ratings of Aaa from Moody's Investment Service and AA-plus from Standard & Poor's. Moody's has a negative outlook on New Mexico based on the state's relatively high dependence on federal employment and contracting. Fitch Ratings does not rate the issue.
"With the market conditions as they are right now and the state's credit ratings, we expect very competitive bidding," said Stephanie Schardin Clarke, director of New Mexico State Board of Finance.
This year's issue is comparable to previous GO deals from the state, which generally come every two years, Clarke said. The largest issue recently was $196 million in 2009.
Proceeds from the sale will fund senior citizen centers, libraries and improvements for universities and colleges.
With this deal, the board will have $375 million of GO bonds outstanding, Clarke said. The legislature has authorized up to $550 million outstanding, but the policy is to keep issuance at a level that will keep the state tax rate flat, she said.
Total GO debt is limited to 1% of net taxable value and requires voter approval. New Mexico's total GO debt outstanding, including the series 2013 bonds, will represent 0.8% of taxable value, according to Clarke. The state amortizes all GO debt and severance tax debt over what Standard & Poor's considers a "very rapid 10 years."
Amortization of principal on all governmental tax-supported debt, including transportation debt, appropriation secured debt, and state loans in NMFA's public project revolving fund, is rapid with 84% of principal retired within 10 years.
Gov. Susana Martinez's fiscal 2014 budget recommendation projects that fiscal 2013 will end with a $629.4 million reserve level, or 11.1% of recurring appropriations. The $5.9 billion budget would end with $605 million reserve, or 10.3%, which is close to the state's informal 10% target.
The legislature is scheduled to complete its session by Saturday.
The Senate Finance Committee voted 8-0 in favor of the $5.9 billion budget, which would add $6.5 million to the budget legislation approved by the House last month. The measure will be debated before the full Senate this week before being returned to the House for final approval.
The state has an informal target of maintaining a 5% minimum reserve level during the year. The fiscal 2013 budget does not give Martinez the power to make unilateral midyear budget cuts if necessary, something that was written into previous budgets during the last recession.
The 2014 budget recommendation is based on a consensus revenue forecast showing a 3.9% increase in recurring revenues and 2.8% growth overall.
"While we've succeeded in putting our financial house back in order, we face serious challenges that require us to budget cautiously and invest in growing our economy," Martinez, a Republican, said in presenting her budget. "Our national economy is stagnant, small business owners are facing tremendous uncertainty, and federal budget cuts continue to threaten jobs in New Mexico. Now more than ever, we must focus intently on competing for private sector jobs, preparing our students to graduate from high school and join the workforce or succeed in college, and ensuring that our kids can read so that they can succeed in life."
The federal budget sequester is expected to hit New Mexico hard and includes about 7,000 civilian Department of Defense employee furloughs, reducing gross pay by around $42 million in total, according to government estimates.
While this bond sale is not coming through the New Mexico Finance Authority, that agency is mentioned in the New Mexico GOs' preliminary official statement because of the authority's faked audit scandal.
The phony 2011 financial audit came to light in July, just as the NMFA Oversight Committee of the legislature began its interim work between legislative sessions. NMFA's high bond ratings were not, ultimately, affected by the incident.
Similar concerns over the state's bond ratings came up in meetings of the Investments and Pensions Oversight Committee. The panel sought to shore up the state's pension and retiree health care funds, whose unfunded liabilities might have affected the state's bond ratings as well.
The NMFA, which issues bonds on behalf of local governments, did produce an audit for the 2011 fiscal year on Feb. 22 2013, which showed that no money was missing, but board members were shaken by the fact that a former controller was able to deceive them. Former NMFA controller Gregory Campbell pleaded guilty to one count of forgery in a plea bargain with prosecutors last year.
A bill in the current legislature would change the composition of the 11-member NMFA board, eliminating three cabinet secretaries as board members. The measure cleared the Senate on Monday and goes to the House.
Ratings analysts did not mention the NMFA in reports for the upcoming state GO deal, but did note flaws in the state's comprehensive annual financial report or CAFR. Moody's analyst Kenneth Kurtz wrote that New Mexico's financial reporting "lacks characteristics of typical Aaa-rated states."
The financial statements in New Mexico's CAFR are not audited by an independent auditing firm but only "reviewed," which indicates a substantially lower standard of verification. "In addition, the CAFRs have not always been released on a timely basis," Kurtz added. "The fiscal year 2011 CAFR was not released until June 2012, 12 months after the end of the fiscal year. The 2012 CAFR has not yet been released."
Despite the scandal that halted several bond issues, the New Mexico Finance Authority remained the state's largest-volume bond issuer in 2012 with two deals worth $244.7 million.