Use it or lose it. New Jersey’s Treasury Department plans to prod agencies into using an existing $1 billion of various general obligation bond funds, or the state may use them to help pay down GO debt or possibly meet other costs.
The Treasury Department is looking for a financial adviser to craft a GO debt defeasance plan that could help the state reduce its costs. Responses to the request for proposals are due Aug. 20. The contract will extend for one year, and the state will have the option to renew the agreement for another year.
The financial adviser will “review and assist in the development and preparation of all documents necessary to pay existing GO debt service with excess bond proceeds or to redeem outstanding GO bonds that mature in future fiscal years (fiscal year 2012 and beyond),” according to the RFP.
Treasury officials are looking to use the $1 billion of GO bond funds in a more effective way rather than letting them sit idle.
The department intends to motivate agencies to use their bond proceeds to get programs and capital projects moving throughout the state.
Any funds that agencies do not plan on using — due to changes in programs or canceled projects — might go towards GO debt defeasance or to pay for expenditures currently supported by taxes and fees, according to Treasury spokesman Andy Pratt.
Officials will need to analyze state bond acts and bond agreements in order to see how they can utilize any unused bond funds and proceeds.
“There are dozen of bond acts involved with this that over the years have been approved by the voters and they are very restrictive,” Pratt said. “And so it’s not at all certain how you can use this money, if it can be used in a more constructive fashion than it is now, but we’re going to try.”
Options include paying down existing GO debt or using unused bond funds for general fund expenditures that are tied to taxes or fees.
“If there’s money that can be used to pay for things that are now being paid for by general fund tax revenue or fees, we will use the bond proceeds for that — but all of this is very speculative,” Pratt said.
New Jersey has $33.8 billion of outstanding debt, including $2.5 billion of GOs, as of June 30, 2009, according to the state’s 2009 debt report.
Debt service costs take up $2.5 billion of the $29.4 billion fiscal 2011 budget, with $224.7 million paying for GO principal and interest costs. Fiscal 2011 began July 1.
Officials are also working on a GO debt-restructuring deal set to price in mid- to late September with Morgan Stanley as senior manager.
The state is looking to reduce debt-service costs in the current budget by $175 million from the GO restructuring by pushing those costs into future years.
Officials have already reduced fiscal 2011 debt-service payments by $208 million in prior debt-restructuring deals. The goal is to achieve $410 million of total debt-service savings this year.
Fitch Ratings and Standard & Poor’s both rate New Jersey AA, while Moody’s Investors Service rates the credit an equivalent Aa2.
