CHICAGO — Ohio is set to come to market Tuesday morning with $300 million of new-money general obligation bonds for capital improvements to its higher-education facilities.

The borrowing is scheduled for the day that Gov. John Kasich plans to unveil budget legislation that is expected to feature an income-tax cut that reportedly could cost the state up to $600 million a year.

Ohio brings the deal during a supply-heavy week dominated by junk bonds from Puerto Rico, also selling Tuesday. California is expected to bring $1.6 billion to market Thursday and Chicago and the New York Dormitory Authority are also on the calendar.

It's expected to be the biggest week of issuance so far this year. But Ohio's not feeling any heat, said the state's assistant debt manager, Larry Scurlock.

"We don't have any concerns about competing supply for our GOs," Scurlock said. "Our financial advisors are advising us it's not any kind of issue."

Public Financial Management Inc. is the state's financial advisor. Benesch, Friedlander, Coplan & Aronoff LLP is bond counsel.

The deal features $300 million of GO bonds issued by the Ohio Public Facilities Commission. The bonds mature through 2034, with debt service rising from $8.8 million in 2015 to $22.6 million in 2034.

It's the state's first sale of higher education GO bonds since April 2012. The authorization is left over from the 2012-2013 capital bill, which totaled $403 million for higher-education institutions.

Kasich and state officials are in the midst of crafting a new capital budget. Like the last one, the new spending plan relies on the institutions themselves working together to decide which projects should be funded.

The three major ratings agencies affirmed their high double-A ratings on the Buckeye State ahead of this week's deal. Analysts praised Ohio for strong management, an economy that continues to rebound from the recent recession, and moderate debt.

"The AA-plus rating reflects what we view as Ohio's long track record of proactive financial and budget management, including its implementation of frequent and timely budget adjustments over time to mitigate lower revenues," Standard & Poor's analyst Robin Prunty said in a statement.

Challenges include an economy still vulnerable to challenges, especially in the manufacturing sector, and lack of certain best financial management practices, according to Moody's Investors Service, which rates the state Aa1.

Separately, Kasich will introduce a budget bill Tuesday as part of his mid-biennium review.

It's the second time the governor has proposed budget reforms to adjust to the middle of a two-year budget period. The state budget director and other cabinet members will testify about the legislation Wednesday before the House Ways and Means Committee, according to budget spokesman Dave Penard.

Details as of Monday remained scarce, but Kasich hinted during his state of the state address a few weeks ago that he would introduce an across-the-board income tax cut that would bring the top rate under 5%.

The top marginal rate under current state law is 5.333% effective in 2015.

The lost revenue would be offset, at least in part, by increases in the oil and gas severance tax and a tobacco tax.

Ohio is undergoing a small boom in its oil and gas production, thanks largely to fracking in the Utica shale field. Production of natural gas and oil more than doubled in 2013, according to a recent report from the Ohio Oil and Gas Association.

 

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