CHICAGO — Ohio’s effort to ensure local governments issue as many recovery zone bonds as possible before the end of the year has prompted Columbus to enter the market Tuesday to use a fresh allocation of just under $60 million.
The Ohio Department of Development, which administers the program, has been calling local governments and asking those who don’t think they will sell the bonds by the end of the year to give their allocation to the state.
The state then offers the debt to issuers eager to take advantage of the 45% federal subsidy.
Columbus’ sale will come just days after it closed what it thought would be its last new-money borrowing of 2010. But in late November Ohio officials told the triple-A rated city it could tap into two more series of recovery zone economic development bonds totaling $61 million.
Columbus officials opted to accelerate a number of capital projects to take advantage of the federal stimulus program, which will expire Dec. 31 unless it is extended by Congress.
“It’s a huge windfall for the city of Columbus,” said assistant city auditor Megan Kilgore. “If asked a month ago if we would consider another sale in December, the answer would have been no. But when the opportunity came up from the state of Ohio, we started running the numbers and it absolutely makes sense to go to market.”
Columbus will price $57.7 million of bonds, tentatively divided into four series that includes two small series of tax-exempt debt with 2014 maturities. The recovery zone bonds feature final maturities of 2029 and 2031.
Stifel, Nicolaus & Co. is senior manager. Prism Municipal Advisors LLC is the city’s financial adviser and Bricker & Eckler LLP is bond counsel.
Standard & Poor’s and Fitch Ratings affirmed their AAA ratings and stable outlooks on the city’s general obligation debt ahead of the sale. Moody’s Investors Service, which also rates the city’s GO debt Aaa, had not rated the new bonds as of Thursday afternoon.
Local counties and a handful of cities across Ohio received a total of $422.6 million of recovery zone economic development bonds at the beginning of the year as part of the American Recovery and Reinvestment Act.
The RZEDBs are taxable and issuers receive a 45% direct-pay federal subsidy to offset interest costs.
Local governments received another $633 million of recovery zone facility bonds, which are tax-exempt and similar to private activity bonds.
It’s unclear how much of the debt has been sold, because the bonds were allocated directly to the local governments and because more could still issue the debt over the next two weeks.
State officials said they are polling counties and cities now and expect to tally final numbers by early January.
“We tried very hard to keep track of what the local jurisdictions were doing so we could take the bonds that were not otherwise going to be used and identify projects in the state that could use them,” said Candace Jones, chief legal counsel and ethics officer for the Department of Development.
Like officials from other states, Jones said the program initially confused some local governments. Many are not used to entering the debt markets, and some of the allocations were so small — in the hundreds of thousands of dollars — that it wouldn’t make sense to issue them as bonds.