CHICAGO - Ohio next week plans to enter the market with roughly $300 million of public infrastructure bonds backed by the state's full faith and credit as part of Gov. Ted Strickland's $1.57 billion economic stimulus plan.
The sale comes as Strickland announced yesterday a second round of budget cuts and other measures to help bring down an estimated $750 million shortfall stemming from weaker-than-expected revenues and a generally soft economy throughout Ohio.
The state will open a one-day retail period Sept. 16 for the $300 million issue followed by institutional pricing Sept. 17. The issue includes $240 million in fixed-rate new money bonds and $60 million in currently callable refunding bonds that will be used for savings. Officials expect to achieve a little more than 4% present value savings in the refunding, said Kurt Kauffman, the state's debt manager.
Citi is the book-runner on the transaction, with Wachovia Bank NA as co-senior manager. Eight additional firms round out the underwriting team. Bond counsel are Calfee, Halter & Griswold LLP and Lumpkin McCrary LLP. Squire, Sanders & Dempsey LLP is counsel to the Ohio Public Facilities Commission, which will be issuing the bonds on behalf of the state. Public Financial Management Inc. is the state's financial adviser.
Ohio typically sells about $120 million in new-money public infrastructure bonds each year, and this year officials opted to double that to $240 million as part of Strickland's $1.57 billion economic stimulus plan. That plan includes about $950 million in borrowing, of which $400 million will be voted on in November.
Proceeds from the new-money part of next week's sale will finance a number of road, bridge and sewer projects across the state.
"There's always more in needs than in funding but this year instead of funding $120 million we'll be funding $240 million in projects," Kauffman said. The state plans to issue the other bonds associated with the economic stimulus plan early next year, he added.
Fitch Ratings and Standard & Poor's assign a AA-plus rating to Ohio's GO debt with stable outlooks. Moody's Investors Service rates the debt Aa1. Moody's maintains a negative outlook on the state's debt in light of Ohio's weak economic performance and budget pressures. Analysts warned that the state's economic performance continues to lag national and Midwestern trends and that an ailing housing market is aggravating the problem.
One of the state's top credit strengths is its recently rebuilt rainy-day fund, which totals nearly $1 billion. It was nearly depleted in 2002 and 2003. On top of that, the state has an unreserved general fund balance of roughly $556 million, up from a negative $402 million at the end of fiscal 2003, according to Moody's analyst Edward Hampton.
As part of the governor's economic stimulus plan, the state plans to dip into the rainy-day fund to take out $63 million to help address a Medicaid shortfall. But yesterday Strickland said he did not plan to ask for legislative authority to dip further into fund, predicting the state might need the money in the future.
"While it's raining now, I feel there is a much larger storm looming ahead of us," Strickland said in a statement announcing the budget cuts.
He ordered most state agencies to cut 4.75% from their budgets to reach $200 million in savings. An additional $340 million in savings is expected from "cash-management actions," such as shifting funds around.
A big part of Ohio's economic problem is weaker-than-expected revenue growth so far this year. Several key revenue sources are significantly down, including corporate franchise revenue, auto sales and use revenue, and personal income revenue.
Recent revenue estimates predicted a 0.2% decline in personal income tax collection through 2009 compared with an earlier estimate predicting 0.6% growth. The decline in that tax revenue stems in part from 2005 tax cuts that are still rolling in.
Kauffman, the debt manager, also said the state plans to issue up to $375 million grant anticipation revenue vehicle bonds in early October.