Pennsylvania Treasurer Robert McCord Wednesday sent a letter to governor-elect Tom Corbett asking for his input on a stalled $1 billion new-money debt issuance that includes Build America Bonds.
State officials planned to sell the taxable bonds on Nov. 10 via competitive bid, but were unable to take the deal to market as McCord and auditor general Jack Wagner did not sign off on it.
Corbett, a Republican, will succeed Democratic Gov. Edward Rendell on Jan. 18. Rendell served for eight years and will be termed out in January. Pennsylvania tends to borrow during gubernatorial transitions, but McCord and Wagner, both Democrats, have questioned the size of the deal and whether it might be beneficial to issue the debt at a later time.
“I ask that you review this matter promptly, as I stand ready to weigh the input of your administration substantially in my own deliberations,” McCord wrote in a letter to Corbett dated Dec. 1. “I regard transitions to be delicate times in governance — times when elected constitutional officers such as myself have a special obligation to be respectful both to the ongoing needs of government and to the preferences and priorities of the incoming administration. This is especially so during a time of financial crisis.”
A spokesman for Corbett did not respond to an e-mail seeking comment.
The Office of the Budget, which executes Pennsylvania’s debt transactions, would like to use the federal BAB program before its scheduled expiration date of Dec. 31. Issuers receive a 35% federal subsidy on interest costs with BABs. Congress may extend the program beyond 2010, but it will likely be at a lower subsidy rate.
John Lisko, McCord’s chief of staff, pointed out that many state and municipal issuers are rushing to sell BABs before the end of the year, increasing the amount of volume in the municipal market. Pennsylvania might achieve lower interest costs if it sold debt in January when there is expected to be less competition among issuers, he said.
Still, without approval by McCord and Wagner, Pennsylvania is unable to access the market when the time might be right.
“It’s certainly an issue that the governor has raised with both of the other issuing officials, that there may be a closing of a window if this bond issue is delayed,” said Rick Dreher, director of the state bureau of revenue, cash flow and debt. “We’d lose our ability to issue BABs and receive the current rate of subsidy.”
The administration can legally issue bonds with approval from either the treasurer or the auditor general. The practice has been for both offices to sign off before bonds go to market.