DALLAS — Louisiana will take a bite out of its $1.8 billion capital outlay backlog with Thursday’s competitive sale of $400 million of new-money general obligation bonds.
The state hopes to take advantage of “interest rates so low we’ll not see the like in our lifetime,” said Treasurer John Kennedy.
“That’s one of the reason’s we’re going forward,” he said. “As the economy recovers, as I think it will, interest rates will go up.”
Proceeds will reimburse the state for cash lines of credit on the projects that have been completed. Louisiana will also refund up to $49 million of outstanding GOs in a separate tranche.
The new-money piece will provide $98.2 million for economic development, $84 million for education, $17.9 million for levee districts and ports, $10 million for state hospitals and health, and $169.6 million for non-state projects.
Louisiana’s $2.4 billion of outstanding GOs are rated AA by both Fitch Ratings and Standard & Poor’s and an equivalent Aa2 by Moody’s Investors Service.
Lamont Financial Services Inc. is the financial advisor.
Co-bond counsel are Adams and Reese LLP, McGlinchey Stafford PLLC, and Attorney General James “Buddy” Caldwell.
Kennedy said he expects interest rates will remain low for some time before beginning their inevitable rise as the national economy emerges from the doldrums.
“Our economy in Louisiana, and in the rest of the country, is getting better, but the stock market and the debt market are so volatile,” he said. “It seems like we take two steps forward, and then one backward.”
Louisiana’s economy, thanks in large part to increased activity by the oil and gas industry, is outpacing the national outlook.
Unemployment was estimated at 6.8% in December, lower than the national rate of 8.5%. Family income was at 95% of the national average in 2010, compared to 78% in 2000, and the population has returned to pre-Katrina levels.
“We’ve been blessed, and we are grateful,” Kennedy said. “But 40% of our economy is tied, directly or indirectly, to the oil and gas industry and energy prices.”
“That’s a real double-edged sword,” he added. “High oil and gas prices are good for state coffers, but volatile prices make it difficult to plan ahead.”
In their report on Louisiana, Fitch analysts praised the state’s “sound financial management since the hurricanes of 2005 and through the recent recession.”
“With prudent fiscal management following the devastation caused by hurricanes Katrina and Rita in 2005, the state maintained sizable financial balances and realized exceptionally strong revenue collections, bolstered by high oil and gas and hurricane recovery-related revenues,” analysts said.
The refunding tranche will cover $47.7 million of GOs issued in 2001 at interest rates ranging from 4.625% to 5.5%.
The state expects to realize $5 million in debt service savings over the next three years with the refunding, Kennedy said.
“We are vigorous in looking at the refunding opportunities in this low interest rate environment,” he said. “We’re also encouraging our local governments to see what they can do.”
Whit Kling Jr., director of the Louisiana State Bond Commission, said the state will refund $400 million of senior-lien gas and fuel tax bonds in early May, and in July intends to refund $125.2 million of junior-lien bonds issued in 2009.
Kennedy, who chairs the Bond Commission, said the backlog of projects on the capital outlay list developed by the Legislature is slowly shrinking.
More projects are being funded and fewer are being added, the treasurer noted.
“We’ll still have about $1.4 billion in unfunded capital lines of credit with this sale,” Kennedy said. “I think we’re making progress, with the Legislature and the administration being more disciplined in adding projects to the list.”
“We’re whittling it down, but it’s going to take a while,” he said. “We’re all looking at what we can do to make it more manageable, and I think everyone realizes we have to keep an eye on our debt limit.”
The state constitution mandates that interest paid on state net tax-supported debt in a fiscal year cannot exceed 6% of the official revenue forecast.
Louisiana’s debt service in fiscal 2011 totaled $502.5 million, or about 5.3% of estimated revenues.
Kennedy said that limit is not a concern at this point, with the latest report on Louisiana’s debt showing plenty of room before it hits the constitutional threshold.
“The new report, which the Bond Commission will get at the meeting where we sell the bonds, shows that even with these issues, we’re below the limit,” he said.
The Revenue Estimating Conference in December adopted revised forecasts for $8.01 billion of general fund revenue in fiscal 2012 and $8.4 billion in fiscal 2013
The 2012 estimate is $197.8 million less than the panel’s April prediction, and the 2013 estimate was revised down by more than $214 million.
Gov. Bobby Jindal’s proposed budget for fiscal 2013, with $8.4 billion of general revenue spending, contains no new revenue increases.
Jindal’s budget, which will be revised by the Legislature that convenes March 12, covers a projected $895 million revenue gap by cutting current spending by $701 million and shifting $195 million of expenses from the general fund to dedicated sources.
The Republican Jindal has proposed a 2% cut in payments to Medicaid providers, as well as other Medicaid reforms expected to save $136 million, and a $55 million savings from a new pension plan for state employees.
Kennedy endorsed Jindal’s plan to upgrade 1,000 miles of state roads in rural areas with proceeds from $325 million of bonds supported by 50% of the State Highway Improvement Fund. The fund receives $50 million to $60 million a year from state commercial-vehicle registration charges and drivers license fees.
“It’s a great time to do it, when rates are low,” the treasurer said. “You typically want to concentrate your transportation dollars where the people are, but you can’t ignore the rural areas.”
“When you can borrow money at 2% or 3%, it is a great incentive,” he said.
