Ohio pricing higher education bond
Ohio plans to take competitive bids June 11 on $300 million of general obligation bonds to finance capital projects at state universities and colleges.
The sale comes as the state continues to discuss spending for higher education and other areas in the next two-year budget.
“Bond proceeds of the upcoming Higher Education bond sale will be spent via capital appropriations,” said state debt manager Kurt Kauffman. “The state is in the middle of the State’s capital biennium which runs July 1, 2018, through June 30, 2020.”
Kauffman said that total capital appropriations to the department of higher education and the state’s higher education institutions in the current fiscal 19/20 biennium is $496 million. “This is very consistent with level of DHE and HEI capital appropriations in prior biennia which have tended to be right around $500 million,” he said.
"We won’t know the Higher Education Appropriations/spending until the budget is enacted, on or about June 30,” Kaufmann said.
Ohio’s $69 billion budget proposal is still working its way through the general assembly. The house passed its version of the budget at the beginning of May, and the bill is now with the Senate.
The Ohio House’s two-year operating budget bill boosts spending for higher education. The plan would add an additional $21.8 million for higher education next year and $20 million in 2021.
The boost should be welcomed by the state's colleges and universities, which are struggling with enrollment challenges that have led to decline in revenues. A report by the from the National Student Clearinghouse Research Center, a nonprofit higher education research organization that enrollment at Ohio colleges and universities fell to 565,027 this spring, down 1.9% from 576,004 in spring 2018. In spring 2017, enrollment at Ohio institutions was 585,627.
Moody’s Investors Service and Fitch Ratings affirmed their rating of Aa1 and AA-plus respectively ahead of the bond sale. The outlook is stable. The offering statement on the bonds is expected to be out Wednesday, Kauffman said.
"Ohio’s credit profile is supported by strong, proactive budget and financial management, sound reserve levels, and affordable fixed costs associated with below-average long-term debt, pension and other post-employment benefit (OPEB) liabilities,” Moody’s said. “These strengths are somewhat balanced by moderate, but below-average economic growth that will be challenged by weak demographic trends.
“Ohio retains ample flexibility to cut spending throughout the economic cycle,” Fitch said. “As in most states, the natural pace of spending growth is likely to be somewhat above revenue growth, requiring ongoing budget management. Carrying costs for debt and retiree benefits are below the median for states. Spending pressure in Medicaid and education appears to be well controlled.”
The state has $13.5 billion in outstanding debt of which $8.6 billion is GO debt as of December 31, 2018.
Fitch noted that the proposed budget for fiscal 2020-2021 does not make significant tax policy changes in the general revenue fund, although it does incorporate a 10.5 cent increase in the gas tax, bringing it to 38.5 cents per gallon, and a slightly larger increase for diesel fuel, which will be directed toward transportation infrastructure spending. These increases have already been agreed to by the legislature.
Total spending growth in fiscal 2020 and fiscal 2021 is driven by growth in K-12 and Medicaid. The house budget version spend an additional $125-million over the biennium — on top of Gov. Mike DeWine’s $500-million proposal — for K-12 school districts to provide mental health and support service to at-risk students.
The state’s has a rainy day fund of $2.7 billion as of fiscal 2018 and raised the statutory target to 8.5% from 5% of total general revenue fund revenues