LOS ANGELES — Sales of municipal bonds in the Far West region grew by almost 11% during the first half of 2013 compared to a year earlier as low rates continued to drive volume, which topped $36.9 billion according to Thomson Reuters data.
During the first quarter, issuance across the region grew by 23.3% compared to the same period of 2012, while the second quarter saw a slim 0.5% increase over the same period a year earlier.
California continues to be the leading issuer in the Far West. Volume from municipal issuers in the Golden State increased by 20.1% growing to $27 billion in the first six months of 2013, according to Thomson Reuters.
The combination of the dissolution of local redevelopment agencies, California Gov. Jerry Brown's budget restructuring, and belt-tightening on the local level will likely keep issuance low throughout the rest of the calendar year, according to A. L. "Bud" Byrnes, chief executive officer of Encino, Calif.-based RH Investment Corp, a broker-dealer specializing in California municipal bonds.
Byrnes attributed the jump in issuance in the first quarter to issuers wanting to get things done at the beginning of the year.
Bonds issued for redevelopment projects had been a significant driver in California issuance, according to Byrnes. The dissolution of the redevelopment agencies also means that cities are without the expertise of redevelopment agency staff who had been advising cities on projects and on how to issue bonds for these projects for the nearly 35 years the redevelopment system existed, he said.
The state ended redevelopment in 2012 in large part because of the perception city governments used it to grab too large a share of the property tax pie.
"Now cities are trying to figure out where the person who had the institutional memory has gone," Byrnes said. "There has been a dislocation of the people who worked on these deals."
Byrnes doesn't expect that the state will return to the volume of issuance for which it was previously known.
"I expect we will be flat this year as compared to last year, or slightly down," Byrnes said. "The bump up at the beginning of the year is what I would have expected from what was put in motion the previous year."
He noted that it takes six to nine months to put bond deals together, so there is lag between approval and actual bond pricing.
California's state government was the region's largest issuer in the first half, selling $5.1 billion of bonds.
New money issuance from all the state's issuers grew to $11.9 billion during the first six months of this year from $7.4 billion during the same period a year earlier. Refundings grew to $11.1 billion from $8.9 billion. New money issuance was up 59.4% while refundings grew by 24.1%.
Education remained the California's biggest beneficiary of debt sales with $9.98 billion sold in that sector, a 50.6% increase from the prior period. The biggest percentage jumps were for environmental facilities with an 849% increase to reach $348.4 million and the transportation sector, up by 189.4% with $3.7 billion issued.
The majority of California issuance in the first half was classified as revenue bonds, $14.5 billion, a 5.9% increase in volume, followed by $12.6 billion in general obligation bonds, a 42.1% increase from first half 2012.
The state's issuance plans for the remainder of the year have not been finalized, according to Tom Dresslar, spokesman for Treasurer Bill Lockyer.
It remains to be seen whether California's infrastructure needs will spur an increase in bond sales going forward. Those infrastructure needs have compelled the state's voters to authorize more than $100 billion of bonds since 2000.
There's no question those needs are great, totaling in the hundreds of billions of dollars, Dresslar said.
But as Lockyer has stressed since taking office in 2007, state officials have to get more strategic and creative in the way they approach infrastructure financing, Dresslar said.
"There simply is no way the general fund of the state, or the general funds of local governments, can bear the entire burden of financing our infrastructure needs," Dresslar said. "All options should be on the table, including less use of bonds and more use of private capital."
The Regents of the University of California finished behind the California state government among the region's biggest issuers, pricing $1.59 billion in bonds in three issues during the first half of the year. Washington state government ranked third, issuing $1.52 billion in seven offerings during the same time frame. The Los Angeles Department of Water and Power was fourth.
The UC Regents are also off to a rousing start for the second half of the year as they went to market on Aug. 7 with a $665 million of medical center pooled revenue bonds to finance medical center projects on four of its campuses.
While California's work to lessen its debt load has slowed infrastructure improvements, Washington has pushed forward on such projects. State officials said maintaining the state's infrastructure is the driver that has made the state the second-biggest source of issuance in the Far West.
Chris McGann, a spokesperson for the Washington state treasurer's office said Washington's rank as second highest issuer in the Far West "correlates to its robust economy and growing population."
He called it is a reflection of the state's commitment to expanding and maintaining the modern infrastructure needed to keep pace in a global economy.
The total issuance from Washington declined by 31% to $4.7 billion compared to the same period last year.
Washington issuers sold $933 million in education and $757 million in the transportation sector. Its sales in both of those sectors declined from the previous year with a 52.5% decline in transportation and a 24.7% decline in education bond sales from 2012.
Washington officials see education as the state's "paramount duty," and supports that ideal by financing school construction at all levels, McGann said.
In recent years, Washington has undertaken several of the largest transportation projects in state history; and "megaprojects such as the new bridge across Lake Washington and a highway tunnel through the heart of the state's largest city required additional taxes and substantial debt financing," he said.
Following Washington with the next largest volume in the region, at $2.6 billion, was Oregon. The state experienced a 39.7% increase in volume compared to the first half of 2012.
Oregon issuers were still able to find opportunities to refund. Refundings, at $1.08 billion, surpassed new money issuance at $795 million. Combined new-money and refunding deals totaled $740 million.
Education was the state's busiest sector with $1.3 billion issued in that category for a 221.9% increase. Housing experienced a whopping 1255% increase with $128.8 million from only $9.5 million in first-half 2012.
Washington, Wyoming, Idaho and Hawaii all saw declining volume over the previous year. Idaho experienced the biggest decline with volume dropping by 80.1% to $95.5 million as compared to $475 million during the previous period.
Hawaii volume dropped 48.5% to $125 million and Wyoming dropped 18.4% to $152.6 million.
States with increased volume included Nevada, where issuers sold $1.3 billion, up 119.9%, and Montana, where volume jumped 197.4% to $383.7 million.
Nevada, where issuers focused on refundings over the past two years with relatively little new money, saw a 2,562% increase in new money issuance, to $349 million, still dwarfed by $846.8 million in refunding deals. The largest sector was transportation at $607 million with a 337% increase.
The Far West region's top senior manager was Bank of America Merrill Lynch, credited with $5.4 billion of volume, followed by JPMorgan with $4.4 billion, and then Goldman Sachs & Co. Citi, top senior during the same period last year, dropped to the fifth slot.
Public Resources Advisory Group again secured the top slot in the region's financial advisor table, credited with $7.5 billion ahead of KNN Public Finance with $2.8 billion and Public Financial Management Inc. with $2.4 billion.
Orrick, Herrington & Sutcliffe LLP continued its dominance as the top bond counsel in the region.
Orrick has had a substantial practice in public finance in the West for more than 100 years, said Roger Davis, head of public finance at Orrick: "What is particularly gratifying is that clients, big ones and small ones, have repeatedly, year after year, put their trust in us to handle their bond matters and that this trust and confidence has spread to clients across the country," Davis said.
