WASHINGTON - Triple-A rated Maryland on Wednesday will bring $415 million of general obligation bonds to market, with the proceeds going primarily for school construction.
Fitch Ratings, Standard & Poor's, and Moody's Investors Service each assigned their highest ratings to the bonds, with analysts noting the state's deft budget-balancing in recent months.
Howard Freedlander, the state's deputy treasurer of external affairs, said about 80% of the proceeds are expected to be used for school construction.
The balance would be applied to community colleges, jails and correctional facilities, and matching fund loans and grants to local governments and nonprofits for hospitals and cultural projects, according to the preliminary official statement.
Maturities were expected to range from 2011 to 2023.
The bond sale is "critically important to the capital needs of Maryland" and is a "reasonably standard sale" for the state, Freedlander said.
The triple-A rated GOs provide an interest rate that brings a "savings of millions of dollars," he said.
Analysts said the state's recent budget approach is one of the key factors in its consistently high credit rating. Maryland also boasts a diverse economy thanks to being near Washington, and the state's per capita income is fifth-highest in the country, Fitch noted.
Maryland ranked 16th in the country for total state tax revenue and had the 12th highest total individual income tax revenue in 2007.
The state has not been immune to the economic slowdown and housing market slump, which has affected tax collections, analysts noted. But the state's credit nonetheless remains stable, partly due to its proactive approach to budget gaps.
"They tackled some pretty difficult budget challenges this year," said Standard & Poor's analyst Robin Prunty.
Maryland was spending faster than it was earning, partly because of ramped-up school funding during the past couple of years, according to Fitch analyst Doug Offerman.
The state responded by drawing from its rainy-day fund - while still leaving that fund with its required balance - and cutting spending.
The state's Board of Public Works implemented $128 million in savings measures after the start of fiscal 2008. Last month the board cut an additional $50 million for fiscal 2009, Fitch noted.
Lawmakers during a special legislative session in the fall also made an effort to close the budget gap by enacting a broad set of tax increases. The General Assembly doubled Maryland's cigarette tax, raised income taxes, and increased the statewide sales tax and corporate tax, Offerman said.
"The bottom line was the state looked at all of the possible options for addressing the gap and used some of each of those options," he said. "The state is proving again that it's just a very competent financial manager."
Prior to its upcoming bond sale and a recent bay restoration bond deal, Maryland's net tax-supported debt was about $7.6 billion, according to Fitch. That was just below the state's debt affordability guideline of 3.2% of personal income.
Additionally, the Pentagon's Base Realignment and Closure process during the next three years is expected to bring roughly 45,000 jobs to Maryland, Standard & Poor's said.
Maryland voters also will consider slot machine gambling in a referendum in November.
"If authorized, it should provide up to $600 million annually for education," Standard & Poor's said. "Structural budget balance will be a challenge if the referendum fails."
Fitch analysts said that without the slots referendum passing, Maryland's small gap of $200 million to $250 million in fiscal 2010 could widen. The agency affirmed its AAA rating on Maryland's $5.5 billion of outstanding GO bonds.
The state has achieved triple-A ratings consistently since 1961, Freedlander noted.
Bidding for the competitive sale will begin at a Board of Public Works meeting in Annapolis on Wednesday morning. The date of delivery on the bonds is expected to be July 28.
Public Financial Management Inc. is the financial adviser and Washington-based Kutak Rock LLP is bond counsel.
Maryland in recent years has been selling debt on a semiannual basis, Freedlander said. This issue will be followed by two more bond sales in this fiscal year, according to the POS.
General obligation bonds accounted for about 70% of the state's outstanding tax-supported debt as of March. Last year the GO debt was serviced using mostly property taxes.
Maryland last sold GOs on Feb. 27, with Merrill Lynch & Co. the winning bidder for $400 million of bonds at a true interest cost of 4.14%. The 4.625% bonds due in 2023 were sold at par, a yield that was 13.5 basis points above Municipal Market Data's generic triple-A yield curve. FT Interactive Data as of Friday evaluated the price for those bonds in the secondary market at 103.339 to yield 4.11%, four basis points above MMD.
