ALAMEDA, Calif. — Washington priced more than $452 million of general obligation bonds Wednesday in competitive deals that drew multiple bids, even as lawmakers continued to haggle over the state’s growing budget deficit.
The deal comprised $362 million of tax-exempts and $90.4 million of taxable bonds.
Bank of America Merrill Lynch won the tax-exempt deal over seven other bidders.
Washington’s budget woes have not affected its across-the-board double-A-plus ratings, and that helped drive demand, Treasurer James McIntire said in a statement.
“Washington’s bonds stand out despite market skittishness about municipal bonds that has been driving up interest rates during the past few weeks,” he said. “Taxpayers benefit when more investors compete for our bonds.”
Washington sold its bonds in the midst of a budget-balancing debate in Olympia, the state capital.
The state builds its budget around quarterly revenue forecasts from an independent Economic Revenue and Forecast Council.
Those forecasts have provided a steady drumbeat of bad news — November’s forecast chopped $385 million from the forecast for the current biennium, bringing general fund revenue down to $28.1 billion.
Voters in November also rejected some tax increases lawmakers had adopted earlier in 2010.
Gov. Chris Gregoire, a Democrat, responded with a budget proposal that relies primarily on cuts to bring the budget into balance, both for the current biennium and the next.
She asked lawmakers to quickly adopt more than $660 million in measures to balance the budget through June, including $244 million in cuts and deferring $253 million due to K-12 schools by a year and a day, pushing it from fiscal 2011 to fiscal 2013.
It’s a tough pill to swallow for the Democrats, who control both chambers of the Legislature.
House Democrats moved forward this week with a smaller package of budget solutions, made up of $216.5 million in cuts and $123.8 million in fund transfers, while holding onto health and social service programs for children that were cut in the governor’s proposal.
“This is real progress,” said Rep. Ross Hunter, D-Medina, chairman of the House Ways and Means Committee. “The problem is getting smaller. We still have a gap of about $260 million to fill for the fiscal year that ends June 30, but taking this action now will mean taking fewer cuts next biennium.”
Republicans say the Democrats aren’t going far enough.
“If we know we’re going to have to make those decisions and eliminate those programs for the next operating budget, why not capture those savings now? We can’t just continue to kick the hard decisions down the road,” said Rep. Gary Alexander, R-Olympia, ranking Republican on the Ways and Means Committee.
“There is still substantial work that needs to be done in order for this effort to gain our support or to be considered 'bipartisan’ in any way,” he said.
Earlier in the month, McIntire issued an open letter to lawmakers, urging them to act quickly to approve cuts that will allow the state to close the fiscal year without a deficit, in order to protect Washington’s hard-won credit ratings.
On Tuesday — the day before the bonds priced and after the state’s bond ratings were affirmed — McIntire appeared less worried.
“The Legislature’s clear commitment to fiscal discipline is a significant factor in maintaining the high rating,” he said in a statement. “The House Ways and Means Committee’s proposed supplemental budget is an excellent illustration of this commitment.”
Washington happened to have chosen a good day to sell bonds, as the market firmed up Wednesday after a long bout of weakness.
On Tuesday, a block of Washington GOs with a 2021 maturity sold at more than 50 basis points above the triple-A scale, Randy Smolik wrote in Wednesday’s daily Municipal Market Data commentary.
Wednesday’s low bidder, Bank of America Merrill, was well received after re-offering bonds at spreads through 40 basis points, according to Smolik.
“There was a renewed vigor to own bonds,” he wrote.
Citi won the $90 million taxable GO piece over nine other bidders.
Montague DeRose and Associates was financial adviser for the deal. Foster Pepper PLLC was bond and disclosure counsel.
Washington plans to issue about $500 million of new-money GO bonds and about $425 million of motor vehicle fuel-tax GOs during the remainder of 2011, according to the preliminary official statement for this week’s sale.
The state will be slowing the pace of GO issuance, because the bonds are subject to a debt limit tied to general fund revenue, which has declined.
“We have constitutional constraints, and with revenues declining, that makes that constraint even tighter,” said Chris McGann, spokesman for McIntire.
Washington does plan to bring a new credit to the market this year, however — it expects to sell about $480 million of bonds to finance a project to replace the State Route 520 floating bridge over Lake Washington, according to the POS.
The state plans to begin imposing tolls on the SR-520 crossing this spring.