State Bond Financing in Oregon JACK KENNY CAPITAL FINANCE MANAGER

Transcription

1 State Bond Financing in Oregon JACK KENNY CAPITAL FINANCE MANAGER

2 Presentation Outline Background on Bond Financing in Oregon The Municipal Bond Market Generally Structure of the Bond Bill 2

3 Background on State Debt Issuing bonds is a form of borrowing - a bond is a certificate that represents a promise to repay investors who loan money. As a general rule, tax-exempt borrowing is for capital assets only State typically structures transactions to achieve level debt service Benefits of financing include: 3 inter-generational equity Ability to take advantage of opportunities that might be missed under a strict pay-as-yougo approach Take advantage of unique economic circumstances

4 General Obligation Debt Constitution prohibits Legislature from creating debt in excess of $50,000 except in the case of war or to repel invasion or suppress insurrection or to build and maintain permanent roads unless an exception has been made. Programs authorized by such exceptions are denoted by an Article XI prefix, including the following examples. Article XI-A Veterans farm and home loans Article XI- F (1) Higher Education Building Projects (self-supporting) Article XI- G Higher Education/Community College Article XI- H Pollution Control Article XI-I (1) Water Development Projects Article XI-I (2) Elderly & Disabled Multifamily Housing Article XI-J Small Scale Energy Loan Program Article XI-L Oregon Opportunity Bonds (OHSU) Article XI-M/N Seismic Rehabilitation Schools/Emergency Services Buildings Article XI-O Pension Obligation Bonds Article XI-Q Real or Personal Property Owned/Operated by State Article XI-D State Power Development Article XI-K School Bond Guarantee Article XI- P School District Capital Costs 4

5 Other Debt Types The Legislature has authorized other forms of debt that are outside of constitutional restrictions. 5 Revenue Bonds (specific revenue streams are pledged, but not general income of State) Highway User Tax Bonds Lottery Bonds Certain Housing, Business Development, Energy and OUS Bonds Appropriation Bonds (payment of debt service is subject to appropriation) Certificates of Participation Appropriation Bonds Tax Anticipation Notes (cash flow borrowings repaid within a biennium)

6 Bonds Outstanding as of June 30, General Obligation Bonds General Fund Supported Fully Self-Supporting $1.68 billion $3.32 billion Revenue Bonds Direct State Revenue Bonds Conduit Revenue Bonds $4.79 billion $2.23 billion Appropriation Bonds Certificates of Participation State Appropriation Bonds $1.37 billion $0.16 billion

7 What s our credit score? Credit Ratings provide investors with an easily identifiable way to assess the degree of risk relative to a particular security. Credit Ratings Standard & Moody s Fitch Poor s General Obligation Bonds AA+ Aa1 AA+ Highway Revenue Bonds Senior Lien AAA Aa1 AA+ Highway Revenue Bonds Subordinate AA+ Aa2 AA Lien Lottery Bonds AAA Aa2 AA- Certificates of Participation AA Aa2 AA Housing and Community Services: -Mortgage Revenue Bonds -- Aa2 -- -Housing Revenue Bonds -- Aa3 -- -Multi-Family Housing Revenue Bonds -- Aaa -- Business Development Dept Infrastructure Bonds AA+ Aa3 -- 7

8 State General Obligation Ratings 8 Washington Aa1/AA+/AA+ Oregon Aa1/AA+/AA+ California A1/A/A- Alaska Aaa/AAA /AAA Nevada Aa2/AA/AA+ Idaho (Aa1)/(AA+)/AA* Utah Aaa/AAA/AAA Arizona (Aa3)/(AA-)/NR Montana Aa1/AA/AA+ Wyoming NR/(AAA)/NR Colorado (Aa1)/(AA)/NR New Mexico Aaa/AA+/NR North Dakota (Aa1)/(AA+)/NR South Dakota NR/(AA+)/AA* Nebraska NR/(AAA)/NR Kansas (Aa1)/(AA+)/AA* Oklahoma Aa2/AA+/AA+ Texas Aaa/AA+/AAA Minnesota Aa1/ AA+/AA+ Iowa (Aaa)/(AAA)/(AAA) Illinois A2/A-/A Missouri Aaa/ AAA/AAA Arkansas Aa1/AA/NR Louisiana Aa2/AA/AA Wisconsin Aa2/ AA/AA Michigan Aa2/ AA-/AA- Indiana (Aaa)/ (AAA)/ (AAA) Kentucky (Aa2)/(AA-)/A+* Tennessee Aaa/AA+/AAA Alabama Aa1/ AA/AA+ Mississippi Aa2/AA/AA+ West Virginia Aa1/AA/AA+ Ohio Aa1/ AA+/AA+ Georgia Aaa/ AAA/AAA Pennsylvania Aa2/AA/AA+ Vermont Aaa/AA+/AAA New York Aa2/ AA/AA Maine Aa2/ AA/AA NH Aa1/AA/AA+ MA Aa1/AA+/AA+ RI Aa2/AA/AA CT Aa3/AA/AA NJ Aa3/AA-/AA- DE Aaa/AAA/AAA MD Aaa/AAA/AAA DC Aa2/A+/AA- Virginia Aaa/AAA/AAA North Carolina Aaa/AAA/AAA South Carolina Aaa/AA+/AAA Puerto Rico Baa3/BBB-/BBB- Hawaii Aa2/AA/AA Order of Ratings: Moody s/s&p/fitch as of March 20, *Lease revenue and/or Certificate of Participation ( COP ) rating NGO: No General Obligation Debt ( ) Indicates issuer credit rating which is equivalent to a General Obligation rating Florida Aa1/AAA/AAA Aaa/AAA One Aaa/AAA Aa/AA/AA- Less than Aa3/AA-

9 Combined Pension and Long-Term Liabilities Compared to Various Metrics (source: Moody s Investor Services, 2011) 9

10 History of 30-Year AAA MMD Over the last year, MMD has hovered at historically low levels 10 With low new issue supply, investors in the municipal market are very receptive to the successful sale of municipal bonds, particularly higher rated credits such as the State s credit 30-Year AAA MMD Since % 7.0% 6.0% 5.0% 4.0% 3.0% 30-Year AAA MMD Since % 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan % Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 30Yr "AAA" GO MMD Average -1 St. Dev. 30Yr "AAA" GO MMD Average -1 St. Dev. Source: Thomson Financial, as of January 26, 2009

11 Market Themes of 2013 Tax-exempt interest rates are at historically low levels Tax-exempt rates continue to hover at 40-year lows With the Federal Reserve committing to recession-mitigating policies through 2015, taxable and tax-exempt rates are expected to remain low for the next two years Euro Zone concerns a constant source of volatility Both equity and bond markets continue to experience volatility as uncertainty remains regarding economic and political policies aimed to remedy deficit budgets in the European Union Disintegration of the Union is viewed as potentially having the most detrimental impact on the world economy Federal legislation may adversely affect the Municipal Market Sequestration policies that reduce Build America Bonds subsidies and the tax-exemption status of Municipal debt have been evaluated as Federal deficit reduction tools While the tax-exemption status is currently unchanged, Congress may consider changing the tax code in the third quarter A change in the tax-exempt status would have an immediate and costly impact on the cost of borrowing for Municipalities Continued signs of modest economic recovery 11 With improving job and real estate markets, modest economic growth is expected in the near-term

12 Excerpts from 2013 Bond Bill (SB 5506) 77th OREGON LEGISLATIVE ASSEMBLY Regular Session Senate Bill 5506 Printed pursuant to Senate Interim Rule by order of the President of the Senate in conformance with presession filing rules, indicating neither advocacy nor opposition on the part of the President (at the request of Oregon Department of Administrative Services) SUMMARY The following summary is not prepared by the sponsors of the measure and is not a part of the body thereof subject to consideration by the Legislative Assembly. It is an editor's brief statement of the essential features of the measure as introduced. Establishes amounts authorized for issuance of general obligation bonds, revenue bonds, certificates of participation and other financing agreements for biennium. Establishes amounts allocated for private activity bonds. Declares emergency, effective July 1, A BILL FOR AN ACT Relating to state financial administration; and declaring an emergency. Be It Enacted by the People of the State of Oregon: SECTION 1. The amounts authorized, as provided by ORS 286A.035, for issuance of general obligation bonds of this state during the biennium are as follows: GENERAL OBLIGATION BONDS General Fund Obligations (1) Oregon University System (Art. XI-G): (a) Oregon State University: (A) Strand Agricultural Hall deferred maintenance.....$6,586,000 12

13 Excerpts From 2013 Bond Bill (SB 5506) (continued) (b) Southern Oregon University Theater Arts Building Expansion and remodel....$5,500,000 (2) Department of Community Colleges and Workforce Development (Art. X-G) $16,500,000 (3) Department of Environmental Quality (Art. XI-H)....$10,000,000 (4) Oregon Military Department (Art. XI-M)...$15,000,000 (5) Oregon Military Department (Art. XI-N)... $15,000,000 (6) Oregon Department of Administrative Services (Art. XI-Q) $332,265,000 Dedicated Fund Obligations (7) Department of Transportation (Art. XI, section 7)...$453,320,000 (8) Department of Veterans' Affairs (Art. XI-A).....$100,000,000 (9) Oregon University System (Art. XI-F(1)): (a) Systemwide: (A) Capital renewal code/compliance and safety.....$13,300,000 (c) Oregon State University (F) Cascades Campus Expansion. $4,000,000 13

14 Excerpts From 2013 Bond Bill (SB 5506) (continued) (10) Water Resources Department (Art. XI-I(1))...$10,235,000 (11) Housing and Community Services Department (Art. XI-I(2))...$50,000,000 (12) State Department of Energy (Art. XI-J) $100,000,000 Total General Obligation Bonds...$1,468,150,070 SECTION 2 The amounts authorized, as provided by ORS 286A.035 for issuance of revenue bonds of this state for the biennium are as follows: REVENUE BONDS Direct Revenue Bonds Housing and Community Services Department.... $300,000,000 Department of Transportation, Oregon Transportation Infrastructure Fund.....$20,400,000 Highway User Tax Bonds...$846,690,000 Oregon Business Development Department...$60,000,000 Oregon Department of Administrative Services Lottery Revenue Bonds..$155,380,000 State Department of Energy... $25,000,000 Oregon University System...$5,880,000 14

15 Excerpts From 2013 Bond Bill (SB 5506) (continued) Total Direct Revenue. Bonds...$1,413,350,000 Pass-Through Revenue Bonds Oregon Business Development Department industrial development bonds.. $125,000,000 Oregon Facilities Authority $750,000,000 Housing and Community Services Department.....$200,000,000 Total Pass-Through Revenue Bonds..$1,075,000,000 Total Revenue Bonds....$2,488,350,000 SECTION 3. The amount authorized, as provided by ORS 286A.035, for issuance of certificates of participation and other financing agreements of this state during the biennium for the Oregon Department of Administrative Services is $103,975,000. SECTION 4. The amounts allocated for private activity bonds, as provided in ORS 286A.615, are as follows: (1) For calendar year 2014, the amount of $367,826,605 is allocated as follows: (a) Oregon Business Development Department....$40,000,000 (b) Housing and Community Services Department. $125,000,000 (c) State Department of Energy $10,000,000 (d) Private Activity Bond Committee...$192,826,605 (2) For calendar year 2015, the amount of..$367,826,605 (3) If an increase in the state's population, a sufficient increase in the region's Consumer Price Index or a change in federal law allows the private activity bond limit as set by the Internal Revenue Code of 1986, as amended, to exceed $367,826,605 during the 2014 calendar year or $367,826,605 during the 2015 calendar year, the increase is allocated to the Private Activity Bond Committee. 15

16 Excerpts From 2013 Bond Bill (SB 5506) (continued) 16 SECTION 5. (1) For purposes of Article XI-F(1), section 1, of the Oregon Constitution, the Legislative Assembly determines that the projects authorized to be financed pursuant to section 1 (9) of this 2013 Act with bonds issued under Article XI-F(1) of the Oregon Constitution, will benefit higher education institutions or activities. (2) For purposes of Article XI-G, section 1, of the Oregon Constitution, the Legislative Assembly determines that the projects authorized to be financed pursuant to section 1 (1) and (2) of this 2013 Act with bonds issued under Article XI-G of the Oregon Constitution, will benefit higher education institutions or activities or community colleges authorized by law to receive state aid. SECTION 6. Bonds authorized under section 1 (1) and (2) of this 2013 Act may not be issued until the constructing authority certifies to the State Treasurer that the constructing authority has matching funds available for the same or similar purposes as the Article XI-G bonds that will fund the grant or loan to the constructing authority, that the match funds are not proceeds of indebtedness incurred by the state under any article of the Oregon Constitution, and that the match funds are available to the constructing authority in an amount at least equal to the amount of Article XI-G bond proceeds that the constructing authority will receive. SECTION 7. This 2013 Act being necessary for the immediate preservation of the public peace, health and safety, an emergency is declared to exist, and this 2013 Act takes effect July 1, 2013.