Missouri bond sales reach $387 million

Friday, April 11, 2003

JEFFERSON CITY, Mo. -- Missouri sold $387 million in revenue bonds on Thursday, obligating the state to 25 years of debt payments to help cover projected budget shortfalls over the next 15 months.

Gov. Bob Holden said it was the best alternative available to avoid deep cuts in state services and operations. Attorney General Jay Nixon disagreed.

The state Board of Public Buildings approved the bond sale on a 2-1 vote, with Holden joined by Lt. Gov. Joe Maxwell in the majority and Nixon opposed. The three Democrats are the only members of the bond-issuing board.

The bonding plan previously was approved by the Republican-led legislature.

The state expects to have cash from the bond sale by April 23 -- soon enough to use $150 million to help prop up the budget that runs through June 30. An additional $185 million is to be in used in the next state budget, which begins July 1 and is still under consideration in the legislature.

The remaining $52 million included in the bond sale goes toward initial interest payments and other costs associated with the sale.

Freeing up funds

Technically, the bond revenue will pay for previously scheduled construction and repairs at buildings owned by the state and its colleges and universities. That will free up other money to go toward budget shortfalls projected at $400 million this year and an additional $700 million next fiscal year.

The bonds aren't the only means of shoring up the budget. Holden already has announced spending cuts this fiscal year and legislators are considering more cuts for the next budget. Tax increases also are under consideration.

The bonds issued Thursday are to be repaid from the state's general tax revenue.

"It's the best alternative we had to continue to maintain our fiscal integrity, our fiscal responsibility and to also make investments in education and health care and to protect our most vulnerable citizens," Holden said.

Nixon has consistently opposed the bonds -- whether backed by tax revenues or by tobacco settlement proceeds.

"I've been philosophically opposed to going into debt to balance the budget," Nixon said. "I don't want to criticize those that have difficult choices to make, but there will also be difficult choices 26 years from now when we're paying millions of dollars in interest payments."

Principal and interest on the revenue bonds are projected to cost nearly $696 million by the time the bonds are paid off in the 2029 fiscal year, said Jim Carder, director of the state's Division of Accounting.

That's based on a 4.4 percent interest rate approved Thursday as part of the sale to be underwritten by a group led by JP Morgan Securities.

The state received six bids for the bond sale, with JP Morgan beating out the second-place finisher by 0.003 percentage points. Financial advisers hired for the sale said the state received a "very good interest rate" due partly to its solid credit rating.

"Having six bids on an issue of this size is somewhat unusual and is a testimony to the quality of the state's credit," said Dennis Lloyd, a financial adviser from St. Louis-based Columbia Capital Management.

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