New Hampshire borrowing $150 million for capital projects this week
(CONCORD) New Hampshire Treasurer Catherine Provencher is preparing this year’s annual General Obligation Bond Sale four months earlier than last year. On Wednesday, the state will issue $150 million in General Obligation Capital Improvement Bonds in order to pay for the state’s Capital Budget, construction projects in the University System, and Building Aid payments for local school construction projects.
According to the Preliminary Official Statement (POS) provided to potential investors last week, the state is looking to sell $90 million in traditional tax-exempt bonds, and $60 million in Build America Bonds. These bonds were authorized under last year’s American Recovery and Reinvestment Act (ARRA), and are taxable, but the federal government provides a 35% subsidy on the interest to the state issuing them. This federal stimulus subsidy brings the effective interest rate of Build America Bonds down to 3.5% to 4%, depending on the market at the time of the sale.
The New Hampshire Treasurer had broad discretion to manage the state’s cash flow, and co-mingles capital and operating expenses in order to make sure bills can be paid. Before last year’s General Obligation Bond Sale in December, Provencher told the Josiah Bartlett Center that she prefers to wait as long as possible for issuing new debt.
“I’ll go out as far as I can without borrowing, because why would I start paying interest before I need to pay the interest costs?”
But Provencher has decided to test the bond market early, citing favorable market conditions that may or may not be available later this year.
“I decided to do the new money bond issue now rather than wait until December because all the ratings and disclosure are fresh and the market is very favorable right now,” Provencher explains.
Provencher says she doesn’t plan on issuing any new debt again until the Fall of 2011. According to the POS, the $90 million in traditional bonds will be paid back at $10 million per year from 2012 through 2020. The state will repay the $60 million in Build American Bonds at $6 million per year, starting in 2021 through 2030. As General Obligation Bonds, they are backed only by the faith and credit of the New Hampshire government, and must be paid back by the Legislature through the state’s General Fund. Earlier this year, lawmakers approved $51 million in new borrowing to pay back this year’s debt service payments.