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Debts & Bonds
The Treasurer is responsible for issuing notes and bonds to provide funds for state needs. The Treasurer prepares the proposals, obtains approvals, prints the bonds or notes, receives bids, and closes the sale. Records are maintained of all issues. Payments to fiscal agents for notes, bonds, and coupons that mature are initiated by the Treasurer's Office.
Treasurer Douglass's February 12, 2014 Bond Update to Maine Legislature:
Honorable Members of the 126th Maine Legislature:
Update on General Obligation Bonds: $52M funded to date; $84M total expected in FY2014; $78M requested in Q1 FY 2015
Funding of Authorized but Unissued Bond Projects stands at $52M committed from the Treasurer’s Cash Pool (TCP) through February 12, 2014: these funds have already been transferred to project accounts. I expect to honor requests of $32M more for a total of $84M through the end of FY2014. This will keep projects moving forward, providing jobs, infrastructure, education, and economic development. Projects that had been promised State funds have been reimbursed, including the new dental school and dental clinics. Project requests for $78M in the first quarter of FY2015 may be folded into the June 2014 bond issue to save issuance costs if the projects are ready and funds will be spent promptly. All funds used for bond purposes must be reimbursed to the TCP by the sale of General Obligation Bonds before the end of this fiscal year, June 30, 2014.
Here are the steps we have taken in this process so far:
- GO bonds require 2/3 vote of both Houses of the Legislature and a majority of voters.*
- Once approved, they become Authorized but Unissued GO bonds (AUB).
- The Office of the State Treasurer (OST) contacts departments and project managers for estimated funding needed for projects over a specific timeline.
- After consulting Bond Counsel, OST determines whether projects are tax-exempt and identifies which are taxable.
- OST requests that Budget set up accounts for each project, separating tax-exempt from taxable portions.
- OST considers cost effective, temporary project funding. To date, we have used the TCP.
- When cash flow is tight, a Line of Credit (LOC), bank loan, or other temporary funding may be used until bonds are issued. This year we may use a LOC.
- OST tracks borrowing and spending for each project, and communicates with project managers on funding progress or project changes. This tracking is ongoing.
- The Treasurer drafts plans for consolidating bond project debt into one GO bond package for tax-exempt, one for taxable projects. We expect to issue GO bonds in June 2014.
- Meetings are scheduled: Treasurer, Deputy Treasurer, DAFS Commissioner, Associate DAFS Commissioner, Acting Controller prepare rating agency presentations.
- A timeline is prepared to issue bonds in mid-June 2014.
Here are steps we will soon take to complete the GO Bond process:
- Rating agencies will be engaged to rate the GO bonds.
- A Preliminary Official Statement will be completed and revised by those with specific knowledge of areas such as Financial Management, Budget, Revenues, Expenditures.
- The Treasurer, Deputy Treasurer, Commissioner of DAFS, State Controller, Maine Revenue Services, Budget Office, and Commissioners of relevant agencies will make a formal presentation to the Rating Agencies and answer their questions.
- A bond underwriter, the senior manager, is selected along with other co-managers who market and sell the bond series.
- The bonds are structured and priced in the Municipal Bond market.
- The Official Statement is completed and printed.
- The bonds are sold, the sale is closed, and the bonds are delivered to the buyers, the funds to the issuer.
Here are some additional facts about Maine General Obligation Bonds:
- Maine GO bonds are traditionally structured to mature in 10 years, with two payments per year after the initial borrowing.
- AU bonds expire after 5 years if not issued, but may be reauthorized for 2 years by the Legislature.*
- GO bonds are issued by the State Treasurer with the full faith and credit of the State.
- The State Treasurer has constitutional power to pay debt first out of revenues.*
- Maine’s Constitution prohibits using bonds to pay for current operations.*
*Constitutional provisions are from Art V, Pt 3, Sec 5 and Art IX, Sec 14.
In June 2013, Maine had $104.5 million in outstanding Authorized but Unissued Bonds. In November 2013, voters ratified $150 million in additional bonds. The total Authorized but Unissued Bonds now amount to $254.5 million.
As State Treasurer, I am dedicated to continuing improvement of our financial standing, safeguarding our resources, and maintaining a sound financial foundation for the State of Maine. Please contact me if you have any questions on the GO Bond process.
Neria R Douglass JD CIA State Treasurer