Bonds net low rates

Posted: Friday, December 17, 2010

The state of Alaska has sold $200 million in voter-approved general obligation bonds, using the state's strong financial position and federal subsidies to get a low 2.78 percent interest rate, state officials said.

Among the projects the bond proceeds will help pay for are school and education projects around the state, including a new Library, Archives and Museum building in Juneau now under design.

The state issued three different types of bonds, including Build America Bonds, Qualified School Construction Bonds and Tax Exempt Bonds, said Jerry Burnett, deputy commissioner of the Department of Revenue.

The sale was structured to get funds at the lowest cost possible and to use available federal subsidies to keep the interest rates low, he said.

The sale was part of a $400 million bond obligation approved by 60 percent of voters in November. General obligation bonds must receive voter approval.

Despite recent turmoil in investment markets, Burnett said the state did well in the sale.

"In an otherwise challenging market environment, the State's transaction was very well received by investors," he stated in a Monday press release announcing the sale, which took place Dec. 8.

Burnett credited the favorable interest rate to the state's strong financial position, good reputation and high credit ratting.

Moody's Investors Service last month gave the state's bonds a rating of Aaa, the highest available.

That's based on the state's ability to pay back the bonds, which the firm's analysts said was high, given thanks to its strong financial status and conservative budgeting practices.

One area which came in for praise: Using 2008's big oil revenue windfall to replenish its savings accounts.

Including the just-issued bonds, Alaska has $14 billion in readily available savings, and just $675 million in outstanding debt to pay off, Moody's said.

The largest portion of the bonds were $137.5 million in Build America Bonds, which were authorized by the American Recovery And Reinvestment Act, also known as the federal stimulus.

The bonds receive a federal subsidy which reduces the interest rate Alaska has to pay on them.

The state also issued $45 million in the school construction bonds, which comes with a tax credit that also reduces the state's interest cost.

Finally, the bond issue also included $17.5 million in regular tax-exempt bonds, in which the purchasers get income tax benefits, which also works to reduce the state's borrowing rate.

Burnett did not provide individual interest rates and was unavailable for comment Monday.

The Department of Revenue said that about $9 million of the tax exempt bonds were placed with Alaska retail accounts.

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