For the first time since the fiscal crisis 30 years ago, Louisiana government got permission to make a short-term loan to tide the state over for the next few months.
“We’re getting low on cash,” state Treasurer John N. Kennedy told the Joint Legislative Committee on the Budget on Thursday afternoon. He asked to pursue a bond sale to raise $254.9 million for paying everyday bills on construction projects.
The plan is to borrow the money for six to nine months. The state then would return to the usual procedure and take out a larger loan that would be repaid over a much longer period.
The State Bond Commission approved the maneuver Thursday morning, and legislators did so in the afternoon.
The Joint Budget panel needed to OK the deal because Kennedy’s proposal — shortterm and negotiated — differs from the usual general obligation bond issue.
Kennedy said the state is burning through money to pay for construction of new buildings, bridges, parks, renovations and other capital projects at a clip of about $45 million per month.
At that rate, the escrow account used to pay ongoing bills for “capital outlay” projects will run out in March or April, he said.
Borrowing the money shortterm would allow the state to refill that account to about $375 million, which won’t need replenishing until September, he said.
Kennedy said this idea was last used in 1987 when the state’s operating budget — which pays salaries and other day-to-day governmental expenses — didn’t have enough revenues to pay the bills.
Money for this year’s operating budgets are short — about $2 billion in the red — but there are enough accounts from which government can borrow to pay its daily expenses.
This short-term loan would be for the construction budget, rather than the operating budget.
The more conventional, longer-term bond sales require a disclosure to investors explaining the state’s financial situation.
With all that is happening now — plummeting oil prices, state budget deficits and the like — Kennedy said, “it will be very difficult to put that document together.”
Renee Boicourt , of Lamont Financial Services Corp., called the bridge loan the best strategy at this point.
The incoming administration of Gov.-elect John Bel Edwards and the new Louisiana Legislature are promising to shore up the state’s teetering financial structure.
The deficit for the coming fiscal year is now about $1.8 billion, according to Senate President John Alario, R-Westwego.
“We wouldn’t be doing it this way if we weren’t changing administrations and were in a more secure situation,” Kennedy said, adding that the situation should stabilize by summer.
Kennedy and his staff are negotiating with three investment bankers for the best rates and terms on the bonds.
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