Most of the bonds that will fund the I-JOBS program were sold this week, and Iowa’s solid credit rating fueled strong investor interest. According to State Treasurer Michael Fitzgerald,
investor enthusiasm and high market demand for the Iowa bonds helped drive down the interest rate to 4.31 percent, which resulted in a $42 million yearly payback for the state and a roughly $12 million annual savings over what originally was budgeted to repay the borrowing. […]
“Investors were impressed with the state of Iowa and put their money on the table to show it. There was strong support for the bonds from Iowans and from national institutional investors,” he added.
“This is where our balanced budget, our surpluses that we have and our history of running the state – we’re not California or even Minnesota or Wisconsin or New York right now. All those states are having trouble and we’re doing well,” the state treasurer said. “In fact, one of the investment bankers said Iowa is a refreshing contrast to the other states that have been coming to the market.”
Over $600 million of the I-JOBS bonds have now been sold. Another $115 million of bonds will be issued in 2010.
Speaking to me by phone today, Fitzgerald explained that the I-JOBS bonds are rated AA (a notch lower than the state of Iowa) because they will be repaid out of gaming revenues. We would have had to issue A-grade bonds if Iowa were like other states, which have exhausted their reserve funds and are borrowing simply to meet budget obligations. Investors liked the fact that the I-JOBS bonds will fund capital improvements and not ongoing government spending, Fitzgerald said.
Republicans like Iowa House minority leader Kraig Paulsen and Iowa Senate minority leader Paul McKinley have discounted the importance of Iowa’s AAA bond rating. It’s clear today how wrong they were. If Iowa’s overall financial condition were not strong enough to warrant the AAA bond rating, repaying the I-JOBS bonds would cost $55 million annually instead of $43 million.
A press release from the governor’s office noted that Iowa is among just 11 states that have a AAA bond rating. I’ve posted the full text of that release after the jump.
Once the proceeds from the I-JOBS bonds come through next week, funds will be available for various infrastructure projects, from renovating the Iowa Veteran’s Home in Marshalltown to rebuilding flood-damaged facilities to upgrading sewer systems around the state. Those projects will create jobs while improving the quality of life in many communities.
Press release from the governor’s office:
Thursday, July 16, 2009
Culver, Fitzgerald: I-JOBS Bond Sale Saves Iowa Millions
DES MOINES – Governor Chet Culver and State Treasurer Mike Fitzgerald announced today that the sale of $601 million in bonds for I-JOBS has been completed, and the result will save the State of Iowa millions of dollars each year. These bonds represent the largest portion of funds for the $830 million I-JOBS initiative.
The State budgeted $55 million annually from existing gaming revenue to finance the I-JOBS bonds without a tax increase. However, due to Iowa’s AAA bond rating from Standard & Poor’s, overall strong financial position, and the structure of the bonds, the annual debt service on the bonds will be approximately $43.2 million, which is funded by existing state gaming revenues.
Iowa is one of only 11 states in the nation with a AAA bond rating. Standard & Poor’s re-affirmed Iowa’s rating on June 30.
“Iowa’s strong fiscal management means we can take steps to create jobs and improve our economy that few other places across the nation can do,” said Governor Culver. “And thanks to our strong fiscal management, it means we can take bold action to move our state forward while saving Iowa taxpayers millions of dollars in the process.”
“This underscores the importance of maintaining Iowa’s strong credit rating,” added Treasurer Fitzgerald. “Investors are impressed with the state of Iowa and put their money on the table to show it. Investor confidence drove the interest down.”
Proceeds from the bond sale will be transferred to the State on July 22 in order to begin the effort of creating and retaining jobs and improving public infrastructure projects throughout Iowa.
The Culver/Judge I-JOBS program will invest $830 million over the next two years to create and retain jobs, strengthen the economy, recover from last year’s natural disasters, and improve Iowa’s infrastructure. The funds will be used to upgrade Iowa’s roads and bridges, invest in renewable energy projects, improve water quality, and upgrade public facilities such as the Iowa Veterans Home. I-JOBS is funded with existing gaming revenue, meaning no increase in taxes.
For more information about I-JOBS, visit www.ijobsiowa.gov