Volume I, No. 18

March 19, 2009

Pooled Money Investment Board Update

By Duwayne Brooks

The Pooled Money Investment Board (PMIB) met on March 18, 2009. Their agenda included a discussion of the impact of the state’s cash management requirements on the current freeze of AB 55 loan disbursements for public works projects.

Staff reported that, as of March 16, 2009, there was $6.2 billion in outstanding AB 55 loan disbursements from the PMIA.

On March 13, 2009, the State Treasurer announced that it is planning to issue approximately $4 billion of tax-exempt GO Bonds on March 25, 2009. If the sale is successful $3.83 billion would be used to pay down the AB 55 loan expenditures that are eligible for tax-exempt financing. Any remaining proceeds would be used to provide direct upfront financing (as opposed to funding from the AB 55 loan proceeds) of GO bond projects eligible for tax-exempt financing that have been impacted by the AB 55 loan freeze.

The State Treasurer is exploring a second taxable GO bond sale toward the end of April. Those proceeds would be used to:

1. Pay down $1 billion of outstanding taxable AB 55 loans.
2. Provide a yet-to-be determined amount of upfront direct funding for taxable GO bond projects that have been impacted by the AB 55 loan freeze.
3. Provide a yet-to-be determined amount of upfront direct funding of GO bond projects eligible for tax-exempt financing.

The tax-exempt projects might be able to take advantage of the federal Build America Bonds program that allows state and local governments to issue taxable bonds for projects that are otherwise eligible for tax-exempt financing and receive a rebate from the federal government representing 35% of the interest cost for the life of the bonds. The Treasurer will consult with the Department of Finance on this possibility.

The Treasurer also is working on two lease revenue bond issues to be sold in April that would result in repayment of approximately $389 million of AB 55 loan expenditures.

Staff reported that the best case scenario for the PMIA would be repayment of $5.2 billion of AB 55 loan expenditures by the end of April, leaving $800 million to be repaid from future bond sales. In addition, $1.3 billion of outstanding GO commercial paper notes still need to be repaid from future bond sales.

The PMIB agreed to the following:

1. Continue the freeze on AB 55 loan disbursements except for the remainder of the $650 million authorized at the January 16, 2009 PMIB meeting and an additional $500 million to be released upon successful sale of $4 billion on March 25, 2009. The $500 million would be distributed to projects that are “the highest priority and are in the State’s best interest”, as determined by the Department of Finance.
2. Hold a special PMIB meeting the week of March 30 to consider the needs of the special funds and the liquid assets projected to be available in the PMIA.
3. Request the Controller and Treasurer to provide a recommendation regarding an additional amount of funds that could be made available for the AB 55 loan disbursements after the proposed GO bond and lease revenue bond sales in March and April.
4. Request the Department of Finance to provide a plan including its priorities for the restoration of funding for projects subject to the disbursement freeze, as the PMIB makes funds available for such restoration.

Staff recommended that the next PMIB meeting be held on April 3.