La. Officials Consider Short-Term Bridge Construction Loan

Without an influx of new cash, Louisiana will start running out of money for projects at the beginning of February.

📅   Tue October 27, 2015 - Southeast Edition
Melinda Deslatte - ASSOCIATED PRESS


Louisiana traditionally finances items in the state construction budget by selling bonds to investors.
Louisiana traditionally finances items in the state construction budget by selling bonds to investors.

BATON ROUGE, La. (AP) Louisiana officials said Oct. 15 they are considering a short-term bridge loan to keep money flowing to state-financed construction work, while the next governor starts to dig the state out of its budget mess.

Without an influx of new cash, Louisiana will start running out of money for projects at the beginning of February, the state Bond Commission was told.

“We need to do something by January or else we have to shut projects down,’’ said Treasurer John Kennedy, chairman of the commission.

No decisions were made Oct. 15.

But the commission, which oversees construction spending, agreed to let Louisiana’s financial advisers explore if it could be less expensive for the state to borrow money over six months rather than with a long-term bond sale.

“I don’t have any problems going and looking at what is the state’s cheapest way,’’ said Senate President John Alario, R-Westwego, who will be returning with the new Legislature in January.

Louisiana traditionally finances items in the state construction budget — like building repairs, economic development projects, roadwork, park improvements and lawmakers’ local projects — by selling bonds to investors for upfront cash, with the debt paid off over decades.

State financial adviser Renee Boicourt, with Lamont Financial Services Corp., said Louisiana’s financial uncertainty amid the transition to a new governor’s administration and continuing budget gaps could make investors jittery.

Whoever is elected this fall as Louisiana’s next governor will walk into immediate troubles in mid-January. Louisiana ended last year with a deficit that needs to be closed, gaps have appeared in this year’s budget and a more than $700 million shortfall is on the horizon for next year. It’s unclear whether term-limited Gov. Bobby Jindal, running for the Republican presidential nomination, will work to lessen some of the problems before leaving office.

Boicourt said those financial concerns could boost interest rates that would be locked in for 20 years if the state did a traditional bond sale in January, making it more expensive for the state to pay off the debt.

“To some degree, the investors may demand what I’ll call an uncertainty penalty,’’ she said.

Short-term bridge financing could give the new governor and new Legislature time to work through the state’s budget problems.

The mechanism being explored involves something called a bond anticipation note. The state would sell it for an infusion of cash to pay for construction work, then sell bonds six months or more later to pay off the bond anticipation note and pour new money into the construction account.

Asked the possible downside of the approach, Boicourt said if interest rates for the general obligation bond market spike in the interim, a bond sale later in the year could become more expensive.