Colorado to issue $500M of road debt with $3.4B budget deficit looming


While the Colorado General Assembly determines how to cut $3.4 billion from its budget in the current and coming fiscal years, the state will price $500 million of certificates of participation for rural highways this week.

The COPs, rated Aa2 by Moody’s Investors Service and AA-minus by S&P Global Ratings, are scheduled to price Wednesday through negotiation, with B of A Securities serving as senior manager, and JPMorgan, RBC Capital Markets, UBS and Wells Fargo as co-managers. The tax-exempt debt matures through 2039, with a call option in 2030.

The holiday-shortened week is expected to produce about $3.5 billion of new issues in the muni market, according to Ramirez Municipal Strategies. Of that, about $760 million is taxable. The 30-day net market supply is estimated at a negative $21.2 billion.

The Colorado certificates, to be repaid through appropriation, were authorized in 2017 with the passage of Senate Bill 267 that allowed up to $2 billion of issuance. The state, which does not carry general obligation debt, has already issued $1 billion.

With general fund revenues expected to drop by 7.5% in the fiscal year beginning July 1, the General Assembly returned to Denver Tuesday with plans to cut about $3.3 billion of spending. On May 18, Gov. Jared Polis said the state would receive about $1.7 billion from the federal CARES Act designed to offset revenue losses due to the COVID-19 pandemic and the economic shutdown designed to reduce transmission of the disease.

“This agreement quickly channels over $1.6 billion directly to our school districts, universities and local governments to help them retain first responders, support our health care workforce, protect our veterans and seniors and rapidly expand contact tracing so we can safely restart our economy,” said House Speaker K.C. Becker.

Lawmakers are expected to cut about $724 million in funding for schools in the next fiscal year budget, a reduction of about 14% in state funding compared to the current fiscal year. About a fifth of that sum would be taken from statewide programs and grants, including those that support school construction and upgrades. The rest would come from the “per pupil” funding that goes to each school district.

“S&P Global Ratings believes the state has the resources to manage through these challenges,” S&P analyst Ladunni M Okolo wrote in a May 18 report. “To maintain credit quality, it will need to take both revenue and expenditure actions to maintain structural balance in the fiscal 2021 budget, while ensuring adequate liquidity.”

General fund revenues are expected to decline by $1.8 billion, a 14% drop from 2019, to $10.8 billion in fiscal 2021.

State cash levels were above $3.8 billion at the beginning of fiscal 2020 or 30% of the general fund budget, analysts note.

“Despite recent market volatility, we understand Colorado does not have liquidity pressures and expects to be able to redeem its $1.4 billion total outstanding notes due at the end of fiscal year 2020,” per S&P, which maintains a stable outlook on the credit.

“We believe Colorado’s history of making midyear budget corrections when necessary during weak economic periods, close quarterly budget monitoring, and good reserves position the state to manage through these challenges,” analysts said. “However, we expect fiscal management to be difficult but manageable for the foreseeable future as effects of the current recession mount.”

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