General Obligation Bonds
Click here for the Official Statements.
General Obligation debt, which is backed by the pledge of the full faith and credit of the State, finances State-owned capital improvements, such as prisons and colleges, and various State capital grants to local governments and private non-profit organizations. Projects funded include local public schools, local jails, water treatment facilities, museums, rehabilitation of historic structures, and private treatment centers for the developmentally and physically disabled.
The State's General Obligation bonds have been assigned the highest credit rating by Moody's Investors Service, Inc. (Aaa), Standard and Poor's (AAA) and Fitch Ratings, Inc. (AAA). One of only eight states in the nation to hold a Triple-A credit rating from all three major credit rating agencies, Maryland's low interest rates are attributable to these superior ratings.
The Treasurer recommends the size, timing, and terms of sale of General Obligation bonds. This entails periodic analysis and surveys to determine the monthly cash balances of bond proceeds and project anticipated cash needs of State agencies and grantees for authorized capital projects. In recent years, the State has held sales semi-annually although if there are opportune market conditions, the State may issue more frequently as it did in late 2009. The Debt Management Division, in conjunction with the State's financial advisor, the Treasurer's counsel, and the State's bond counsel, coordinates the sale and all activities prior to the actual sale, including liaison with the bond rating agencies, the preparation and publication of statutorily required notices and advertisements, and the preparation and distribution of Official Statements. The preparation of Official Statements is primarily performed in-house, resulting in substantial savings to the State.
The State Treasurer's Office monitors market conditions and arranges the details of the actual sale, including the selection of the method of sale. In competitive sales, which are held at a Board of Public Works meeting, bids are transmitted electronically by underwriting syndicates and verified by the Office. The winning bid is then ratified at the meeting. In negotiated sales, underwriters, which are selected in a competitive procurement process, negotiate bond prices with the Office. Final pricing is incorporated in the Bond Purchase Agreement which must also be approved at a Board of Public Works meeting.
Finally, the State Treasurer's Office supervises all activities of post-sale settlement, the investment of the bond proceeds, compliance with Internal Revenue Service requirements for tax-exempt bonds, continuing disclosure and payment of debt service.
General Obligation Bond Issues in Fiscal Year 2010
There were six General Obligation bond sales in Fiscal Year 2010 totaling $1,939 million. The table on the following page summarizes the issues.
Of particular note in Fiscal Year 2010 was the issuance of bonds authorized by the American Recovery and Reinvestment Act of 2009 (ARRA). Build America Bonds (BABs) are taxable bonds on which the State receives a 35% interest subsidy from the US Treasury. Qualified School Construction Bonds (QSCBs) were also authorized by ARRA and were sold in the amount of $50.3 million on December 8, 2009. QSCBs are bonds with federal tax credits for the bond investor. Consequently, the State will pay no interest on these bonds.
Market conditions were very favorable for high quality and highly rated bonds like Maryland General Obligation bonds throughout Fiscal Year 2010. The True Interest Costs (TICs) in Fiscal 2010 were the lowest on new money issues in at least 20 years.
By refunding prior series of bonds and using the ARRA authorizations, the State realized a total of $62.2 million in present value debt service savings in 2010. The refundings saved $33.5 million. Compared to traditional tax-exempt bonds, the BABs and QSCBs saved $18.1 million and $10.6 million respectively.
The history of General Obligation bond issuance and debt service for the last ten years is depicted in the charts on the following page.
Summary of Fiscal Year 2010 Issues
New Money Issuances
(in millions)
| Series | Dates of Sales | Tax-Exempt Competitive (Institutional) | Tax-Exempt Negotiated (Retail) | Tax Credit | Taxable Direct Subsidy | Overall Tax Exempt TIC |
|---|---|---|---|---|---|---|
| 2009 Second Series A | 07/31/2009 & 08/03/2009 |
|
$235.0 |
|
|
3.20% |
| 2009 Second Series B | 08/05/2009 |
$200.00 |
|
|
|
2.92% |
| 2009 Second Series C BAB | 08/05/2009 |
|
|
|
$50.0 |
3.02% |
| 2009 Third Series A | 10/21/2009 |
$141.8 |
|
|
|
2.85% |
| 2009 Third Series B BAB | 10/21/2009 |
|
|
|
$58.2 |
3.06% |
| 2009 QZAB | 12/07/2009 |
|
|
$5.6 |
|
(a) |
| 2009 QSCB | 12/08/2009 |
|
|
$50.3 |
|
.04% (b) |
| 2010 First Series A BAB | 02/24/2010 |
|
|
|
$400.0 |
2.85% |
(a) The 2009 Qualified Zone Academy Bonds (QZABs) are special, federally-authorized tax-credit bonds that allow QZABs purchasers to receive federal income tax credits. In addition, the State will pay the purchaser a 1.6% supplemental coupon.
(b) The 2009 Qualified School Construction Bonds (QSCBs) are special, federally-authorized tax-credit bonds which allow QSCBs purchasers to receive federal income tax credits.
Refunding Bonds
(in millions)
| Series | Dates of Sales | Tax-Exempt Competitive (Institutional) | Tax-Exempt Negotiated (Retail) | Overall Tax-Exempt TIC |
|---|---|---|---|---|
| 2009 Third Series C | 12/07/2009 12/08/2009 & 12/09/2009 |
|
$602.8 |
2.61% |
| 2010 First Series B | 02/24/2010 | $195.3 |
|
2.97% |
The history of General Obligation bond issuance and debt service for the last ten years is depicted in charts in the Debt Management Reports section.
