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PA borrows $1 billion, cheap, for roads, prisons

PA gets low interest rates, but rating agencies worry tax collections are down

"A little good news. You can all cheer up," says Gov. Ed Rendell. "We just got word from the market that PA today completed a $1 billion bond sale that was the nation's largest competitively bid bond sale since the markets collapsed in 2008," and Pennsylvania's "lowest interest rate ever for any non-refinancing deal, a combined 3.13 percent for the two deals. It establishes, one, what (Wall) Street and the market thinks of Pennsylvania's stability, and two, the power of the (federally-subsidized) Build America Bonds program."

The money will be used for "bridges, prisons, to send orders to Pennsylvania factories," Rendell told reporters. "Tell the Attorney General," he added, noting that the AG, Republican gubernatorial candidate Tom Corbett, has been bad-mouthing Pennsylvania's financial status.

Bloomberg BusinessWeek called it "the biggest competitive sale of municipal debt in almost two years, as yields on such notes reach seven-week lows." In sum, "the commonwealth offered $548.9 million of Build America Bonds, which were awarded to Bank of America Merrill Lynch at a so-called true interest cost of 3.33 percent after the 35 percent interest rebate from the U.S. government provided under the program. The $451.1 million tax-exempt portion was awarded to JPMorgan Chase & Co. at a true interest cost of 2.51 percent."

Despite Rendell's cheerful statement, Bloomberg added, "Pennsylvania's bonds have a negative outlook at Moody's Investors Service and Fitch Ratings, which cite the commonwealth's declining fund balances as tax collections fall. Tax revenue in April totaled $390 million, or 12 percent below projections, according to the state Revenue Department. The shortage expanded the state's budget gap to almost $1 billion... Pennsylvania's notes are rated Aa1 by Moody's and AA+ by Fitch, the second highest grade, and one level lower, AA, by Standard & Poor's."