Meeting Minutes
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State Finance Committee Meeting Minutes |
           
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May 24, 1996The State Finance Committee met in special meeting after notice duly given to the press and radio of Thurston County.
The Chairman called the State Finance Committee to order. He stated the first order of business was adoption of the minutes of the January 23, 1996 meeting. Governor Lowry moved that the minutes for the meeting of January 23, 1996 be approved. Lt. Governor Pritchard seconded the motion. The motion passed and the minutes were adopted. Mr. Sheeran spoke to proposed Resolution No. 836. Resolution No. 836 authorizes the issuance and sale of $301,225,000 State of Washington General Obligation Bonds as a combined offering comprised of $200,000,000 Various Purpose General Obligation Bonds, Series 1997A and $101,225,000 Motor Vehicle Fuel Tax General Obligation Bonds, Series 1997B. He stated the sale of Series 1997A bonds would provide financing for a variety of projects for which appropriations and reappropriations have been made in the 1995-97 capital budget. Ongoing construction projects include, but are not limited to, the Puget Sound branch archives for the Secretary of State ($6.7 million), Larch, Cedar Creek, and work ethic camps for the Department of Corrections ($22 million), Tacoma branch campus and electrical and electrical engineering buildings for the University of Washington ($115.5 million), the Deception Pass sewer project for the Parks and Recreation Commission ($3.1 million), and Black Hall at Central Washington University ($26.4 million). Mr. Sheeran continued by saying transportation projects for which bond proceeds will be raised from the sale of the 1997B bonds include “jumbo” ferry design and construction (the MV “Tacoma” for $38 million), emergency repairs of state highways ($6 million), and federal demonstration projects ($6.15 million). Also included will be major improvements to State Highway 18 between Auburn and Interstate-90 and the North Spokane Corridor (U.S. Highway 2). He also stated the bonds would be sold by competitive bid at public sale and Ms. Cynthia Weed of Preston Gates & Ellis had been appointed as bond counsel by the Attorney General. He stated that this bond sale should provide sufficient funding for capital projects until the next sale which is tentatively scheduled for February 1997. The Series 1997A and Series 1997B bonds would be scheduled for competitive sale on June 25th. General discussion followed focusing on expected interest rates, the potential use of insurance, call provisions and other market factors which might impact the cost of the upcoming sale. Mr. Sheeran presented proposed Resolution No. 836 to the committee.
Resolution No. 836 authorizing the issuance and sale of $301,225,000 State of Washington General Obligation Bonds, as a combined offering composed of (a) $200,000,000 State of Washington General Obligation Bonds, Series 1997A, authorized by RCW chapters 43.99H, as amended, 43.99I, as amended, 43.99J, as amended, and Chapter 17, Laws of 1995, 2nd special session, and (b) $101,225,000 State of Washington Motor Vehicle Fuel Tax General Obligation Bonds, Series 1997B, authorized by RCW chapters 47.10.761, 812, 819(1), 834, and 47.60.800. Lt. Governor Pritchard moved the adoption of Resolution No. 836. Governor Lowry seconded the motion and the resolution was adopted. Chairman Grimm requested Mr. Kerr to review the next agenda item. Mr. Kerr spoke to proposed Resolution No. 837. He explained that in July of 1993, after a bid process, the State and U.S. Bank of Washington, N.A. signed a three year Master Financing Contract (MFC). Initially, the MFC provided lease/purchase financing for up to $35 million in real and personal property. In July 1995, the State Finance Committee increased the ceiling level to $50 million. Mr. Kerr stated that the Treasurer’s Office staff was looking at alternative methods of future financings and current funding needs. Because of these ongoing evaluations, staff is recommending that the State not solicit bids for a financing arrangement at this time, but extend the present contract until June 30, 1997. In addition to authorizing the extension of the MFC, the proposed resolution increases MFC financing capacity from its current $50 million to $75 million. This will enable the lease/purchase program to meet agency financing needs over the next year. Mr. Kerr also stated that Mark Dean, representing U.S. Bank and Cynthia Weed, bond counsel, were present if there were any questions. Mr. Sheeran presented proposed Resolution No. 837 to the committee.
Resolution No. 837 authorizing an extension of the Master Financing Contract between the State of Washington and U.S. Bank of Washington, N.A., to June 30, 1997, and increasing the authorized amount from $50,000,000 to $75,000,000, pursuant to RCW 39.94. Governor Lowry moved the adoption of Resolution No. 837. Lt. Governor Pritchard seconded the motion and the resolution was adopted. Mr. Sheeran stated there would be additional Lease/Purchase resolutions presented for consideration by the committee. These would involve financings for an interchange on Interstate-5 near DuPont (a “63/20” financing for Weyerhaeuser) and projects for Washington State University. He also stated that staff would provide updated data on all financings undertaken to date as required by the reporting guidelines. Chairman Grimm passed out a handout relating to proposed Resolution No. 838 which would create an independent committee to provide oversight of the investment practices and management of State funds undertaken by the Treasurer’s Office. Chairman Grimm stated that proposed Resolution No. 838 be held until another committee meeting so that the members have more time to review the material. Mr. Sheeran stated that planning for the 1996 college savings bonds was in progress and the sale would be in October. He also stated that in 1993, $30.8 million in college savings bonds were sold, in 1994, $66.8 million, and in 1995, $19.1 million were sold. The lower amount in 1995 was probably due to the rates being the lowest in a number of years. It is anticipated that the 1996 sales will be closer to $50 million. That total will be adjusted at the time of the sale to accurately reflect buyer interest. Merrill Lynch was selected as senior manager of the selling group for the last two sales. They were selected by an RFP process which is proposed to be used again to select the senior underwriter. The proposed motion would authorize the Treasurer to appoint a senior manager(s) for the program for a period of up to two years. The appointment would be made from the underwriting pool and the senior manager will work with the Treasurer’s Office to prepare the negotiated sale. A future resolution will be presented to the State Finance Committee for consideration. Mr. Sheeran presented the proposed motion:
“That the Chairman appoint a senior manager(s) for up to a two year period and form a selling group to undertake the marketing and negotiated issuance and sale of $50 million State of Washington college savings bonds in the Fall of 1996, subject to State Finance Committee approval.” Lt. Governor Pritchard moved adoption of the motion. Governor seconded the motion and the motion was adopted. Mr. Sheeran addressed the revised May 19, 1996, copy of the Debt Issuance Policies which were originally adopted in November, 1994. The revised policies reflect three proposed changes. Mr. Fallis of the Attorney General’s Office had recommended some technical reference corrections to RCWs and chapter citations. This change included deleting obsolete language regarding ethics and standards of conduct. The second change adds additional disclosure provisions for the selection of financial and legal professionals doing or seeking to do business with the state. These new provisions require the disclosure of persons or firms engaged to promote their selection for state business. The third change was discussed at the January 23, 1996 meeting and amends the policies to provide explicit steps for the issuance of variable rate debt including steps undertaken to select liquidity providers. Governor Lowry moved adoption of the revised Debt Issuance Policies. Lt. Governor Pritchard seconded the motion and the revised Policies were adopted. Next, Mr. Kerr explained that staff work had commenced on the fiscal agent contract. The current contract expires in February 1997. Consequently, the Treasurer has appointed a local government working group to assist the staff in developing an RFP and the evaluation criteria. The Fiscal Agency Working Group is comprised of representatives of the Association of Washington Cities, Washington Finance Officers Association, Washington Municipal Treasurers Association, Washington Association of County Treasurers, the Public Ports Association, and the Public Utility Association. The Attorney General’s Office has been working with bond counsel to perfect technical language. Mr. Kerr stated he expected to have the RFP sent out the first of July, responses returned in early August, and the selection of a fiscal agent bank made around Labor Day for the February 1997-2001 contract period. He further stated that 39 counties and 310 cities/towns had been notified of the process in an effort to encourage communication. Chairman Grimm questioned the benefit of having a single fiscal agent. Mr. Sheeran stated that in the first two years of the contract, $2.6 million was paid to the fiscal agent bank with $8 million in earnings returned to issuers. He also stated the current contract was going well. Mr. Kerr stated that the current fiscal agency bank was customer oriented and was working well. Mr. Sheeran spoke to Chairman Grimm’s memo to Governor Lowry and Lt. Governor Pritchard on the “Selection of Underwriting Firms.” He went on to explain the RFP process used in naming firms to serve in the underwriting pool(s) for the state’s bond and certificate of participation financings. An RFP was sent to 30 firms in February with a due date of March 8. Twenty-seven firms responded and fifteen firms were selected to serve in negotiated issues. The evaluation team consisted of Dean Torkelson, Darlene DeRose, Susan Musselman, Ann Daley, Scott Sheeran, Tim Kerr, Lynn Rodeheaver and Svein Braseth. The selection process resulted in the addition of Dain Bosworth to the co-managing bond underwriting pool and the dropping of First Chicago. In addition, a new co-senior category was created which includes Prudential; PaineWebber; and Artemis. The Senior Manager Pool is unchanged and includes Goldman Sachs; Merrill Lynch; Lehman Brothers; and Smith Barney. Chairman Grimm asked which firms were minority or woman owned. Mr. Sheeran responded by saying E.J. De La Rosa, Grigsby Brandford, Artemis and Smith Mitchell were minority or woman owned. Mr. Sheeran stated that the financial advisor contracts for the bond program with Seattle Northwest Securities and P.G. Corbin and for the lease/purchase program with Piper Jaffray had been extended for an additional two years. The extensions were permitted under the original contracts (verified by the Attorney General’s Office) and based on excellent performance by all firms over the last two years. Mr. Sheeran also stated that at the end of the two year extension, an RFP process will be utilized to select advisors. Mr. Sheeran spoke to the handout on variable rate bond financing. Several tables and graphs were presented. To date, the variable rate bonds sold in February of 1996 have saved the State almost $800,000 from what would have occurred if the same bonds had been sold at fixed rates on the same date. Chairman Grimm thanked staff for the report and stated his pleasure that the variable rate program was living up to initial analysis. Mr. Sheeran cautioned that the performance should be viewed over a period of time to accurately reflect results. Ms. Daley thanked the staff of P.G. Corbin for the presentation they produced for the meetings with the rating agencies and financial investors held in New York City and Boston. She stated that it was the best effort to date. There were two meetings in New York and one meeting in Boston. The senior underwriters were asked to host the meetings and the same presentation was given at each meeting. Ms. Daley stated the major points of the presentation were: (1) Washington State’s economy is increasingly healthy and is becoming more stable and diversified. This has been due mostly to the Microsoft employment growth which has offset the loss of jobs in the aerospace industry and the fact that software wages and salaries are higher than Boeing’s wages and salaries. (2) Washington State faces the challenge of managing the budget within Initiative 601’s constraints. The rating agencies and financial investors were asked to give input on our state’s budget process and gave positive report cards. Ms. Daley stated in the early 1980’s this state put into action the recommendations made at similar meetings which resulted in strong present day ratings. (3) The Treasurer’s Office homepage on the Internet was displayed to investors, focusing on information or pages of interest to the investors. Ms. Daley stated they received extremely positive responses, i.e., “...had one of the best sites seen...,” “easy access.” Chairman Grimm stated he would like to see the committee’s minutes be available on the Internet. Since there can be a lengthy period of time between State Finance Committee meetings where the previous minutes are approved, he suggested making a draft of the minutes available on the Web Site after having been reviewed by the committee members. Chairman Grimm also stated he would like to see the state maintain its commitment to meeting with the rating agencies. Mr. Sheeran stated that Gary Robinson, Office of Financial Management, and Chang Mook Sohn, Economic Forecast Council, did a very good job and contributed to the very successful presentations. Chairman Grimm thanked Governor Lowry and Lt. Governor Pritchard for their patience and time in the length of the meeting and discussion of numerous topics. There being nothing further to come before the committee, the meeting was adjourned at 10:25 AM.
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