December 9, 1997

The State Finance Committee met in special meeting after notice duly given to the press and radio of Thurston County.

Present:

Michael J. Murphy, State Treasurer Brad Owen, Lieutenant Governor

Also Present:

Kay L. King, Office of the State Treasurer Svein Braseth, Office of the State Treasurer Andrew Campf, Seattle Northwest Securities Mike Clarey, Office of the State Treasurer John Fricke, Office of Financial Management Dean Torkelson, Seattle Northwest Securities Cynthia Weed, Preston Gates & Ellis Jay Kirkevold, Office of the State Treasurer Rusty Fallis, Office of the Attorney General Tim Kerr, Office of the State Treasurer

Chairman Murphy called the meeting to order.

Lieutenant Governor Owen moved the minutes for the December 2, 1997, meeting be approved.  Chairman Murphy seconded the motion.  The motion passed and the minutes were adopted.

Mr. Kerr introduced proposed Resolution No. 872 which provides for the acceptance of a bid for the purchase of General Obligation Bonds (State Housing Trust Fund), Series 1998T (Taxable) of the State in the aggregate principal amount of $51,175,000; fixing the interest rates and designating serial and term bond maturities for the bonds; all in accordance with Resolution No. 868.  Information soliciting competitive bids for this financing has been circulated through publication of a preliminary official statement and advertising in the local and national financial press.  Notice has also been given to the market electronically through the Bloomberg Financial Information network and the State Treasurer’s Web Page on the Internet.

The proceeds from the sale of these bonds are to be used to fund legislative appropriations made to the Department of Community, Trade and Economic Development to make loans for the provision of low-income housing.  These loans fail certain tests of eligibility for tax exempt financing, therefore the proposed bond issue is taxable.

The state’s routine tax-exempt financing is structured as 25-year serial bonds.  This proposed bond issue is a 10-year loan which reduces the overall interest cost to the state and provides maturity amounts in block sizes sufficient to interest investors ($5 million or more in the last five maturities).  Taxable municipal bonds and corporate bonds are sold on a spread to respective U.S. Treasury maturities.  Treasury obligations are rated “AAA” while the state of Washington’s bonds are rated “Aa1” and “AA+”.  Thus, for example, in the current market, the five-year Treasury has a yield (interest rate) of 5.77 percent and a generic “Aa1” municipal bond a yield of 6.07 percent—a spread of 30 basis points (1/3 percent).

This serial bond issue is made up of a set of maturities from 1 year to 10 years, each maturity with a spread off its equivalent Treasury maturity.  A very conservative true interest cost (TIC) estimated bid of the proposed bond issue this week was 6.45 percent.  This is 135 basis points above the 5.10 percent tax-exempt rate received last week on the $165 million in bonds sold.

Mr. Kerr stated the apparent low bidder was Prudential Securities, Inc., with a true interest cost of 6.4211.  Morgan Stanley submitted a true interest cost bid of 6.441, Goldman Sachs submitted a true interest cost bid of 6.4426, Wheat First submitted a true interest cost bid of 6.4534, Lehman Brothers submitted a true interest cost bid of 6.4583, Dain Bosworth submitted a true interest cost bid of 6.4643, Merrill Lynch submitted a true interest cost bid of 6.4737, and Paine Webber submitted a true interest cost bid of 6.4821.  Raymond James submitted a true interest cost bid of 6.6751, but the bid was submitted 11 minutes after the bidding time had expired.  Mr. Kerr also stated that all bids conformed to the official notice of sale.

Mr. Kerr presented proposed Resolution No. 872 to the committee.

Resolution No. 872 providing for the award of sale of $51,175,000 State of Washington General Obligation Bonds (State Housing Trust Fund), Series 1998T (Taxable), authorized by Chapter 39.42 RCW, Chapter 456, Laws of 1997, Reg. Sess., and State Finance Committee Resolution No. 868.

Chairman Murphy moved to accept the bid from Prudential Securities, Inc., and adoption of Resolution No. 872.  Lieutenant Governor Owen seconded the motion and the resolution was adopted.

There being nothing further to come before the committee, the meeting was adjourned at 9:09 AM.

	STATE FINANCE COMMITTEE STATE OF WASHINGTON   _______________________________________ Michael J. Murphy, State Treasurer & Chairman   ________________________________________ Gary Locke, Governor   ________________________________________ Brad Owen, Lieutenant Governor
________________________________________ Tim Kerr Deputy State Treasurer & Secretary